The CII AF4 March 2025 Exam in Review

It’s now time for us to turn our attention to the March CII AF4 exam. The following will be useful reading for those preparing to sit AF4 in the near future.  

This article is correct as at 27 May 2025.

You can find the exam guide here.*  

Section A 

Question 1

The exam started with a case study that focused on Anna, an employee with various different investments made up of direct shares, held within and outside an ISA, as well as over £50,000 held in cash, some held directly in savings accounts but also within an ISA wrapper as money market funds.

The exam started nicely with candidates having to state the factors that would help establish Anna’s attitude to risk.  This was for five marks and should have been easily achievable by candidates studying at this level.

The next question was in three parts: a theory question on the differences between beta and alpha followed quickly by a calculation of alpha and finally commentary on what can be deduced from the resulting figure.  Beta and alpha have been tested numerous times before, so we feel sure the well-prepared candidate would have scored a good percentage of the overall 15 marks available.

The case study had informed us that Anna was heavily invested in pharmaceutical companies, and this was expressed as a concern.  Her adviser had suggested a thematic collective fund could meet her needs.  The next question tested this in terms of what the benefits and the drawbacks are of these funds.   This may not have been tested in the past, and it’s unlikely the supporting text books, R02 and J10, make too much reference to them, however, an experienced practitioner could have used their knowledge to offer a well-thought-through answer to gain many of the 8 marks on offer.

Money markets were tested next and in particular the definitions driven by regulation, which may have been less easy to accurately create an answer for if the knowledge had not been learned in revision sessions.  In part (ii) of this question, the main differences between futures and options derivatives were tested.

Next, it was the investor biases, that Anna was displaying due to her attachment to pharmaceutical companies, that were tested.  Behavioural finance is often tested in the exam, and the case study gave all the information necessary to answer the question.

The expected question on the economy was next; this time the current account, capital account and the five main roles and functions of a central bank were tested, and again, these subjects have been tested before.

The next question was a calculation; for 13 marks, candidates had to calculate the net income that Anna could generate from each of her assets if she took the interest and dividends.  Anyone who had recently taken a tax exam may have been very pleased with the number of marks available here, and we suspect high marks were awarded all round.

Finally, candidates had to explain three differences between an interim and a fixed dividend as well as identify the factors that would cause a price increase in a share.

Overall, this seems a very fair first question covering many familiar topics with a good spread from the syllabus.

Here's a review of the Mar 25 #CII #AF4 exam. Share on X

Section B

Question 2 

In this case study, we were introduced to Brenno and Diane, who we were told had enough pension income for their fixed retirement spending but wanted to create additional income for discretionary expenditure.  They each held a number of collective funds on a platform.

Firstly, candidates had to describe the main differences of the Dow Jones Industrial Average Index and the Standard and Poor’s 500 US stock market indices and also identify the reasons why a UK investor would consider investing in a US equities fund.   The first part of the question may have been challenging as often this level of detail is not expected; however, the second part should have recovered some marks for most candidates.

Next, there was a question on investment theory with this exam testing the strong form efficiency of the Efficient Market Hypothesis.

Another calculation followed, firstly the real value of Diane’s fund at retirement (taking into account inflation) and then the compound annual return of the total portfolio.  Both of these calculations are challenging, but this was balanced with other less complicated calculations within the paper.

Next, candidates were asked to identify four reasons why switching to a volatility managed fund might be more suitable for Brenno than switching to a Global Equities Managed fund.  Again, if candidates had used the information from the case study, they should have scored adequately.

Next, was another three-part question; firstly candidates had to describe the factors relating to the rebalancing process that an adviser would consider; then investment-related factors that might trigger a need to rebalance a portfolio and finally the benefits and drawbacks of rebalancing.

Overall, this was a nice question to end Question 2.

Question 3 

Finally, the last question, and in this case study we met Marek who was due to retire in the next three months.  He wanted to generate income for the long term and had a need in retirement for £36,500.   Within his portfolio, he had both directly held gilts and investment grade corporate bonds, both held in a GIA.

Firstly, candidates had to describe the main differences between the coupon, running yield and redemption yield of a fixed-interest security and also calculate the redemption yield for the gilt.  This should have been a dream question as this is tested often and should have been practised well.

Next, commentary was asked for on Marek’s target yield and the suitability of the fixed-interest assets to meet his income need.

Another factors question followed: the investment-related factors that would need to be taken into consideration when assessing a sustainable withdrawal rate.

A question on risk followed: the investment-specific risks that the portfolio was exposed to and reasons for each of them.

And the final question had two parts; firstly, a calculation was requested of the theoretical share price using the dividend discount model, and lastly, candidates had to identify the factors that should be taken into consideration when using a dividend discount model.

Overall, this appeared to be a fair and well-balanced exam paper, which covered questions on familiar areas tested many times in the past, which is always helpful when students are using exam guides as part of a well-structured revision plan.  Although AF4 is sprinkled with calculations throughout, this time round they seemed overall kinder than some previous sittings.

Comparison with the October 2024 Exam Paper 

Let’s look at what was tested in October 2024’s paper. This question paper can be found here. 

The topics covered were: 

• Tax treatment of withdrawals from bonds and GIAs
• Macaulay duration
• Regression analysis
• Money-weighted rates of return/drawbacks of MWR
• Structured products and risk
• NS&I Income Bonds
• CAPM
• Fund of funds vs managed portfolio service
• Return objectives
• Types of benchmark
• Operating profit margins and ROCE
• Working capital ratio
• Current and non-current assets on a balance sheet
• Listing criteria between AIM and the UK main market
• Permissible investments within an IFISA

The October 2024 paper contained some less frequently tested areas which would perhaps have caused some candidates in that sitting some difficulties.  Anyone having to re-sit October would have found the March paper infinitely kinder.

Grab the resources you need!

If you’re studying for your CII AF4 exam, and you’re wanting some extra practice, grab our free taster to try out one of Brand Financial Training’s resources for yourself.  Click the link to download the AF4 mock paper taster now!

* The CII has updated their retention policy and now only provides the last two exam papers. Older papers referenced in this article may no longer be available on the CII website.