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1

Martin, an IFA, is selecting a platform for his client Paul. The area that is LEAST likely to be a major consideration is the:

Select one:

a. range of investments available.

b. cost to the client.

c. range of tax wrappers offered by the platform.

d. past performance of the investments.

 

 

d. past performance of the investments.

 

chapter reference 9A1I

2

At the start of a client relationship an adviser should provide the client with information about the scope of the services that are being offered and the cost of any work that the adviser will carry out. This information is usually contained in the:

Select one:

a. client agreement.

b. FCA rule book.

c. key features document.

d. sales literature.

 

 

a. client agreement.

 

chapter reference 9A1A

3

James wishes to take an ethical approach with his investments, which means that he:

Select one:

a. may take advantage of both positive and negative screening.

b. can expect to pay higher fees than non-ethical investments.

c. will only be able to take advantage of positive screening.

d. will have to make all investment decisions himself.

 

 

a. may take advantage of both positive and negative screening.

 

chapter reference 9A1G

4

Which of these clients has the lowest risk portfolio?

Select one:

a. Andrew, with an equal mix of emerging market bond funds and smaller company funds.

b. Jan, with an equal mix of equity income funds and gilt funds.

c. Neil, with an equal mix of equity income funds and high-yield bond funds.

d. Paul, with an equal mix of equity income funds and alpha funds.

 

 

b. Jan, with an equal mix of equity income funds and gilt funds.

 

chapter reference 9A1F

5

If Stevie has an investment which does not depend on investment performance, it must be a[n]:

Select one:

a. stocks and shares ISA.

b. defined benefit pension fund.

c. personal pension scheme.

d. OEIC.

 

 

b. defined benefit pension fund.

 

 chapter reference 9B1

6

Michael's portfolio manager has changed the asset allocation in his portfolio to align it closer to his risk profile. This process is best described as:

Select one:

a. netting.

b. switching.

c. rebalancing.

d. encashing.

 

 

c. rebalancing.

 

chapter reference 9C4

7

Juliet, an ethical investor, only wishes to invest in companies that avoid dealing in alcohol and tobacco. The process she is adopting is best known as:

Select one:

a. negative screening.

b. positive screening.

c. ethical screening.

d. green screening.

 

 

a. negative screening.

 

chapter reference 9A1G

8

A cautious investor is considering some funds to include in their portfolio. Which of the following funds would be considered to be lower risk?

Select one:

a. Gilt funds.

b. High-yield bonds.

c. Emerging market bond funds.

d. Alpha funds.

 

 

a. Gilt funds.

 

chapter reference 9A1F

9

If Emilia is seeking the value of her investment to rise from both capital gains and the reinvestment of income, she is looking for:

Select one:

a. capital preservation.

b. capital erosion.

c. total return.

d. capital appreciation.

 

 

c. total return.

 

chapter reference 9B1B

10

Akeel took out a personal pension in May 2020. Generally, the best time to review this would be:

Select one:

a. between November 2020 and May 2021, then annually thereafter.

b. at Akeel's request only.

c. June 2020 and then quarterly thereafter.

d. August 2020 and then half yearly thereafter.

 

 

a. between November 2020 and May 2021, then annually thereafter.

 

chapter reference 9A1K

11

With an investment portfolio, a withdrawal rate of 4% means that this level of income can be taken:

Select one:

a. and the value of the portfolio should last around 20 years

b. adjusted for inflation, whilst maintaining the value of the portfolio.

c. whilst maintaining the value of the portfolio.

d. adjusted for inflation, and the value of the portfolio should last around 30 years.

 

 

d. adjusted for inflation, and the value of the portfolio should last around 30 years.

chapter reference 9C5

 

A body of research suggests that for many people in their 60s, an average withdrawal rate of over 4% risks running capital running down to almost nothing before death - which is now not likely to occur until after the age of 90 for someone in good health. A study in the USA over 20 years concluded that 4% is a safe withdrawal rate; i.e. 4% is the highest percentage of the initial portfolio, adjusted for inflation each year, which can be taken without running out of money over a 30-year period. This is just a guide but can provide a useful foundation for advising clients on how best to ensure a fund does not run out during their lifetime.

12

Cath, an adviser, is attempting to establish the risk profile of her client, Mary. Cath has ascertained that if Mary were to lose 20% of her investment, her income will fall proportionately and her lifestyle will become uncomfortably constrained. Cath should record this as Mary's:

Select one:

a. capacity for risk.

b. capacity for loss.

c. tolerance of risk.

d. risk intolerance.

 

 

b. capacity for loss.

 

chapter reference 9A1D

13

Natalie has a balanced attitude to risk, but would like to aim for growth rather than income with her investment portfolio. The majority of her investment portfolio is most likely to be invested in:

Select one:

a. cash and property.

b. equities and property.

c. bonds and equities.

d. bonds and property.

 

 

c. bonds and equities.

 chapter reference 9C1

14

Eric is an investment adviser who is considering how to meet his client's investment objectives. Which of these facts would NOT be considered a constraint to his advice?

Select one:

a. His client would like him to include socially responsible investments.

b. His client has a cautious attitude to risk.

c. His client is a higher-rate taxpayer.

d. His client has a four year investment time horizon.

 

 

b. His client has a cautious attitude to risk.

 

chapter reference 9B2

 

In addition to establishing the investor's objectives, the investment advisor also needs to consider contstraints that impact the investment made in the portfolio. These include:

- time horizon;

- liquidity;

- tax;

- legal and regulatory factors: and

- unique needs and preferences

15

Wendy's portfolio has the largest percentage in equities and the lowest in cash. Her risk profile is most likely to be:

Select one:

a. risk-averse.

b. balanced.

c. adventurous.

d. cautious.

 

 

c. adventurous.

 

 chapter reference 9A1E

16

Whilst completing the fact-find, Julio learns that Sasha, his client, is very keen on environmental issues, especially alternative energy. When constructing his portfolio Julio should consider ethical funds using which technique for stock selection?

Select one:

a. Positive screening.

b. Negative screening.

c. Bottom-up screening.

d. Discrete selection.

 

 

a. Positive screening.

 

chapter reference 9A1G

17

If Shannon's investment portfolio consists of 75% equities, 10% property, 10% bonds and 5% cash her risk profile is most likely to be:

Select one:

a. growth.

b. speculative.

c. adventurous.

d. balanced growth.

 

 

c. adventurous.

 

chapter reference 9C1

18

Asha, 42, is risk-adverse and has only deposit-based savings. Bruce, 66, recently retired and lives off his investment income. Chloe, 26, wants to buy a house within the next two years. Dylan, 35, is a high-earner with surplus monthly income. Which client's objective is most likely to be capital appreciation?

Select one:

a. Dylan.

b. Bruce.

c. Asha.

d. Chloe.

 

 

a. Dylan.

 

chapter reference 9B1B

19

Charles, a new client, has existing investments of £200,000 and a medium attitude to risk. For which of these reasons could it be good advice to invest a new lump sum of £200,000 entirely in equities?

Select one:

a. He requires a fixed level of income.

b. All his current investments are in cash and gilts.

c. He is a higher-rate taxpayer.

d. He wishes to utilise his capital gains tax exemption annually.

 

 

b. All his current investments are in cash and gilts.

 chapter reference 9A1E

 

Medium-high risk: Cash allocation is kept to the minimum. The client will be prepared to invest outside the UK and in high risk funds. They will take a long-term view and may choose to sacrifice some diversification for a more focused and volatile portfolio.

20

Barry has a credit card with an outstanding balance of £10,000, a secured loan of £20,000 and a mortgage of £120,000. He has just won £50,000 on the lottery. Barry's highest priority with his winnings should be to:

Select one:

a. clear his credit card balance.

b. pay off his secured loan.

c. invest in the stock market.

d. pay £50,000 off his mortgage.

 

 

a. clear his credit card balance.

 

chapter reference 9B2E

21

To complete the full advice process, it is important that an adviser:

Select one:

a. implements the financial planning recommendations he has made to his client.

b. invoices his client with his financial planning fee.

c. continues to monitor the financial plan and the financial planning relationship with his client.

d. obtains referrals from his client.

 

c. continues to monitor the financial plan and the financial planning relationship with his client.

 

chapter reference 9A1

 

 

22

Whilst completing the fact-find, Holly learns that Zeb, her client, has very strong views on, and campaigns for, animal rights. When constructing his portfolio, which technique for selecting ethical funds would be most appropriate for Holly to consider?

Select one:

a. Green screening.

b. Positive screening.

c. Impact investing.

d. Negative screening.

 

 

d. Negative screening.

 

chapter reference 9A1G

23

Lewis keeps the cash he holds to a minimum. He has a varied portfolio of investments both in the UK and overseas. Although he doesn't hold any direct investments, some of his investments could be considered as quite volatile. His risk tolerance would best be described as:

Select one:

a. medium-high risk.

b. low-risk.

c. medium risk.

d. high-risk.

 

 

a. medium-high risk.

 

chapter reference 9B1A

24

Ed, an adviser, is attempting to establish the risk profile of his client, Joe. Ed has ascertained that Joe feels very uncomfortable about the possibility of his portfolio falling by 20%, although it would not directly affect him immediately. Ed should record this as Joe's:

Select one:

a. capacity for risk.

b. tolerance of risk.

c. risk tolerance limit.

d. allowance for loss.

 

 

b. tolerance of risk.

 

 chapter reference 9A1D/9B1A

25

Tracey is looking through the client agreement document given to her by her new adviser. From the document, she is LEAST likely to find information about the:

Select one:

a. firm's model portfolios.

b. frequency of expected contact.

c. nature of the service to be provided.

d. duration of the agreement.

 

 

a. firm's model portfolios.

 

chapter reference 9A1A

26

Charles, a new client, has some existing investments and a medium attitude to risk. It might be advantageous to invest a new lump sum entirely in gilts, if:

Select one:

a. he expects to start working overseas within twelve months.

b. he is a higher-rate taxpayer.

c. inflation is expected to decrease.

d. all his current investments are in cash and equities.

 

 

d. all his current investments are in cash and equities.

 

chapter reference 9A1E

27

Jeremy is an investment adviser who is considering how to meet his client's investment objectives. Which of these would NOT be considered a constraint to his advice?

Select one:

a. The fact that his client is a basic-rate taxpayer.

b. The fact that his client is divorced.

c. The fact his client wants to retire abroad.

d. The fact his client is a charity.

 

 

b. The fact that his client is divorced.

 

chapter reference 9B2

28

Darcy has recently received an inheritance that she is looking to invest. Her adviser has recommended phasing the investment over several months. This is to:

Select one:

a. minimise inheritance tax.

b. ensure that the investment strategy is not high risk.

c. mitigate capital gains tax.

d. potentially take advantage of pound cost averaging.

 

 

d. potentially take advantage of pound cost averaging.

 

chapter reference 9C5

29

Larry is a long-term investor who is looking for growth in the value of his portfolio to come from both capital gains and reinvestment of income. What is likely to be his overall objective?

Select one:

a. Capital appreciation.

b. Capital preservation.

c. Long-term growth.

d. Total return.

 

 

d. Total return.

 

chapter reference 9B1B

30

Doug is interested in investing in a fixed-interest securities fund that could provide the highest reward. The most appropriate recommendation would be a[n]:

Select one:

a. investment grade corporate bond fund.

b. emerging market bond fund.

c. global government bond fund.

d. UK Gilt fund.

 

 

b. emerging market bond fund.

 

chapter reference 9A1F

31

If Jacob's investment portfolio consists of 65% equities, 15% property, 15% bonds and 5% cash his risk profile is most likely to be:

Select one:

a. adventurous.

b. income and growth.

c. balanced.

d. growth.

 

 

d. growth.

 

chapter reference 9C1

32

Caleb is an adventurous investor. The majority of his portfolio is most likely to be invested in:

Select one:

a. a balanced mix of property and equities.

b. a balanced mix of equities, property and bonds.

c. equities.

d. property.

 

 

c. equities.

 

 chapter reference 9C1

33

Guy and Eva are both 54 and want to retire at the age of 61 with a set minimum income. Based on their current and projected savings, they seem unlikely to achieve this objective. Which constraint is most likely to impact their ability to take on risk in this scenario?

Select one:

a. Legal and regulatory factors.

b. Liquidity.

c. Time horizon.

d. Tax.

 

 

c. Time horizon.

 

chapter reference 9B2A

34

Nigel has completed a fact-find on a new client, Izzy. In the process, he has collected both 'hard' and 'soft' facts. What would be an example of a 'soft' fact?

Select one:

a. Izzy's children are 10 and 12 years old.

b. Izzy has just resigned from her job to become self-employed.

c. Izzy has 12 years remaining on her repayment mortgage.

d. Izzy has strong views about ethical issues.

 

 

d. Izzy has strong views about ethical issues.

 

chapter reference 9A1B

35

Oscar is keen to invest in equities, but wants to limit risk as much as possible within the asset class. Which of these funds is most likely to meet his needs?

Select one:

a. An equity income fund.

b. A smaller companies fund.

c. A fund of ordinary shares.

d. A high-yielding bond fund.

 

 

a. An equity income fund.

 

chapter reference 9A1F

36

Frank is a risk-averse investor who wants to minimise the risk of loss on his investments. What is likely to be his return objective?

Select one:

a. Current income.

b. Capital appreciation.

c. Capital preservation.

d. Total return.

 

 

c. Capital preservation.

 

chapter reference 9B1B

37

Tom is advising Qasif, a Muslim client, on his investments. What area may it be important for Tom to consider when making his recommendation?

Select one:

a. The possible use of Sharia investments.

b. The possible limited investment period.

c. The added importance of establishing the correct risk profile.

d. The need to avoid investments that restrict access.

 

 

a. The possible use of Sharia investments.

 

chapter reference 9A1G

38

The proportion of equities in Reyna's portfolio has increased from the originally recommended 50% up to 70%. Assuming that Reyna's risk profile has not changed, what action should be recommended?

Select one:

a. Redistribution.

b. Rebalancing.

c. Switching.

d. Decumulation.

 

 

b. Rebalancing.

 

chapter reference 9C4

39

When investing money, behavioural finance tells us all of the following EXCEPT:

Select one:

a. losing money has more impact on people than making money.

b. people will generally follow the 'crowd' and follow key trends.

c. risk can always be accurately determined by using a risk profile questionnaire.

d. people overestimate their knowledge and ability when it comes to investing.

 

 

c. risk can always be accurately determined by using a risk profile questionnaire.

 

chapter reference 9A1D

40

Allen, an IFA, is starting a relationship with a new client, Jean. The first thing that Allen should do is:

Select one:

a. provide Jean with information about the scope of the services that are being offered.

b. gather detailed data about Jean's personal and financial circumstances.

c. establish Jean's attitude to investment risk.

d. ascertain Jean's goals and objectives.

 

 

a. provide Jean with information about the scope of the services that are being offered.

chapter reference 9A1A

 

At the start of a client relationship, an adviser should provide the client with information about the scope of the services that are offered, as well as the costs of any work the adviser will carry out. This will typically be provided in the client agreement, which, among other things, sets out:

- remuneration;

- the service that will be provided and the timescale in which it will be provided, e.g. quareterly valuations;

- duration of the agreement; and

- frequency of contact, e.g. not less than annual meetings

41

Kate is completing a fact-find on a new client, Gina. An example of a 'hard fact' is that she:

Select one:

a. likes to invest in socially responsible companies.

b. is divorced with two children.

c. has a medium attitude to risk.

d. wants to live in France once retired.

 

 

b. is divorced with two children.

 

 chapter reference 9A1B

42

What is the most important outcome of the fact-finding process?

Select one:

a. Understanding the client's goals and expectations.

b. Making an appointment for a follow-up meeting.

c. Obtaining details of the client's investments and policies.

d. Agreement to the ongoing cost of advice.

 

 

a. Understanding the client's goals and expectations.

 

chapter reference 9A1B

43

A fund manager's investment strategy is designed to match future liabilities. The fund is most likely to be linked to a[n]:

Select one:

a. distribution bond.

b. investment trust.

c. final salary pension scheme.

d. stakeholder pension.

 

 

c. final salary pension scheme.

 

chapter reference 9B1

44

Howard, a financial adviser, is providing investment advice to a new client, Kate. Which part of the investment process would Howard complete first?

Select one:

a. Advise that Kate should invest in an ISA tax wrapper.

b. Recommend that the assets should be allocated 50% to equities, 30% to bonds and 10% each to property and cash.

c. Assess and agree Kate's risk profile.

d. Discover that Kate's key objective is to help fund her son's university costs.

d. Discover that Kate's key objective is to help fund her son's university costs.

 

chapter reference 9A1

45

Gina is a relatively cautious investor. In terms of the fixed income part of her portfolio, the most suitable investment would be:

Select one:

a. high yielding corporate bonds.

b. a mixture of long-dated gilts and corporate bonds with a low credit rating.

c. a mixture of short-dated gilts and corporate bonds with a high credit rating.

d. tactical bond funds.

c. a mixture of short-dated gilts and corporate bonds with a high credit rating.

 

chapter reference 9A1F

46

Ben's investment aim is out-and-out capital growth. The most appropriate asset allocation technique is:

Select one:

a. arbitraging.

b. capital concentration.

c. capital diversification.

d. pound cost averaging.

b. capital concentration.

 

chapter reference 9C3

47

A client agreement would NOT typically include details of the:

Select one:

a. services to be provided.

b. basis of remuneration.

c. duration of the agreement.

d. adviser's qualifications.

d. adviser's qualifications.

 

 chapter reference 9A1A

48

Which of these four clients would generally be considered to be taking the LOWEST risk with their investment fund choice?

Select one:

a. Sally, who is invested in the Venus UK Alpha Plus fund.

b. Thomas, who is invested in the Securebank UK Smaller Companies fund.

c. Gina, who is invested in the Hakuna Investments UK Income and Growth fund.

d. Ralph, who is invested in the P&M Tactical Bond fund.

c. Gina, who is invested in the Hakuna Investments UK Income and Growth fund.

 

 

chapter reference 9A1F

49

Jacob has been recommended to hold his investments on a platform. A key advantage of this approach for Jacob is:

Select one:

a. fund choice, as a greater number of funds are available on a platform.

b. simplicity, as a single set of investments can be managed across several tax wrappers.

c. tax efficiency, as tax rebates can more easily be managed on a platform.

d. cost, as investments on a platform are always cheaper.

b. simplicity, as a single set of investments can be managed across several tax wrappers.

 

 

 chapter reference 9A1I

50

Which of these four clients would generally be considered to be taking the highest risk with their investment fund choice?

Select one:

a. Ralph, who is invested in the Medusa Corporate Bond All Stocks fund.

b. Gina, who is invested in the Hakuna Investments UK Income and Growth fund.

c. Thomas, who is invested in the Securebank UK Smaller Companies Alpha fund.

d. Sally, who is invested in the Venus UK Equity Income fund.

c. Thomas, who is invested in the Securebank UK Smaller Companies Alpha fund.

 

 

chapter reference 9A1F

51

Georgia has a large tax liability to pay in 9 months' time. The most suitable investment[s] for her funds to pay for this bill would be:

Select one:

a. high yielding corporate bonds.

b. long-dated gilts.

c. a portfolio of 15-20 'blue chip' equities.

d. a 9 months fixed-term deposit.

d. a 9 months fixed-term deposit.

 

chapter reference 9B2A

52

Malcolm has been presented with a client agreement prior to him meeting with his investment adviser. What is the document LEAST likely to mention?

Select one:

a. How long the agreement will last for.

b. The service that will be provided.

c. A statement of his investment objectives.

d. The cost of the adviser's service.

c. A statement of his investment objectives.

 

 

 chapter reference 9A1A

53

Gary, a financial adviser, is providing investment advice to a new client, Jody. Which element of the process would Gary establish last?

Select one:

a. His assessment that Jody has a 'moderately adventurous' risk profile.

b. His recommendation that Jody should invest in a SIPP tax wrapper.

c. His analysis that the assets should be allocated 70% to equities, 20% to bonds and 5% each to property and cash.

d. His understanding of Jody's key objective to help fund a comfortable retirement.

b. His recommendation that Jody should invest in a SIPP tax wrapper.

 

 

chapter reference 9A1H

54

Sue, an adviser, is conducting a fact-find with her new client Janet. Based on the information Sue collected, an example of a 'hard' fact would be that Janet:

Select one:

a. is highly risk-adverse.

b. works as a Communications Officer within the Civil Service.

c. would like to act as a volunteer aid worker in her retirement.

d. is greatly influenced by her religious beliefs.

b. works as a Communications Officer within the Civil Service.

 

 

 chapter reference 9A1B

55

Ulrika requires income and her risk profile has been set as 'cautious'. In recommending a portfolio for her, the fund asset allocation is likely to have a[n]:

Select one:

a. greater amount in bonds than equities and a greater amount in equities than property.

b. equal split between equities and bonds with a greater amount in both than property.

c. greater amount in equities than bonds and a greater amount in bonds than property.

d. greater amount in bonds than property and a greater amount in property than equities.

a. greater amount in bonds than equities and a greater amount in equities than property.

 

 

chapter reference 9C1

56

Which fund management style is most likely to work best during periods of rapid growth?

Select one:

a. Momentum.

b. Passive.

c. Value-based.

d. Absolute return.

a. Momentum.

 

 

 chapter reference 9C2

57

Stewart, who has a medium attitude to risk, has existing investments and a further lump sum he wishes to invest. After a review of his existing investments, it has been recommended that he place all of his new lump sum investment into property-based funds. This recommendation is justified because:

Select one:

a. he is a basic-rate taxpayer.

b. interest rates are expected to rise.

c. his current portfolio lacks sufficient diversification.

d. the value of his main residence has doubled in the last 15 years.

c. his current portfolio lacks sufficient diversification.

 

 

 chapter reference 9A1E

58

Barry, 67, has little pension income and relies on investment income to maintain his standard of living. In projecting portfolio cash flows in decumulation, his adviser will take account of all of these factors, APART from:

Select one:

a. the adviser's charging structure.

b. the level of inflation.

c. interest rates.

d. probable growth rate of company dividends.

a. the adviser's charging structure.

 

 

chapter reference 9C5

59

Mark's net income is £3,000 per month and his expenditure is £2,000. Over and above any planned expenditure, Mark should keep an emergency fund in the range of:

Select one:

a. £18,000 to £27,000.

b. £18,000 to £24,000.

c. £27,000 to £36,000.

d. £12,000 to £18,000.

d. £12,000 to £18,000.

 

 chapter reference 9B2A

60

Trevor, 28, is an extremely wealthy client with an adventurous attitude to risk. He is keen to invest in equities as he sees these as the best route to capital growth. Which type of investment tax wrapper is most likely to be suitable for him?

Select one:

a. Offshore bond.

b. Onshore bond.

c. Enterprise investment scheme.

d. Pension.

c. Enterprise investment scheme.

 

 

chapter reference 9A1H

61

Wasim's risk profile has been set as 'balanced income'. In recommending a portfolio for him, the fund asset allocation is likely to have a[n]:

Select one:

a. greater amount in equities than bonds and a greater amount in bonds than property.

b. equal split between equities and bonds with a greater amount in both than property.

c. greater amount in bonds than equities and a greater amount in equities than property.

d. greater amount in bonds than property and a greater amount in property than equities.

a. greater amount in equities than bonds and a greater amount in bonds than property.

 

chapter reference 9C1

62

Donny wishes to invest in an ethical way, avoiding companies that make profit from alcohol or tobacco and investing in companies that attempt to be carbon neutral. What strategy is most likely to help Donny achieve his goal?

Select one:

a. Buy a managed ethical fund.

b. Use positive screening only.

c. Use both positive and negative screening.

d. Use negative screening only.

c. Use both positive and negative screening.

 

 

chapter reference 9A1G

63

Basil is confused between positive and negative screening. You explain that:

Select one:

a. avoiding companies that conduct animal testing is an example of positive screening.

b. avoiding companies that exploit cheap labour is an example of positive screening.

c. investing in companies that reduce their carbon footprint is an example of negative screening.

d. investing in companies that utilise alternative energy sources is an example of positive screening.

d. investing in companies that utilise alternative energy sources is an example of positive screening.

 

 chapter reference 9A1G

64

Which of these funds recommended to Fiona by her adviser represents the greatest risk?

Select one:

a. The global government bond fund.

b. The technology fund.

c. The equity income fund.

d. The investment grade corporate bond fund.

b. The technology fund.

 

 

 chapter reference 9A1F

65

Tony is conducting a fact-find on Keith, a new client. Which of these facts about Keith would be regarded as a 'soft' fact?

Select one:

a. He has a number of previous investments, including a large equity portfolio.

b. He is employed as a delivery driver.

c. He wants to move closer to his grandchildren in retirement.

d. He has been married, and divorced, twice.

c. He wants to move closer to his grandchildren in retirement.

 

 

 chapter reference 9A1B

66

Thomas, who is a higher-rate taxpayer, has a holding of equity unit trusts and his adviser has recommended moving part of his portfolio into a stocks and shares based ISA as he had used his dividend allowance elsewhere. On a dividend of £270, this will result in an income tax saving of:

Select one:

a. £102.87.

b. £67.50.

c. £60.75.

d. £87.75.

d. £87.75.

 

chapter reference 9A1H

67

When a financial adviser provides a client with the client agreement, this will include:

Select one:

a. a description of the client's investment aims.

b. confirmation of the amount to be invested.

c. the basis of how the adviser will be remunerated.

d. the level of risk the client is prepared to take.

c. the basis of how the adviser will be remunerated.

 

 

chapter reference 9A1A

68

A retired client explains to their investment adviser that a loss of 25% of their capital would lead to a similar reduction in income, resulting in an unacceptable reduction in standard of living. This is an example of the client’s:

Select one:

a. tolerance of risk.

b. understanding of risk.

c. attitude to risk.

d. capacity for loss.

d. capacity for loss.

 

 chapter reference 9A1D

69

Samantha is a long-term investor for whom growth in the value of her assets in real terms is a priority. She is expecting growth primarily from capital gains. What is most likely to be her return objective?

Select one:

a. Current income.

b. Capital preservation.

c. Total return.

d. Capital appreciation.

d. Capital appreciation.

 

chapter reference 9B1B

70

Victor's only source of income in retirement is his investment portfolio of £350,000. Which of these factors is LEAST relevant in projecting the portfolio's future cash flows in decumulation?

Select one:

a. Victor's highest marginal rate of tax.

b. The overall rate of income generated.

c. The initial yield on the investments.

d. The likely level of inflation and interest rates.

a. Victor's highest marginal rate of tax.

 

 

chapter reference 9C5

71

Mark, an adviser, is attempting to establish the risk profile of a new client, Jon. The one objective element in the process is to ascertain Jon's:

Select one:

a. tolerance of risk, determined partly by the resources Jon has available.

b. capacity for loss, which is determined partly by the resources Jon has available.

c. tolerance of risk, determined by the degree of volatility in investment returns Jon is willing to withstand.

d. capacity for loss, determined by Jon's views about his past experience of investments.

b. capacity for loss, which is determined partly by the resources Jon has available.

 

 

chapter reference 9A1D

72

‘Herding' is a term used to describe the social phenomenon which causes:

Select one:

a. advisers to ignore individual objectives and recommend similar tax wrapper solutions for all their clients.

b. advisers to segment client groups by age and income alone.

c. e-commerce providers to offer limited product solutions based on diagnostic data.

d. people to follow others into popular areas of investment.

 

 

d. people to follow others into popular areas of investment.

 

chapter reference 9A1D

73

Dennis, an adviser, is attempting to judge how achievable his client's objectives are. The most appropriate way for him to achieve this is by:

Select one:

a. asking his client what they feel they can afford to commit to meet their objectives.

b. assessing his client's income and expenditure over recent years.

c. looking at his client's recent bank statements.

d. obtaining cash flow projections and assessing his client's future requirements for income and capital.

d. obtaining cash flow projections and assessing his client's future requirements for income and capital.

 

chapter reference 9A1C

74

Zara, a client, has specifically requested her adviser to consider Sharia investments. This is likely to be because she:

Select one:

a. is very interested in 'green' issues.

b. is a Muslim.

c. has strong views on animal rights.

d. has a very cautious attitude to risk.

 

 

b. is a Muslim.

 

chapter reference 9A1G

75

Simon's adviser has determined that he is looking for a total return from his portfolio. This means that Simon can best be described as a[n]:

Select one:

a. longer-term investor whose priority is for their assets to grow in real terms by way of capital gains.

b. long-term investor who is looking for the growth in his portfolio to come from both capital gains and reinvestment of income.

c. investor who is focused on producing income rather than achieving capital gains.

d. risk-adverse investor who wishes to achieve a return equal to or above inflation.

b. long-term investor who is looking for the growth in his portfolio to come from both capital gains and reinvestment of income.

 

 

 chapter reference 9B1B

76

Nikita, an adventurous investor, has been advised to invest in a six-month fixed-term deposit account. The most likely reason for this is that:

Select one:

a. she is an additional-rate taxpayer.

b. her adviser is highly risk-adverse.

c. she needs to diversify her investments.

d. she has a short-term capital requirement.

d. she has a short-term capital requirement.

 

chapter reference 9B2A