FINANCIAL ADVISERS INTERNATIONAL QUALIFICATION

CII AIFP MOCK EXAM

1. A shortfall calculation is carried out in fact-finding, in order to establish the:

a. amount of benefit required for a particular need after taking account of existing
provision
b. type of policy to be used to satisfy a particular need
c. maximum premium the client can afford to pay for the benefits he needs
d. number of needs the client has for which there is no cover at present

2. Your client earns $30,000 p.a. and wants to make provision for a two-thirds pension at
retirement. He will receive $6,000 p.a. from the state. If $10 of fund will purchase $1 of
pension, how big a fund will he need at retirement in todays terms?

a. $140,000
b. $200,000
c. $240,000
d. $300,000

3. When a person has a need to provide for replacement of income in the event of being
unable to work for a long period of time due to illness, what would be the most appropriate
product?

a. private medical insurance

b. permanent health insurance
c. critical illness insurance
d. accident and sickness insurance

4. A main area of financial planning is

a. career planning
b. inheritance planning
c. redundancy planning
d. credit planning

5. A shortfall is the difference between

a. the existing provision and the real need

b. the existing provision and the perceived need
c. the available contribution and the perceived need
d. the available contribution and the real need

6. What must a fact-find include, in addition to the clients present circumstances and financial
objectives, in order that suitable recommendations can be made?

a. the clients future plans

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 b. the clients past ambitions
c. the clients matured policies
d. the clients perceived needs

7. Once a telephone fact-find has been carried out, how soon can the sale be completed?

a. as soon as the client has been sent a detailed quotation

b. once the key features and product details have been explained to the client
c. after completion and return of a detailed questionnaire
d. as soon as an interview with a company representative has taken place

8. In direct marketing, how is fact-finding conducted?

a. face-to-face only
b. by post only
c. by telephone only
d. by post or by telephone

9. What is the fifth stage of the typical life cycle?

a. young married with children

b. married with older children
c. post-family/pre-retirement
d. retirement

10. What is the main financial need for retired people who have adequate capital?

a. investing surplus capital into pension planning to maintain their income

b. placing their capital offshore to avoid tax on death
c. preserving the real value of their investments against the effects of inflation
d. shielding their investments from capital gains tax liability

11. Mr. and Mrs. Kumar are both approaching 30 years of age and have a young daughter.
What is their first priority?

a. cover for private medical fees

b. cover for family income benefits
c. inheritance tax planning
d. pension planning

12. What would be the most suitable policy for a young married employed mother?

a. short-term savings policy

b. life assurance policy
c. long-term care policy
d. personal pension policy

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13. Your client is 20 years of age, unmarried and in paid employment. What would be his main
financial need?

a. life assurance
b. income protection
c. long-term care
d. redundancy cover

14. Which one of the following events is most likely to take a client out of the normal life cycle
model?

a. childbirth
b. marriage
c. divorce
d. retirement

15. When a woman is widowed during the post-family/pre-retirement life stage, what need
normally arises in addition to those usually associated with this life stage?

a. protection against the financial effects of ill-health

b. providing for an income in retirement
c. provision to finance long-term care costs
d. re-arrangement of investments to better suit her situation

16. One of the seven typical life stages in the life cycle model is

a. divorced
b. unemployed
c. widowed
d. childhood

17. An open-ended question is one which seeks to obtain

a. Purely factual information

b. Additional information in the clients own words
c. A single piece of specific information
d. A simple yes or no answer

18. Whose state of health details would NOT be included on a clients fact-find record?

a. the clients dependent relatives

b. the clients spouse
c. the clients young children
d. the clients brothers and sisters

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19. What is most difficult to value in the assets section of a fact-find?

a. main residence
b. shares in a family company
c. investment trusts
d. unit trusts

20. If a client does NOT have full details available regarding their employee benefits, when
completing a fact-find the adviser should

a. obtain the information at a later date, and then advise accordingly

b. record them as maximum benefits and advise accordingly
c. record them as not disclosed an offer no advice
d. make an estimate of the unknown information and advise accordingly

21. How does a clients attitude to risk affect a financial advisers recommendation?

a. it assists in the identification of the financial needs of the client

b. it assists in quantifying the level of shortfall between needs and existing arrangements
c. it assists in the identification of the level of protection required
d. it assists in the identification of the product most suited for the client

22. What effect, if any, is marriage likely to have on a clients life cover needs?

a. it is likely to increase the need for life cover

b. it is likely to decrease the need for life cover
c. it is likely to eliminate the need for life cover
d. it will have no effect

23. If a tied agent cannot offer a product suitable to a clients needs, they should

a. arrange a suitable product with another provider

b. refer the client to an independent financial adviser
c. refer the client to another tied agent who can offer a suitable product
d. offer the client the closest matching product that they have available

24. What responsibility does the adviser bear for execution-only business?

a. no responsibility for the whole transaction

b. responsibility only for the choice of product
c. responsibility only for the choice of provider
d. no responsibility for the choice of product

25. When buying and selling stock on behalf of a client, on which transactions does an
intermediary have a duty to obtain the most favourable price for the client?

a. only on transactions on which they have given advice

b. only on transactions made for clients who have little knowledge of stocks
c. only on transactions involving international stocks
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 d. on all transactions

26. When might it be appropriate for a financial adviser to recommend that a client should
surrender an existing investment and take out a new one?
a. only when it is in the clients best interest
b. only when the original policy is no longer available for new clients
c. only when the new policy is cheaper than the original policy
d. it should never be advised

27. What should clients be told if they wish to surrender an existing with-profits endowment
policy taken out six years ago?

a. that with-profits policies do not accrue surrender values

b. that there will be no early surrender penalties
c. that a surrender penalty could apply
d. that endowment policies cannot be surrendered in the first ten years

28. During what period of time should a cancellation period allow the client be able to cancel a
life policy without penalty?

a. the first year of its term

b. the period between application and policy inception
c. during the underwriting period
d. within a short stipulated time of buying it

29. The purpose of the ombudsman is to

a. provide compensation for valid complaints against providers

b. regulate the conduct of providers
c. regulate the conduct of financial advisers
d. impartially investigate complaints against providers

30. What is the primary role of fact-finding

a. to identify the needs of the client

b. to ensure that full records are available in the event of a dispute
c. to fulfill the requirements of the regulator
d. to identify sales opportunities

31. A married couple who are both aged 29 have just had their first child. What would be their
first priority?

a. inheritance
b. investment
c. retirement

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32. income protectionA policy which pays out the sum assured only on the second death of
the two spouses would fall under which main category for financial planning?

a. inheritance
b. life protection
c. savings and investment
d. health protection

33. A tied financial adviser should explain the nature of his status so that the client is aware that

a. any recommendation may be based on any companys product range

b. the adviser is in a position to negotiate a higher level of commission than an
independent adviser
c. the adviser is the agent of the client and not the product provider for whom he works
d. any recommendation will be only based on one companys product range

34. If an adviser has a close connection with a product provider he should

a. demonstrate professional expertise by acting with due skill and diligence

b. declare an interest to the client before the transaction is completed
c. keep the clients needs under continuous review in case anything changes
d. compensate the client for any consequent loss

35. An independent adviser is the agent of

a. the client
b. both the client and the product provider
c. neither the client nor the product provider
d. the product provider

36. What should be done first at a presentation meeting?

a. check the clients commitment to the needs

b. outline the recommendations
c. obtain the clients authority to proceed
d. explain the concept behind the proposals

37. When should the key features document be explained to the client?

a. when presenting recommendations

b. on completion of the application form
c. after the client has agreed to proceed with the sale
d. at the end of the fact-finding interview

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38. At the fact-find stage, the client identified his first priority as life assurance, but changed his
mind when presented with the quotes and stated that he only wishes to proceed with a
savings plan. What action should the adviser take?
a. agree to effect the savings plan but complete an execution-only form
b. check if the clients circumstances have changed and if not restate the reasons for
the original advice
c. refuse to transact the business
d. accept the clients wishes and amend the priority on the fact-find

39. Where an adviser has a persistency rate of 94% on 5000 policies written, how many policies
were lost during that year?

a. 300
b. 450
c. 4700
d. 4550

40. Who is most likely to want advice on investing a capital sum?

a. a young married couple

b. a couple with a family
c. a young single person
d. a couple due to retire shortly

41. One of the main factors on which a clients ability to save depends is

a. the amount of income tax they pay

b. their total income
c. their disposable income
d. the rates of income tax they pay

42. What is usually used to fund regular investment contributions where there is no liquid capital
available?

a. a secured loan
b. an unsecured loan
c. disposable income
d. unearned income

43. What class of share would normally be suitable for someone with a cautious attitude to risk?

a. shares in an international company

b. preference shares
c. ordinary shares
d. shares in an investment trust

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44. Which investment is normally associated with the lowest risk level for capital?

a. government stocks
b. investment trusts
c. unit trusts
d. company shares

45. Short term usually refers to savings periods of up to

a. 1 year
b. 3 years
c. 5 years
d. 7 years

46. When determining the suitability of an investment for a client who has a high level of
disposable income and a very cautious attitude to risk, what is most likely to be the highest
priority?

a. maximum contribution limits

b. security of capital invested
c. tax efficiency of investment
d. consistent past performance

47. What is the most likely form of government tax concession?

a. a reduction in the rate of tax paid

b. an extra tax allowance for the client
c. tax relief on premiums paid to the policy
d. a tax rebate at the end of the policy

48. What is the most suitable type of investment for someone paying high rates of income tax?
Where the proceeds are paid

a. net of tax
b. tax deferred
c. tax free
d. gross

49. What type of government security is irredeemable stock?

a. with no fixed rate of return

b. with no current value
c. that cannot be traded
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 d. with no fixed repayment date

50. What is a preference share?

a. a share offered as an alternative to a dividend

b. a share offered first to existing shareholders
c. a share which pays a fixed dividend
d. a share in a blue chip company

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51. Someone with a cautious attitude to risk wants to invest a lump sum to provide an income
until he dies. What is the most appropriate product?

a. a family income benefit policy

b. an investment trust
c. a with-profits endowment policy
d. a life annuity

52. The greatest potential returns are likely to come from investments which are
a. low risk
b. medium risk
c. high risk
d. no risk

53. What effect will inflation have on the vale of a non-profit endowment policy?

a. the market value of the policy increases

b. the real value of the policy increases
c. the real value of the policy reduces
d. the market value of the policy reduces

54. What will be the effect on non index-linked government stocks when interest rates are
falling?

a. the market value of the stock will remain the same

b. the rate of interest received by the investor will fall
c. the rate of interest received by the investor will remain the same
d. the market vale of the stock will fall

55. The need for income protection arises at the point where people first

a. get married and are dependent on each other to cover commitments

b. start earning and are dependent on their wages to cover commitments
c. have children and are dependent on their wages to cover higher commitments
d. start earning but are dependent on their savings to cover commitments

56. When is a protection need most likely to arise?

a. on marriage
b. on permanent and total disability
c. on diagnosis of a terminal illness
d. on death

57. A young single person who is supporting an elderly relative wishes to take out life assurance
for that relatives benefit. The term of the policy would depend on

a. relatives age
b. young persons income
c. relatives income
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 d. young persons age

58. When deciding the amount of cover to recommend for a term assurance an adviser should
pay particular attention to

a. whether the client is a smoker or a non-smoker

b. the clients employment history
c. the clients attitude to risk
d. the clients assets and liabilities

59. Activities of daily living are most closely associated with which type of policy?

a. private medical insurance

b. accident and sickness policies
c. long-term care policies
d. permanent health insurance

60. Which policy feature is unlikely to affect the suitability of decreasing term assurance?

a. policy options
b. surrender value
c. policy guarantees
d. premium level

61. When your client travels the world, which suitability factor would be a primary consideration
in determining your recommendation?

a. guarantees
b. flexibility
c. benefits and limitations
d. premium level

62. Why is it normally preferable to recommend a protection policy which attracts tax relief on
the premium as opposed to one which does not?

a. the policy is likely to attract a higher level of commission

b. the policy provider is likely to apply a lower level of charges
c. the policy is likely to provide a higher level of benefit
d. the policy is likely to provide the required benefit at a cheaper net cost

63. In a with-profits policy compound bonuses are applied to the

a. sum assured and reversionary bonuses

b. terminal bonuses only
c. sum assured and terminal bonuses
d. sum assured only

64. Family income benefit is a particular kind of

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 a. increasing term assurance
b. social security benefit
c. permanent health insurance
d. decreasing term assurance

65. What type of assurance would you recommend where an employer wishes to insure the life
of a valuable employee?

a. increasing term assurance

b. renewable term assurance
c. increasable term assurance
d. convertible term assurance

66. When evaluating a clients pension requirements the basic assumption is that most people
need a

a. higher standard of living than when they are working

b. lower standard of living the older they become
c. similar standard of living to that which they had before they retired
d. lower standard of living than when they were working

67. What is most likely to determine the initial level of pension required by a client at retirement?

a. annuity rates
b. inflation
c. earned income
d. interest rates

68. When first starting a pension plan, how does a clients age affect his level of contributions

a. the younger the client, the more he needs to contribute

b. the older the client, the less he needs to contribute
c. the older the client, the more he needs to contribute
d. age does not affect the amount that needs to be contributed

69. Which feature of a final salary pension scheme makes it most suitable for a client?

a. the length of time it has been running

b. the benefits payable on retirement
c. the tax treatment of the pension fund
d. the financial strength of the pension provider

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70. What factor would most influence the type of pension product that a client can have?

a. his employment status

b. his financial liabilities
c. his occupation
d. his assets

71. What factor would most influence a client in the choice of pension product where he wishes
to increase his income in retirement?

a. he is currently aged 38
b. he wants to keep to low risk products
c. he wants to retire at age 60
d. he is a member of a company scheme

72. Why is a pension scheme usually the most suitable method for an employer to provide an
employee with an income at retirement?

a. it is a much lower risk than any other product

b. it is cheaper than any other product
c. it is guaranteed by the government
d. it attracts valuable tax concessions

73. Which type of pension scheme is a defined contributions one?

a. compulsory annuity
b. final salary scheme
c. money purchase scheme
d. purchased life annuity

74. Where your client has no dependents and wants the highest possible pension in retirement,
which type of death before retirement benefit would be most suitable?

a. return of premiums without interest

b. no return of premiums
c. no return of premiums but has level term assurance cover
d. return of premiums with interest

75. In relation to occupational pension schemes, accelerated accrual refers to:

a. the rate of escalation of the pension payments increasing
b. pensions that come from a shorter period of service which increase on a sliding
scale
c. a higher rate of growth achieved in a money purchase scheme
d. the employee contribution increasing each year on a sliding scale

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