CISI IAD Financial Planning Process 2

Question 1

A married couple both aged 65 seek advice on generating retirement income. Which of the following should the adviser consider FIRST?

Accepted Answer

Assessing both clients' combined financial position, income needs, tax positions, and health status

Answer

Recommending an annuity from a single provider

Answer

Investing everything in equity income funds

Answer

Recommending they defer their State Pensions

Question 2

What does the term 'sequencing risk' refer to in retirement planning?

Accepted Answer

The risk that poor investment returns early in retirement disproportionately deplete the portfolio when combined with withdrawals

Answer

The risk of choosing investments in the wrong order

Answer

The risk of receiving State Pension payments late

Answer

The risk of tax legislation changing in sequence

Question 3

Under UK pension rules, what is 'flexi-access drawdown'?

Accepted Answer

A method of accessing a defined contribution pension pot from age 55, allowing flexible withdrawals with no limits after taking the tax-free lump sum

Answer

A scheme where the employer varies pension contributions annually

Answer

A type of annuity that adjusts with inflation

Answer

A government scheme for early access to the State Pension

Question 4

Why is 'emergency fund' planning an important part of the financial planning process?

Accepted Answer

It ensures the client has accessible liquid reserves to meet unexpected expenses without having to sell investments at an inopportune time

Answer

It guarantees investment returns during market downturns

Answer

It is a regulatory requirement under FCA rules

Answer

It eliminates the need for life insurance

Question 5

What is the primary advantage of a 'whole of life' insurance policy over a 'term' assurance policy for estate planning purposes?

Accepted Answer

A whole of life policy guarantees a payout whenever death occurs, making it suitable for covering a known IHT liability

Answer

Whole of life premiums are always cheaper

Answer

Term assurance provides greater investment growth

Answer

Whole of life policies do not require medical underwriting

Question 6

In the context of retirement planning, what is the 'natural yield' approach to generating income?

Accepted Answer

Taking only the income naturally generated by a portfolio (dividends, interest, rent) without selling capital assets

Answer

Investing only in government bonds

Answer

Withdrawing a fixed 4% of the portfolio each year

Answer

Investing in index-tracking funds only