View more on these topics

A question of choice and response

The CII continues its guide to qualifications, with exam tips on passing RO2 investment principles and risk from Bob Boustead, senior RO2 examiner for the CII and regional sales manager at the Way Group, plus Garry Hale on sitting the AF3 paper.

The RO2 exam contains a total of 100 questions presented in two formats multiple choice and multiple response.

Candidates are allowed two hours to complete the paper and the multiple-choice questions are similar in format to those that appear in the current Certificate in Financial Planning and the Financial Planning Certificate 1 papers. Typically, a question is followed by four options, with one correct answer. Certain learning outcomes in the syllabus require candidates to “analyse” meaning. These questions are often accompanied by a table or require a calculation. The main requirement is for the candidate to obtain the answer by a minimum two-stage process and these questions are generally more challenging and time-consuming.

These questions also have four answer options, with one correct answer.

The multiple-response question format often involves the presentation of four or more options. More than one option will be correct, so candidates have to identify all the correct options to score a mark. This approach means several areas, such as details of a client’s investment portfolio, including analysis of portfolio performance, can be tested in a single multiple response question. It also requires candidates to know the subject matter in more depth. The relationship between certain facts may also need to be understood.

Candidates may have built up considerable knowledge but there will still be some areas in the exam where they do not have experience

When sitting the R02 examination, candidates will find the first 66 questions are multiple choice, with the final 33 questions being multiple response. Some candidates may find it helpful to skip over questions that they are having difficulty with, perhaps because they are taking longer than the allotted time per question, and return to them once they reach the end of the paper if they have sufficient time remaining before the end of the exam. Candidates should take the time to understand each area of R02. Highlighted below are areas of the syllabus tested in the paper.

1: Analyse the characteristics, inherent risks, behaviour and correlation of asset classes
This is a key area of the paper, accounting for more than a quarter of the marks, and is tested in both multiple-choice and multiple-response question formats. It tests all the major asset classes and candidates should be able to analyse the various factors that are contained within these areas.

2: The macro-economic environment and its impact on asset classes
Under this section of the syllabus, candidates must be able to explain how the main economic factors affect the main asset classes. This is tested by multiple-choice questions.

3: The merits and limitations of main investment theories
Candidates must to be able to explain the main investment theories, including their benefits and limitations. This syllabus area also includes a newer addition to the investment exam, behavioural finance, which not all candidates will recognise. These are all tested under standard multiple choice questions.

4: Apply the principles of the time value of money
In this area, candidates will be expected to be able to perform a number of compound interest, present value and future value calculations, which may also include returns after inflation. These are examined by multiple-choice questions.

5: Analyse and explain the nature and impact of the main types of risk on investment performance
Candidates will need to answer questions on various types of investment risk that clients face. This is normally tested by multiple-choice questions.

6: Analyse characteristics, inherent risks, behaviours and relevant tax considerations of investment products
This is another major part of the exam and accounts for just under a quarter of the marks of the whole paper. It is tested in both multiple-choice and multiple-response formats.

This area looks at the main types of investment products and structures and requires candidates to be able to analyse the various components of these products and structures.

7: Apply the investment advice process
This asks candidates to show that they understand the “know your client” requirement for investment advice. It is tested by standard multiple-choice questions. It also asks them to demonstrate that they would recommend the appropriate asset allocation for a client’s specific risk profile. Again, this is tested by standard multiplechoice questions.

8: Understand the principles of investment planning
This section looks at asset allocation and the various types of “strategies” that can be employed by an investment adviser in building client portfolios. It also covers other areas such as the investment manager’s approach, charges levied and suitability of investments. These are examined by multiple-choice questions.

9: Analyse the performance of investments
This area asks candidates to analyse client portfolio performance, with the inclusion of benchmarks. It also includes the application of the client portfolio review process. This area is tested by multiple response questions only.

Candidates may have built up knowledge and analytical skills in their business activities but there may still be some areas in the exam where they do not have first-hand experience. Candidates undertaking the R02 exam should take advantage of study material to ensure they understand and can answer questions in each study area.

Candidates need to bring a scientific calculator (non-programmable) because they will not be allowed to use smart phones.

Testing time

Pension exam a real challenge

mm garryhaleside
Garry Hale, Director, HK Wealth Managers

And relax…It is always a great relief leaving a CII exam room and I felt a great sigh of relief in April as I left my AF3 pensions planning exam.

I think I have done enough to pass but it is still very difficult to know for sure. It was also a very challenging subject to sit at the time, in view of the massive changes we are experiencing in pensions and the transitional rules that were in place until April and then the new rules from April.

I had concerns over the amount of preparation I had done for this exam, particularly as I had only just returned from a week’s holiday in Barcelona.

I studied on holiday and made good use of my audio recordings and the small examination guides. Reading about special annual allowance charges while lying on Barcelona beach in 27 degrees was more enjoyable than it might have been at home.

It is an important part of my studies to gain the specialist pension exam. I learned a lot from the study involved, a lot of which was practical knowledge that can be used in my day-to-day work.

I believe that this is a very important part of doing further study and exams rather than simply doing them because you have to.

Gaining additional technical and specialist knowledge in what is becoming a very complex profession is extremely valuable.

The other advantage to me in the pension exam is to use the exam to gap-fill on my CII gap-fill. Of the 109 learning points to be covered, I have 10 points still to be covered on pensions, of which the AF3 exam will cover many.

I have already been in touch with the CII to explore my options for a new subject to sit in October. My options were AF1 taxation and trusts or AF2 business financial planning, which incorporates the work from J04 pension funding and J03 tax and legal aspects of business.

I decided to make best use of technology and social media and posted on my twitter account a question AF1 or AF2? Such is the power of social media, I received a few responses back suggesting AF2 was more enjoyable and beneficial in day to day work.

As those responses backed up my preference, I have gone ahead and ordered up-to-date J03 and AF2 case study workbooks. It also seems sensible as I have only just finished studying the J04 pension funding text which is included.

I have received these and plan to start my study programme over the coming months.


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm