One of the stepping stones to chartered status is completing at least four of the six exams that make up the Chartered Insurance Institute’s Advanced Diploma in Financial Planning.
Ranging from AF1 to AF6, some of these three-hour exams are more popular than others. AF5, which covers the financial planning process, is compulsory for chartered status so is virtually guaranteed a place among advisers’ exam choices. Anecdotal evidence suggests fewer people are taking AF2 – which covers business financial planning – than units such as AF3, the pension planning unit.
The AF2 exam builds on the diploma-level J03 exam and covers the tax and legal aspects of business. The syllabus includes the different legal forms of business; the impact of bankruptcy and insolvency; business accounts and controls; taxation in relation to business-owners and employees; legal responsibilities of businesses; business protection insurance; and the use of pensions in business planning.
Pensions have acquired a new significance since the Budget changes so it is not surprising many advisers are taking the AF3 exam – without it they cannot advise on pension transfers. But swotting up on the use of pensions in business planning through AF2 could also be worthwhile for some.
Advisers may deem the other options more relevant, especially if they do not have corporate clients. But some may deal with business owners and studying for AF2 could provide useful knowledge.
CII director of corporate development Steve Aspinall says AF2 is useful for advisers with those sorts of client or those who are looking to move into business-related financial planning. But he advises checking the syllabus first.
“We find a lot of people haven’t read the syllabus,” he says. “They think ‘That’s about business financial planning. I know about that so I’ll do it,’ rather than understanding what they are going to be tested on.”
Reading-based IFA Beaufort Asset Management adviser Graeme Bone took the AF2 exam in 2012. He had passed the old G10 and G20 exams so rather than cover the same ground with the AFP1 personal tax and trust planning exam, he decided to take AF2 and was among the 49 per cent of candidates who passed that year.
Bone saw AF2 as a way of differentiating himself from other advisers, given its lower popularity. He says it makes sense to consider a business financial planning exam if you have corporate clients or individual clients with a business.
“We look after clients that are companies but we have a greater number of individuals who have companies. They may be directors or 100 per cent shareholders. If you are doing holistic financial planning, thinking about the most efficient remuneration structure for them is important.”
He adds: “Businesses can be a major part of a person’s wealth. ‘My business is my pension’ is something we hear a lot. So protecting that business and things like shareholder protection are important.”
Bone has passed 10 exams in the past 16 months but says AF2 took the longest to pass because it has the least crossover with the things advisers do every day.
“It’s still relevant and important but it’s more about background knowledge than the things you come across on a regular basis,” he says.
Bone is happy with the day-to-day applicability of the CII’s exam range but thinks greater everyday relevance could encourage more people to take the AF2 exam.
“It would also be positive if more IFA practices and networks considered when it might be relevant to have people with business financial planning,” he says. “It would help [AF2] if advisers thought a bit more about exams that could help in advising on Keyman insurance and shareholder protection. It could help with risk management from the firm’s perspective too.”
Aspinall expects more advisers to work with smaller companies, particularly once the changes to pensions are finalised. These changes are also likely to affect the AF2 exam.
“The module will evolve to take that into consideration,” he says.
Garry Hale, managing director of HK Wealth Managers and former president of the Personal Finance Society
Fewer advisers are sitting the AF2 exam because for many it is not a core area of the business they do. It will obviously benefit advisers who specialise in the corporate market and business planning or those who wish to do so. But as advisers are required to complete four AF exams to qualify for chartered status, they are likely to choose an exam that is more relevant to their business areas.