Free CISI CWM AWM Practice Questions: Client Discovery and Recommendations

CISI means Chartered Institute for Securities & Investment. CWM means Chartered Wealth Manager, and this page is for the Applied Wealth Management paper. Use this focused CISI CWM Applied Wealth page as a short practice test for Client Discovery and Recommendations. The items are original Finance Prep sample exam questions built for scenario-based practice, not trivia, puzzle questions, official CISI questions, copied live-exam content, or exam dumps.

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These are original Finance Prep practice questions aligned to this topic area. They are not official CISI questions, copied live-exam content, or exam dumps. Use them to preview question style and explanation depth before continuing with topic drills, mixed sets, and timed mock exams in Finance Prep.

Question 1

Topic: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

A recently retired client has £180,000 from the sale of a business. She wants to make an initial plan before a full portfolio is built.

Client facts:

• Essential spending is £4,500 per month.
• You agree an emergency reserve of six months’ essential spending.
• A known property repair bill of £18,000 is due in nine months.
• She has an unsecured personal loan of £35,000 charging 9.2% interest, with no early repayment penalty.
• Her remaining capital can be invested for at least 10 years.
• Her risk profile supports a balanced multi-asset portfolio, but she is nervous about investing the whole amount immediately after recent market volatility.

Which implementation approach best applies cash management, debt management, spreading risk, inflation protection, and volatility management?

• A. Hold £27,000 in cash, keep the loan, and invest £153,000 immediately into a diversified balanced portfolio.
• B. Hold £18,000 in cash for the repair bill, repay the loan, and invest £127,000 as a single lump sum into one UK equity fund.
• C. Hold £45,000 in cash, repay the loan, and keep the remaining £100,000 entirely in cash deposits until markets feel more stable.
• D. Hold £45,000 in cash, repay the £35,000 loan, and phase £100,000 into a diversified balanced portfolio with suitable inflation-aware assets.

Best answer: D

What this tests: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

Explanation: The agreed emergency reserve is six months of essential spending: £4,500 × 6 = £27,000. The known nine-month repair bill should also be held in cash, so total planned liquidity is £45,000. Repaying the 9.2% unsecured loan is a sensible debt-management step because the guaranteed saving is high and there is no penalty. That leaves £180,000 − £45,000 − £35,000 = £100,000 for long-term investment. A diversified balanced portfolio helps spread risk, while growth and inflation-aware assets can help protect real value over a 10-year horizon. Phasing the investment can reduce regret and timing risk for a client worried about near-term market volatility, provided it is agreed and documented.

• Keeping only the emergency reserve ignores the known repair liability and leaves expensive debt outstanding.
• Staying entirely in cash after the short-term needs and debt repayment are dealt with creates inflation risk for a 10-year objective.
• Investing in one UK equity fund as a lump sum fails to spread risk adequately and does not address the client’s volatility concern.

The cash reserve is £27,000 plus the £18,000 repair bill, leaving £100,000 after repaying the high-cost debt.

Question 2

Topic: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

A wealth manager is preparing to recommend that Mrs Green, age 61, invests £420,000 from the sale of a second property into a medium-risk discretionary portfolio for retirement planning.

Client extract:

• Circumstances: Recently widowed; probate is still ongoing.
• Income: £48,000 employment income, expected to stop within 12 months.
• Assets: £210,000 ISA portfolio, £620,000 DC pension, £90,000 cash deposit, mortgage-free home.
• Risk profile: Previously recorded as medium risk with a 10-year horizon.
• Existing arrangements: No lasting power of attorney; her late husband managed most household finances.
• New information at the pre-recommendation meeting:

“My son says I should invest quickly before markets rise again. I am not sleeping well and I may need to reduce my hours to care for my mother.”

Which response should the wealth manager take before finalising the recommendation?

• A. Recommend a higher-growth portfolio because the client has substantial pension and ISA assets and wants to avoid missing market gains.
• B. Focus only on confirming the source of funds from the property sale, as the other facts do not affect investment suitability.
• C. Pause the investment recommendation and reassess objectives, liquidity needs, capacity for loss, decision-making support, and any vulnerability before proceeding.
• D. Proceed with the original portfolio because the recorded risk profile and 10-year investment horizon remain on file.

Best answer: C

What this tests: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

Explanation: A recommendation must reflect the client’s current circumstances, not only information previously recorded. Here, several facts materially affect advice: recent bereavement, potential vulnerability, possible undue influence from a family member, loss or reduction of earned income, caring responsibilities, and limited experience managing finances. These may change the client’s objectives, time horizon, liquidity requirement, capacity for loss, and ability to make an informed decision. The appropriate response is not necessarily to refuse advice, but to pause, update the fact-find, consider support or safeguards, and reassess suitability before any investment is made.

• Relying on the old risk profile ignores major personal and financial changes since it was recorded.
• Increasing risk to avoid missing market gains misprioritises market timing over suitability and client vulnerability.
• Verifying source of funds may be necessary, but it does not address the wider changes affecting objectives, liquidity, and capacity for loss.

Bereavement, possible family pressure, reduced earnings, caring responsibilities, and limited financial experience are material changes that require a fresh suitability assessment.

Question 3

Topic: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

At an annual review, a couple ask whether to invest a £300,000 inheritance into EIS and VCT investments for tax relief and long-term growth. Which response is the single best answer?

Client facts:

• Arun, 43, earns £185,000; Maya, 41, earns £18,000 and is the main carer for their two children.

• They have a £360,000 interest-only mortgage and school fee commitments for the next 10 years.

• Arun is comfortable with high investment risk, but their capacity for loss on family capital is moderate.

• Arun was recently declined for additional life and critical illness cover after medical underwriting; existing death-in-service cover would not clear the mortgage.

• If the inheritance were invested as proposed, they would retain £35,000 in cash.

• A. Scale back or defer the EIS/VCT proposal, address the uninsured mortgage and family liquidity position first, and invest only any true surplus capital later.

• B. Proceed with the EIS/VCT portfolio because Arun’s attitude to risk is high and the tax relief improves the overall risk-return profile.

• C. Use VCTs only, as their quoted status removes the main suitability concern created by the family’s protection gap.

• D. Arrange standard life and critical illness cover before investing the inheritance, then place the remaining capital into the proposed tax-efficient portfolio.

Best answer: A

What this tests: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

Explanation: A recommendation must reflect both willingness to take risk and the household’s ability to withstand adverse outcomes. EIS and VCT investments can be attractive for suitable clients seeking tax relief and long-term growth, but they are higher-risk and may be illiquid or difficult to realise at the wrong time. Here, the family relies heavily on Arun’s income, has a large interest-only mortgage, and cannot currently secure extra life or critical illness cover. That lack of access to insurance cover is a real planning constraint, not a minor administrative issue. The inheritance may be needed to reduce uninsured liabilities, preserve flexibility, or strengthen cash reserves before tax-efficient investment is considered.

• High attitude to risk is not enough where capacity for loss is weakened by dependants, debt, and unavailable protection.
• VCTs being quoted does not remove the underlying family protection and liquidity issue.
• Recommending standard cover ignores the fact that additional life and critical illness cover has already been declined after underwriting.

The inability to obtain additional cover leaves a major protection gap, so the attractive tax and growth features must be constrained by family liabilities and capacity for loss.

Question 4

Topic: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

A wealth manager is preparing a recommendation for a client who has a fixed house-purchase liability in 18 months.

Client facts:

• Capital available now: £150,000.
• Amount required in 18 months: £160,000.
• The client will not accept any capital loss, cannot extend the date, and has no spare cash to add.
• No savings allowance is available; deposit interest is taxable at 40%.

Available routes reviewed:

• Capital-secure 18-month deposit: 4.2% gross p.a., simple interest for this comparison.
• Short-dated bond fund: 5.8% expected gross annual return, but the unit price can fall.
• Structured note: 7.0% target annual return, but capital is at risk if the index barrier is breached.

Based on the figures and client constraints, which action is most appropriate for the wealth manager?

• A. Recommend the structured note because its target return could produce more than £160,000 over 18 months.
• B. Recommend the short-dated bond fund because its expected return is closer to the required gap than the deposit return.
• C. Decline to make an implementation recommendation under the current constraints, explain that the maximum capital-secure outcome is £155,670, and discuss changing the target, timeframe, or funding before documenting the position.
• D. Recommend the deposit as meeting the objective because the gross maturity value is £159,450 before tax.

Best answer: C

What this tests: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

Explanation: Suitability is not achieved by selecting the closest available product. The capital-secure deposit produces gross interest of £150,000 x 4.2% x 1.5 = £9,450. Tax at 40% is £3,780, leaving net interest of £5,670 and a maturity value of £155,670. This is £4,330 short of the £160,000 liability. The other routes may offer enough return potential, but they expose the client to capital loss, which is expressly outside the client’s risk constraint and unsuitable for a fixed 18-month liability. The wealth manager should clearly explain that no suitable implementation recommendation is available on the stated terms, explore whether the client can revise the objective or constraints, and document the discussion.

• A structured note’s target return is not a guaranteed liability match and conflicts with the client’s refusal to risk capital.
• The bond fund relies on expected return and can fall over an 18-month horizon, so it does not satisfy the capital-security requirement.
• Presenting the deposit as meeting the objective ignores 40% tax and the remaining £4,330 shortfall, although it may preserve capital.

The capital-secure route reaches only £155,670 after tax, and the higher-return routes breach the client’s no-loss constraint, so implementation should not be recommended unless the constraints change.

Question 5

Topic: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

Meera and Daniel ask for portfolio advice after receiving £750,000 in cash from a business sale.

Fact-find extract:

• They already hold £45,000 in instant-access cash, equal to six months’ expenditure.
• They need £120,000 for a house extension in 15 months.
• They expect school fees of £24,000 a year for the next four academic years.
• Their main remaining objective is retirement capital growth from age 62, about 10 years away.
• Their assessed attitude to risk is balanced, but they do not want known spending commitments exposed to material market falls.
• They are higher-rate taxpayers and prefer an ESG-screened investment approach.

Which portfolio construction approach is most suitable?

• A. Keep the full £750,000 in cash until the extension and all school fees have been paid, then invest the balance for retirement growth.
• B. Construct a high-yield UK equity and bond portfolio so natural income can meet school fees and the extension cost without drawing on capital.
• C. Use a cash-flow-led segmented plan: hold the extension and near-term school-fee liabilities in cash or short-dated low-risk assets, then invest the remaining long-term capital in a diversified ESG-screened balanced portfolio using available tax wrappers.
• D. Invest the full £750,000 immediately in a diversified ESG-screened balanced portfolio and fund the extension and fees by selling units when each payment is due.

Best answer: C

What this tests: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

Explanation: Portfolio design should follow the client’s objectives, time horizons, liquidity needs, risk capacity, tax position, and stated preferences. Known short-term liabilities should not normally be exposed to material market volatility, even where the client has a balanced attitude to risk for longer-term capital. Meera and Daniel already have an emergency reserve, but the extension and school-fee payments are specific liabilities with short time horizons. A segmented approach allows those needs to be met from cash or short-dated low-risk assets, while the residual capital can be invested for retirement growth over a longer horizon. The long-term element can then be diversified, aligned with their ESG preference, and structured tax-efficiently through appropriate wrappers where available.

• Selling units from a balanced portfolio to meet fixed near-term costs risks crystallising losses at the wrong time.
• Relying on high-yield assets gives income uncertainty and introduces concentration, capital, and liquidity risk.
• Holding everything in cash protects short-term commitments but fails to address the 10-year retirement growth objective and inflation risk.

This matches assets to time horizons and liabilities while still addressing tax efficiency, risk tolerance, ESG preference, and the long-term retirement objective.

Question 6

Topic: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

A wealth manager is implementing a taxable investment after the client has used all available ISA and pension allowances for the tax year.

Client facts:

• Amount to invest: £400,000, separate from an adequate emergency cash reserve
• Tax position: higher-rate taxpayer
• Objective: at least £7,500 net natural income each year for the next four years
• Longer-term aim: keep the capital invested for retirement in 10+ years
• Cost constraint: any recommended fund must have ongoing charges of 0.90% p.a. or less

Assume fund distributions are taxed as dividends at 33.75%, deposit interest is taxed at 40%, ongoing charges reduce the cash yield before tax, and allowances, CGT and platform fees are ignored.

Which implementation recommendation is most suitable?

• A. Recommend the global growth fund because its low charge and 10+ year profile best match the retirement horizon.
• B. Recommend the cash deposit ladder because its expected net interest is £10,800 with no ongoing charge.
• C. Recommend the UK equity income active fund because expected net dividend income is about £7,685 and it offers equity growth potential.
• D. Recommend the low-cost multi-asset income fund and explain that expected net income is about £7,818, with charges within the 0.90% limit and a suitable growth/income horizon.

Best answer: D

What this tests: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

Explanation: The recommendation must satisfy income, tax, cost and time-horizon requirements together. For the low-cost multi-asset income fund, expected net income is £400,000 × (3.60% - 0.65%) × 66.25% = £7,817.50. This exceeds the £7,500 target, keeps charges below 0.90%, and provides a diversified growth/income profile suitable for capital intended to remain invested beyond the initial four-year income need. A recommendation should not be based only on the highest immediate income or the lowest charge if it fails the client’s wider objective.

• The cash deposit ladder produces higher net interest, but it does not address the 10+ year growth objective or inflation risk.
• The UK equity income active fund meets the income target, but its 1.20% charge breaches the client’s explicit cost constraint.
• The global growth fund has a suitable long-term profile and low charge, but its expected net natural income is only £3,445, well below the required £7,500.

It is the only option that meets the net income target, stays within the stated charge limit, and supports the client’s longer-term growth objective.

Question 7

Topic: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

A wealth manager is reviewing how to use an inheritance for a couple. Their capacity for loss is limited for near-term needs, but their attitude to risk for surplus money is balanced.

Client purpose:

“Protect the money needed for the house purchase in two years. Once that and our emergency reserve are covered, invest the maximum possible for our children’s ten-year objective.”

Figures:

• Inheritance available now: £220,000
• House-purchase deposit: £85,000
• Legal, stamp duty and moving costs: £18,000
• Target emergency reserve: 6 months of essential spending
• Essential spending: £4,000 per month
• Existing instant-access cash, not earmarked elsewhere: £16,000

Which recommendation best follows from the client’s stated purpose?

• A. Keep £127,000 of the inheritance in cash as well as the existing £16,000 and invest £93,000 in a balanced growth portfolio.
• B. Keep £103,000 of the inheritance in cash for the house purchase and invest £117,000 in a balanced growth portfolio.
• C. Invest the full £220,000 in a balanced growth portfolio and plan to withdraw the house-purchase amount in two years.
• D. Keep £111,000 of the inheritance in cash or short-dated deposits and invest £109,000 in a balanced growth portfolio for the ten-year objective.

Best answer: D

What this tests: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

Explanation: The recommendation should start with the purpose of the money, not simply the clients’ general risk attitude. The capital needed for the two-year house purchase and emergency reserve should not be exposed to balanced portfolio volatility. The protected liquidity requirement is £85,000 + £18,000 + (6 × £4,000) = £127,000. Existing cash already covers £16,000 of that amount, so £111,000 of the inheritance needs to remain in cash or short-dated deposits. The investable surplus is therefore £220,000 - £111,000 = £109,000. This matches the clients’ instruction to invest the maximum possible only after the near-term and emergency needs are covered.

• Investing all of the inheritance treats the balanced risk profile as overriding the stated purpose and short time horizon.
• Keeping only the house-purchase amount in cash ignores the £24,000 emergency reserve target and leaves it £8,000 short after using existing cash.
• Retaining £127,000 from the inheritance as well as the existing £16,000 overfunds short-term liquidity and reduces the amount available for the ten-year objective.

The protected liquidity need is £127,000, of which £16,000 is already held in cash, leaving £111,000 to retain from the inheritance and £109,000 available for investment.

Question 8

Topic: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

An adviser is turning a first-meeting fact-find into an objective hierarchy for a new client.

Available capital: £260,000 sale proceeds are held in a deposit account.

Liquidity facts:

The client’s stated long-term aim is to invest any surplus for at least eight years. Which client statement should the adviser clarify before treating it as a binding recommendation constraint?

• A. “Please keep enough cash to cover the £18,000 tax bill and £22,000 home-adaptation payment.”
• B. “I want the new investment account kept above £250,000 throughout the first year.”
• C. “Please top up my instant-access reserve to six months of essential spending.”
• D. “Use the calculated surplus for an eight-year investment plan, subject to my risk profile.”

Best answer: B

What this tests: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

Explanation: Client discovery should separate quantified needs from preferences that may be vague, unrealistic, or inconsistent. The emergency reserve target is £4,000 × 6 = £24,000. As the client already has £8,000 in instant-access savings, £16,000 of the sale proceeds is needed to top up the reserve. The tax and home-adaptation payments require a further £40,000. Total ring-fenced capital is therefore £56,000, leaving £204,000 for the eight-year investment objective. A preference for the investment account never to fall below £250,000 cannot be treated as a hard constraint without further discussion. It may reflect a misunderstanding of the investable surplus, a capital-loss concern, or a desire for a guarantee, each of which affects suitability and communication differently.

• Ring-fencing £40,000 for the tax and home-adaptation payments is a clear short-term liquidity need.
• Topping up the emergency reserve follows directly from the stated six-month target and existing savings.
• Investing the £204,000 surplus for eight years is a planning conclusion, still subject to normal suitability assessment.
• A £250,000 minimum investment-account value conflicts with the calculated investable surplus and could imply an unintended guarantee.

After planned cash needs and the reserve top-up, only £204,000 is available for investment, so a £250,000 minimum account value is inconsistent and needs clarification.

Question 9

Topic: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

Ajay and Priya are reviewing whether to invest their full monthly surplus into long-term savings.

Fact-find extract:

• Ajay, age 42, is the main earner and has a chronic but stable health condition that may affect underwriting.
• Priya, age 40, is self-employed with sustainable net earnings of £1,200 per month.
• Essential household spending, including the mortgage, is £5,600 per month.
• Ajay’s employer sick pay is full pay for 3 months, then nil.
• Existing income protection would pay £1,400 per month from month 7 and does not cover redundancy.
• Emergency cash is £16,000.
• Existing life cover is £300,000; the repayment mortgage is £280,000 and the children’s education target is £50,000.

Which interpretation should the adviser use when prioritising their planning needs?

• A. Mortality risk is the only material gap because life cover is £30,000 below the mortgage and education targets combined.
• B. Long-term incapacity is the main quantified income gap: cash can cover the month 4 to 6 shortfall, but about £3,000 per month additional replacement income is still needed after month 6.
• C. The monthly surplus should be invested first for longevity planning because Ajay is young and his health condition is stable.
• D. The emergency cash removes the need for further protection because it exceeds the £13,200 shortfall before income protection begins.

Best answer: B

What this tests: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

Explanation: Health and employment facts can change the order of planning priorities. Ajay’s morbidity risk is not just a medical underwriting issue; it creates a cash-flow risk if he cannot work. During months 4 to 6, the household would have £1,200 income against £5,600 essential spending, a monthly gap of £4,400. Over three months this is £13,200, so the £16,000 emergency fund can broadly cover the deferred-period gap. From month 7, the existing income protection adds £1,400 per month, but the household still has only £2,600 against £5,600 essential spending. That leaves a continuing £3,000 monthly gap. Mortality planning also needs review, but the larger recurring vulnerability is long-term incapacity. Redundancy is separate because the income protection policy does not cover it.

• Focusing only on the £30,000 life-cover gap ignores the larger recurring morbidity shortfall.
• Treating the emergency fund as a complete solution confuses a temporary deferred-period reserve with long-term replacement income.
• Prioritising investment for longevity before protection overlooks affordability and resilience if earned income stops.
• Redundancy should not be assumed to be covered by income protection unless the policy explicitly includes it.

After month 6, essential spending of £5,600 less Priya’s £1,200 income and £1,400 income protection leaves a £3,000 monthly shortfall.

Question 10

Topic: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

A wealth manager is preparing an initial investment recommendation for Martin and Sara, both UK resident and domiciled, after Martin sold part of his business.

Known facts:

• Sale proceeds available for investment: £750,000 after tax and repayment of business debt.
• Combined employment income covers current expenditure, and they hold £55,000 in instant-access cash for emergencies.
• Existing ISAs and pensions are recorded, and neither client wants to use these proceeds for pension funding at this stage.
• Their risk profile is recorded as medium, with moderate capacity for loss.
• Protection needs have been reviewed, and no immediate shortfall was identified.
• They have no ethical or religious investment restrictions.

Client note:

“We might help our daughter with university costs and may move closer to Sara’s mother if her care needs increase, but we have not worked out the figures.”

Proposed plan: invest the full £750,000 in a discretionary multi-asset portfolio for capital growth over a 10-year-plus horizon, retaining no additional cash reserve beyond the existing £55,000.

Which missing client fact most clearly makes the proposed investment plan incomplete?

• A. The clients’ preferred frequency for receiving discretionary portfolio performance reports
• B. The exact names of the pension providers holding their existing pension arrangements
• C. The likely amount and timing of the university, family support, and possible house-move expenditure to be funded from the sale proceeds
• D. The clients’ preferred charity for any future philanthropic giving

Best answer: C

What this tests: Client Discovery, Investment Planning, Objective Prioritisation, and Recommendation Communication

Explanation: A suitable investment plan must be based on the client’s objectives, time horizon, liquidity needs, risk profile, capacity for loss, tax position, and relevant personal circumstances. Here, the clients have identified possible near- or medium-term calls on the sale proceeds, but the adviser has not quantified them. A 10-year-plus growth portfolio may be unsuitable for money needed for university costs, family support, or a property move within a few years. Before recommending that the full £750,000 be invested, the adviser should establish how much might be needed, when it might be needed, and how certain the need is. That information drives the cash reserve, investment segmentation, risk level, and communication of priorities.

• Reporting frequency is relevant to service expectations, but it does not decide whether the capital should be invested for a long-term horizon.
• Pension provider names may be useful administration detail, but pension funding has been excluded and pension values have already been considered.
• Future charitable preferences do not affect the immediate suitability of investing the full sale proceeds unless philanthropy is an identified objective.

These foreseeable capital calls determine the required liquidity reserve and investment time horizon, so investing the full sum for long-term growth is not yet supportable.

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