Free CISI IAD FPA Practice Questions: Element 1: Financial Planning

CISI means Chartered Institute for Securities & Investment. IAD means Investment Advice Diploma, and this page is for the Financial Planning and Advice unit. Use this focused CISI IAD FPA page as a short practice test for Element 1: Financial Planning. 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.

Topic snapshot

Sample questions

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: Element 1: Financial Planning

Alison, age 64, is preparing to retire at 65. She wants to know whether her planned essential retirement spending is affordable before her State Pension starts. Use only the following assumptions:

• Planned spending in retirement: £2,500 a month.
• Employer pension from age 65: £19,200 a year.
• State Pension forecast from age 67: £11,500 a year.
• Cash reserve available for retirement spending: £8,000, to be used in the first year only.
• Ignore tax, inflation, and investment growth.

What is the single best conclusion about her retirement cash-flow pressure?

• A. A permanent shortfall of £10,800 a year is projected, because only the employer pension counts.
• B. No shortfall is projected, because the employer pension and State Pension together exceed spending.
• C. A two-year shortfall of £10,800 a year is projected, because the cash reserve is ignored.
• D. A temporary bridge shortfall is projected: £2,800 in year 1 and £10,800 in year 2.

Best answer: D

What this tests: Element 1: Financial Planning

Explanation: Retirement cash flow should match the timing of income sources to the timing of spending needs. Alison’s planned spending is £2,500 × 12 = £30,000 a year. In the first year from age 65, her employer pension plus the stated cash reserve gives £19,200 + £8,000 = £27,200, leaving a £2,800 shortfall. In the second year, before State Pension starts and with no further cash reserve stated, income is £19,200, leaving a £10,800 shortfall. From age 67, the employer pension plus State Pension is £30,700, which broadly covers the stated spending. The pressure is therefore a bridge-funding issue before State Pension commencement, not an ongoing retirement-income deficit on the assumptions supplied.

• Treating the age-67 income as available immediately misses the two years before State Pension starts.
• Ignoring the cash reserve understates year-1 resources, as it is specifically available for retirement spending.
• Counting only the employer pension after age 67 ignores the stated State Pension forecast.

Year 1 resources are £27,200 against £30,000 spending, and year 2 resources are £19,200 against £30,000 spending before the State Pension starts.

Question 2

Topic: Element 1: Financial Planning

A client asks for focused advice limited to income protection. He has two young children, needs at least £2,000 a month if unable to work, and can afford about £45 a month in premiums. He has just changed jobs and forwards an email from a recruitment consultant stating that his new employer provides six months’ full sick pay and group income protection after 26 weeks, but he has no employer benefits statement yet.

What is the single best next step before making a recommendation?

• A. Use the recruitment consultant’s email because the advice is focused and the client has supplied the information.
• B. Recommend cover for the full £2,000 monthly need and disregard employer benefits because they are outside the advice scope.
• C. Decline to provide focused advice unless the client first agrees to a full financial planning review.
• D. Obtain the client’s authority and verify the employer benefits with an official source before relying on them in the shortfall calculation.

Best answer: D

What this tests: Element 1: Financial Planning

Explanation: Focused advice still requires a suitable recommendation based on reliable information. Employer sick pay and group income protection can significantly reduce, defer, or reshape the client’s personal income protection need. Because the only evidence is an email from a recruitment consultant, the adviser should not rely on it without verification. With the client’s authority, the adviser should obtain an employer benefits statement, HR confirmation, policy schedule, or other official evidence before calculating the protection shortfall and affordability fit. The advice can remain focused, but the data used within that scope must be checked when it is material to the outcome.

• Relying on the recruitment consultant’s email treats unverified third-party information as fact, even though it directly affects the recommendation.
• Ignoring employer benefits may lead to unnecessary or unsuitable cover because existing provision is relevant to the income shortfall.
• Requiring a full financial planning review is not necessary if focused advice is appropriate and the material information within scope can be verified.

Unverified third-party benefit information could materially change the income protection need, so it should be confirmed before being used in a focused recommendation.

Question 3

Topic: Element 1: Financial Planning

A financial planner has returned to client work after several months on a project role. A new client, age 62 and recently widowed, needs advice on drawing pension income, has a low capacity for loss, and supports an adult child financially. The planner has not yet completed the firm’s recent CPD updates on retirement-income options and vulnerable client procedures. What is the best action before giving the recommendation?

• A. Ask the client to choose a pension-income route first, then confirm whether the choice appears affordable.
• B. Complete the targeted CPD updates and use appropriate supervision or specialist input before finalising the advice.
• C. Limit the recommendation to the client’s existing investments and avoid discussing pension-income options.
• D. Proceed with the advice because the planner is already experienced and the client’s need is time-sensitive.

Best answer: B

What this tests: Element 1: Financial Planning

Explanation: CPD supports competent financial planning by keeping advisers’ technical knowledge, regulatory understanding, and firm procedures current. Where a planner identifies a knowledge gap that is directly relevant to the client’s needs, the gap should be addressed before advice is finalised. In this case, retirement-income options and vulnerable client procedures are central to the client’s situation. Completing targeted CPD, and using supervision or specialist input where needed, protects advice quality and helps ensure recommendations are suitable, clearly explained, and properly evidenced.

• Relying on prior experience ignores a current, client-relevant competence gap.
• Avoiding pension-income advice would fail to address the client’s stated need.
• Letting the client choose first shifts the advice responsibility away from the planner and does not evidence suitability.

Targeted CPD addresses the specific competence gap and helps ensure the recommendation properly reflects the client’s pension, vulnerability, income, and risk needs.

Question 4

Topic: Element 1: Financial Planning

An adviser is updating Theo’s financial status analysis after he is diagnosed with a condition covered by his critical illness policy. The claim has been accepted and will be paid tax-free to Theo personally. Immediately after the claim payment, the relevant figures are:

• Home value: £450,000
• Mortgage: £165,000
• Savings and ISAs: £70,000
• General investment account: £45,000
• Unsecured personal loan: £10,000
• Critical illness lump sum: £125,000

Which amount should be recorded as Theo’s net worth immediately after the claim payment?

• A. £680,000
• B. £390,000
• C. £525,000
• D. £515,000

Best answer: D

What this tests: Element 1: Financial Planning

Explanation: Net worth is calculated by adding the client’s assets and then deducting their liabilities. Here, the assets immediately after the accepted claim are the home, savings and ISAs, general investment account, and the critical illness lump sum paid to Theo personally: £450,000 + £70,000 + £45,000 + £125,000 = £690,000. The liabilities are the mortgage and unsecured personal loan: £165,000 + £10,000 = £175,000. Theo’s net worth is therefore £690,000 - £175,000 = £515,000.

• £390,000 excludes the accepted critical illness payout, even though it is paid to Theo personally and forms part of his assets.
• £525,000 deducts the mortgage but misses the unsecured personal loan.
• £680,000 deducts only the personal loan and ignores the mortgage liability.

Net worth is total assets of £690,000 less total liabilities of £175,000.

Question 5

Topic: Element 1: Financial Planning

At an annual review, Moira, age 62, has just retired and now needs regular withdrawals from her savings to meet essential spending. Her stated priorities are to keep at least £30,000 readily accessible and avoid losses that would force her to reduce day-to-day spending. She currently has £12,000 in cash and a £90,000 stocks and shares ISA invested wholly in a high-risk UK smaller companies fund. The fund was recommended eight years ago when she was working, had surplus income and wanted long-term growth. Her current risk profile is cautious, and there are no exit penalties or tax charges on switching investments within the ISA. Which action best applies the suitability principle to these facts?

• A. Leave the ISA unchanged because the original recommendation was suitable and the investment remains inside a tax-efficient wrapper.
• B. Switch the whole ISA to cash immediately because any high-risk fund is unsuitable for a retired client.
• C. Recommend further investment in the same fund to improve the chance of replacing her employment income with higher growth.
• D. Reassess the ISA against her current objectives, risk profile, capacity for loss and cash reserve need, then recommend a documented rebalance if it no longer fits.

Best answer: D

What this tests: Element 1: Financial Planning

Explanation: Suitability is a continuing assessment. An investment that was suitable when a client had surplus earnings, a long time horizon and higher risk capacity may become unsuitable after retirement if the client now needs accessible capital and stable withdrawals. Moira has a cautious risk profile, insufficient cash for her stated reserve and limited capacity for loss because investment falls could affect essential spending. The correct approach is to reassess the holding against her current objectives, risk tolerance, capacity for loss, liquidity needs and any costs or tax effects, then document any recommendation to rebalance or switch while preserving the ISA wrapper where appropriate.

• Relying on the original advice ignores the change in Moira’s objectives, income position and capacity for loss.
• Moving everything to cash treats retirement status as the only deciding factor and may ignore inflation risk, investment horizon and the need for a balanced solution.
• Adding to the same high-risk fund prioritises growth over her stated need for accessibility and protection from losses affecting essential spending.

The existing ISA must be judged against Moira’s current circumstances, not only against the reasons it was originally recommended.

Question 6

Topic: Element 1: Financial Planning

A planner is reviewing an initial fact-find for a married couple, both aged 40. They say they can invest “about £1,000 a month” but have not agreed whether their first priority is retirement saving, mortgage protection, or building an emergency fund. Their latest monthly cash-flow notes show:

The planner has not yet received details of their existing pensions or any employer death-in-service benefits. What is the best next planning step?

• A. Recommend life cover immediately because mortgage protection should always take priority over savings.
• B. Recommend a £1,000 monthly ISA contribution because it reflects the clients’ stated affordability.
• C. Recommend a £750 monthly pension contribution because it matches the calculated current surplus.
• D. Reconcile the cash-flow difference, obtain the missing pension and protection details, and agree the clients’ priorities before making recommendations.

Best answer: D

What this tests: Element 1: Financial Planning

Explanation: The figures show net household income of £5,600 less essential expenditure of £3,950 and maintained discretionary spending of £900, leaving a known monthly surplus of £750. This conflicts with the clients’ stated affordability of about £1,000 a month. In addition, the planner lacks key information about existing pensions and death-in-service benefits, and the clients have not agreed the order of their objectives. The appropriate planning step is to complete and verify the fact-find, discuss the cash-flow discrepancy, and agree priorities and affordability before recommending products or contribution levels. A financial plan should be based on reliable client information, clear objectives, and understood trade-offs.

• A pension contribution may be suitable later, but matching the current surplus does not resolve missing data or competing priorities.
• Using the clients’ stated £1,000 affordability ignores the calculated £750 surplus and could create an unsuitable cash-flow commitment.
• Mortgage protection may be important, but it should not be recommended automatically without assessing existing benefits, needs, affordability, and priorities.

Known monthly surplus is £750, not £1,000, and the missing information and unagreed priorities must be resolved before suitable recommendations can be made.

Question 7

Topic: Element 1: Financial Planning

A financial planner is reviewing a new client’s existing arrangements.

• Client: 38, employed, one dependent child
• Net monthly income: £3,600
• Essential monthly expenditure: £3,250
• Cash savings: £2,000
• Stocks and shares ISA: £28,000 in an adventurous equity fund, intended for a house deposit in about 18 months
• Protection: death-in-service benefit of four times salary, no income protection or critical illness cover
• Retirement: workplace pension contributions at the minimum auto-enrolment level

The client wants to increase pension contributions by £300 per month and keep the ISA invested until the house purchase. Which conclusion best applies a gap-analysis principle to these facts?

• A. The workplace pension closes the retirement gap because the client is already contributing through auto-enrolment.
• B. The main gaps are short-term liquidity, income protection, and the investment risk of the house-deposit fund, so these should be addressed before committing spare income to higher pension contributions.
• C. The death-in-service benefit means the client’s protection needs are broadly covered, so the priority should be increasing pension contributions.
• D. The adventurous ISA is suitable because the client has 18 months before the house purchase and needs growth to improve affordability.

Best answer: B

What this tests: Element 1: Financial Planning

Explanation: Gap analysis compares existing arrangements with the client’s objectives, essential expenditure, risks, time horizons, and affordability. Here, the client has less than one month of essential spending in cash, so liquidity is weak. The client also has a dependent child and no income protection, so illness or incapacity could quickly create an income shortfall. The ISA is earmarked for a house deposit in about 18 months but is invested adventurously, creating a mismatch between investment risk and a short timescale. Increasing pension contributions may be valuable later, but it would reduce disposable income while more immediate gaps remain unresolved.

• Death-in-service provides a lump sum on death, but it does not replace income during illness or incapacity.
• A short-term house deposit should not rely on adventurous equity exposure without considering volatility and timescale risk.
• Auto-enrolment participation does not prove that retirement provision is adequate for the client’s target income.

The facts show limited emergency cash, no replacement income cover, and a short-term objective invested in a high-risk asset, all of which are immediate provision gaps.

Question 8

Topic: Element 1: Financial Planning

A paraplanner is reviewing a draft annual-review note for a client’s existing stocks and shares ISA.

• Net income: £3,200 per month
• Committed expenditure: £2,850 per month
• Easy-access cash: £6,500
• Course fee due in 9 months: £8,000
• Existing stocks and shares ISA: £42,000 in a medium-risk multi-asset fund
• Original purpose of ISA: retirement savings from age 65
• No current risk-profile or objective update has yet been completed

Assume the monthly surplus can be saved in cash until the course fee is due. Which evidence is most important to obtain before concluding that the existing ISA is unsuitable?

• A. An updated record of the client’s objective, time horizon, risk tolerance, and capacity for loss for the ISA
• B. The provider’s current list of alternative funds available within the ISA wrapper
• C. The client’s State Pension forecast and National Insurance record
• D. The fund’s three-year performance ranking against its sector average

Best answer: A

What this tests: Element 1: Financial Planning

Explanation: The short-term cash need appears affordable without using the ISA. The monthly surplus is £350 (£3,200 less £2,850), which gives £3,150 over 9 months. Added to existing easy-access cash of £6,500, this gives £9,650 available for an £8,000 course fee. That leaves £1,650, so the short-term expense alone does not justify concluding that the ISA is unsuitable. Before reaching that conclusion, the adviser needs current evidence about what the ISA is now intended to achieve, the client’s time horizon, risk tolerance, and capacity for loss. An existing arrangement may be unsuitable if it no longer matches the client’s needs or risk position, but that conclusion should be evidence-based rather than inferred from an isolated cash-flow concern.

• Alternative funds may become relevant if the ISA wrapper remains suitable but the investment choice needs changing.
• Past performance rankings can support review work, but they do not establish suitability without the client’s current needs and risk profile.
• State Pension information may be relevant to retirement planning, but it is not the key missing evidence for judging this ISA against the immediate suitability concern.

The cash figures do not show a need to use the ISA, so suitability should be judged against the client’s current purpose, timescale, risk tolerance, and capacity for loss.

Question 9

Topic: Element 1: Financial Planning

A firm’s streamlined advice service is designed only to recommend a stocks and shares ISA from a restricted range after a short fact-find. Maya, 39, asks to invest £15,000 for “better long-term returns”. During the fact-find she explains that she is the sole earner for a partner and two children, has a repayment mortgage, would have only £500 in cash savings after investing, and is unsure whether her employer provides sick pay or death-in-service benefits. She has no life cover or income protection.

Which issue creates the strongest suitability risk if the adviser continues with the ISA-only streamlined service?

• A. The limited process may ignore immediate cash-reserve and protection needs while material employer-benefit facts remain unresolved.
• B. The client’s family status means a stocks and shares ISA cannot be recommended in any circumstances.
• C. Her long-term return objective means wider protection issues can be deferred until the next review.
• D. The lack of death-in-service details only affects tax planning, not the investment suitability decision.

Best answer: A

What this tests: Element 1: Financial Planning

Explanation: Streamlined advice can be appropriate where the client’s needs fit the limited scope and enough information is available to assess suitability. It does not remove the need to respond to obvious wider needs or unresolved material facts. Here, investing £15,000 would leave Maya with only £500 in accessible savings despite dependants, a mortgage, no personal protection, and unclear employer benefits. These facts could make an emergency fund, life cover, or income protection more urgent than an investment recommendation. Continuing with an ISA-only process risks giving advice that is technically within the service scope but unsuitable for the client’s real circumstances. The adviser should pause, gather missing information, broaden the scope if authorised, or refer appropriately.

• Family responsibilities do not automatically prevent an ISA recommendation, but they affect priorities, affordability, and capacity for loss.
• Death-in-service and sick pay details matter because they help assess protection needs and reliance on employment benefits.
• A long-term return objective does not override immediate cash-flow, emergency reserve, and protection concerns.

The visible protection gap, low remaining cash reserve, dependants, mortgage, and unresolved employer benefits make an ISA-only process unsafe without further fact-finding or referral.

Question 10

Topic: Element 1: Financial Planning

A UK retail investment adviser has passed the required qualification and is authorised by her firm to advise on retail investment products. A recent file review found a recurring weakness: her reports describe product costs accurately but give generic reasons for risk profile, capacity for loss, and affordability. She has recorded several hours of CPD this year, mainly provider presentations on new fund launches. Which action best applies the role of CPD in supporting competent financial planning and client-advice quality?

• A. Focus CPD on product features only, because advice quality is determined mainly by selecting the best-performing fund provider.
• B. Continue attending provider presentations, because logged CPD hours are sufficient evidence that competence is being maintained.
• C. Ask compliance to add standard wording on risk and affordability to each report, so no further CPD is needed.
• D. Create a targeted CPD plan linked to the file-review findings, complete relevant learning on risk capacity and affordability assessment, record reflection, and apply it in future suitability reports.

Best answer: D

What this tests: Element 1: Financial Planning

Explanation: CPD is intended to maintain and improve an adviser’s competence in the work they actually perform. It should be relevant, planned, recorded, and reflective, with learning linked to client outcomes and advice quality. Here, the issue is not a lack of product information; the file review has identified weaknesses in applying and documenting core suitability factors: risk profile, capacity for loss, and affordability. Effective CPD would therefore focus on those areas and show how the learning changes future advice files. CPD is not merely a count of hours or attendance at provider events. Nor can generic compliance wording replace the adviser’s professional judgement and client-specific reasoning.

• Counting provider presentations treats CPD as a box-ticking exercise rather than evidence of continuing competence.
• Standard wording may support consistency, but it does not address the adviser’s underlying assessment and judgement.
• Product-feature learning is too narrow when the weakness concerns suitability reasoning and client-specific financial planning.

CPD should address identified competence gaps and show how learning improves the adviser’s planning process and suitability documentation.

Continue in the web app

Use Finance Prep for interactive CISI IAD FPA practice with mixed sets, timed mock exams, topic drills, explanations, and progress tracking.

Related focused pages

• Free CISI IAD FPA Practice Exam
• Free CISI IAD FPA Practice Questions: Element 2: Financial Protection
• Free CISI IAD FPA Practice Questions: Element 3: Retirement Planning
• Free CISI IAD FPA Practice Questions: Element 4: Retirement Solutions
• Free CISI IAD FPA Practice Questions: Element 5: Financial Planning Recommendations

Practice next step

Use the Finance Prep web app above when you want interactive practice beyond this static page.