Free CISI IAD FPA Practice Questions: Element 5: Financial Planning Recommendations

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 5: Financial Planning 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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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 5: Financial Planning Recommendations

A financial planner is preparing a recommendation for Priya, age 42, after a fact-find and objectives meeting. Priya has received a £62,000 inheritance and wants the recommendation to follow her agreed priorities before any long-term investment is selected.

• Essential household spending: £2,300 per month
• Existing instant-access emergency savings: £4,000
• Credit card balance: £6,800 at 22% APR
• Inheritance available now: £62,000
• Agreed priorities: maintain an emergency reserve equal to six months’ essential spending; clear expensive unsecured debt; invest the balance for retirement over 15+ years
• Constraints/preferences: medium attitude to risk; no ethical exclusions; no need for access to the retirement money; avoid any new monthly commitment that reduces her £450 monthly disposable income below £250

Which recommendation is best justified by Priya’s objectives, facts, constraints, and priorities?

• A. Use £13,800 from the inheritance for new emergency savings, £6,800 to repay the credit card, and £41,400 for retirement investment.
• B. Use £9,800 to top up emergency savings, £6,800 to repay the credit card, and £45,400 for a medium-risk long-term retirement investment.
• C. Invest the full £62,000 for retirement and use the monthly surplus to reduce the credit card balance and rebuild cash savings.
• D. Use £6,800 to repay the credit card and invest £55,200 for retirement, leaving the existing £4,000 emergency savings unchanged.

Best answer: B

What this tests: Element 5: Financial Planning Recommendations

Explanation: A recommendation should be anchored to the client’s agreed priorities and constraints, not just to the highest long-term return. Priya needs an emergency reserve of six months’ essential spending: £2,300 × 6 = £13,800. She already has £4,000 in instant-access savings, so the inheritance only needs to add £9,800 to reach the target. Clearing the £6,800 credit card is the next priority because it is expensive unsecured debt. The remaining inheritance is £62,000 - £9,800 - £6,800 = £45,400, which can then be invested for the 15-year-plus retirement objective in line with her medium attitude to risk. This also avoids creating a new monthly commitment that would breach her affordability constraint.

• Holding £13,800 from the inheritance for cash ignores the existing £4,000 already available and leaves less for the retirement objective than necessary.
• Investing £55,200 after debt repayment leaves the emergency reserve at only £4,000, below the agreed six-month target.
• Investing the full inheritance gives priority to long-term growth over the agreed cash reserve and debt repayment priorities.

This follows the agreed order of priorities and calculates the investible balance after the emergency reserve top-up and debt repayment.

Question 2

Topic: Element 5: Financial Planning Recommendations

At an annual review, a 58-year-old client has an ISA and general investment account originally set at 70% equities and 30% bonds/cash to help fund discretionary spending in retirement at age 65. Essential retirement income is expected to be covered by a defined benefit pension and State Pension. Since the last review, the client’s spouse has been made redundant, the household emergency fund has fallen to two months’ expenditure, and the client now says a fall of more than about 10% would be unacceptable. The portfolio has drifted to 82% equities, and selling all taxable holdings immediately would create a large capital gain.

What is the single best action for the adviser to recommend after the review?

• A. Rebalance immediately back to the original 70% equity allocation because it was the agreed long-term strategy at outset.
• B. Agree a revised asset allocation reflecting the lower risk tolerance and liquidity need, then rebalance tax-efficiently rather than mechanically restoring the old mix.
• C. Switch the full portfolio to cash until the spouse is re-employed because the emergency fund is currently below target.
• D. Leave the portfolio at 82% equities because the client still has seven years to retirement and selling would trigger taxable gains.

Best answer: B

What this tests: Element 5: Financial Planning Recommendations

Explanation: A review should not simply check whether the original portfolio still exists. It should reassess whether the client’s objectives, time horizon, risk tolerance, capacity for loss, liquidity needs, and tax position still support the current strategy. Here, the portfolio has become more equity-heavy than intended, while the household’s ability and willingness to absorb short-term losses have fallen. That points to a revised strategic allocation and some rebalancing. However, the client’s essential retirement income is expected to be covered, and immediate disposal of all taxable holdings would create a large gain, so an all-cash or forced-sale response would be disproportionate. A suitable recommendation would combine updated suitability assessment, rebuilding liquidity, and tax-aware rebalancing toward an allocation the client can realistically maintain.

• Restoring the old 70% equity mix ignores the client’s changed tolerance for loss and reduced emergency fund.
• Keeping 82% equities treats tax as the only issue and fails to address portfolio drift and suitability.
• Moving everything to cash overreacts to the short-term liquidity problem and disregards the discretionary long-term objective.

The review identifies changed risk tolerance, reduced cash resilience, and portfolio drift, so the allocation should be reassessed and rebalanced in a tax-aware way.

Question 3

Topic: Element 5: Financial Planning Recommendations

An adviser agreed ongoing annual reviews when implementing a financial plan for Priya 12 months ago. The next review is due. Priya emails to say she has changed employer, had a child, received a £30,000 inheritance, and is unsure whether to reduce pension contributions because childcare costs have increased. Her portfolio has drifted from the original asset allocation.

Which action best applies the review process?

• A. Limit the review to product valuations and charges because the adviser’s role is to check whether the existing investments have performed as expected.
• B. Rebalance the portfolio back to the original asset allocation immediately, then ask Priya to confirm whether her circumstances have changed at the next annual review.
• C. Advise Priya to keep pension contributions unchanged because the original plan remains suitable until she gives formal written instructions to change it.
• D. Arrange a review meeting, confirm its purpose, and request updated information on Priya’s circumstances, objectives, income, outgoings, assets, liabilities, risk profile, capacity for loss, tax position, pensions, protection, and current holdings before making recommendations.

Best answer: D

What this tests: Element 5: Financial Planning Recommendations

Explanation: A financial plan review is not just a performance check. The adviser should initiate the agreed review meeting, explain its purpose and scope, and obtain up-to-date information before judging whether the existing plan remains suitable. Priya’s employer change, new child, inheritance, higher expenditure, possible pension contribution change, and asset-allocation drift all affect priorities, affordability, risk capacity, protection needs, tax position, and retirement planning. Recommendations such as rebalancing or changing contributions should follow the updated fact-find and suitability assessment, not precede it.

• Rebalancing before updating the fact-find may restore the old allocation but ignores whether Priya’s objectives, affordability, and risk capacity have changed.
• Keeping pension contributions unchanged assumes the original recommendation still fits despite clear changes in family and cash-flow circumstances.
• Reviewing only valuations and charges is too narrow because an ongoing review must consider the client’s current needs, objectives, constraints, and existing solutions.

A review should start by engaging the client and gathering current data so suitability, affordability, priorities, and any required changes can be reassessed.

Question 4

Topic: Element 5: Financial Planning Recommendations

An adviser is preparing a suitability report for Priya, age 39, the sole earner in a household with two dependent children. Her fact-find shows:

• Net disposable income after essential spending: £260 per month
• Cash savings: £1,000
• Essential household spending: £2,500 per month
• Repayment mortgage: £190,000 over 22 years
• Personal life cover and income protection: none
• Employer sick pay: 8 weeks full pay, then Statutory Sick Pay only
• Maximum affordable premium or contribution: £230 per month

Priya’s agreed priorities are to keep the family home and meet essential bills if she dies or cannot work long term, then build a cash reserve, then start investing for her children’s university costs in 10 or more years. A suitable income protection and decreasing term assurance package is available for £145 per month.

Which statement would best justify the recommendation?

• A. Recommend the £145 protection package and £85 monthly cash saving, explaining that this addresses Priya’s first priority, mortgage and income risks, limited sick pay, and stated budget before university investing is reviewed.
• B. Recommend a £230 pension contribution, explaining that tax relief and retirement planning should be prioritised because Priya is age 39.
• C. Recommend a £230 Stocks and Shares ISA contribution, explaining that the 10-year time horizon and medium-term growth potential make university saving the priority.
• D. Recommend a £275 comprehensive protection package, explaining that full cover should take precedence even if it exceeds Priya’s agreed monthly limit.

Best answer: A

What this tests: Element 5: Financial Planning Recommendations

Explanation: A suitable recommendation should be explained by showing how it follows from the client’s agreed objectives, facts, constraints, and priorities. Priya’s first priority is family security if she dies or cannot work. The fact-find supports that need because she is the sole earner, has dependent children, a mortgage, no existing personal cover, and limited sick pay. The £145 protection package is within her £230 monthly affordability limit and leaves money to start building her cash reserve, which is her second priority. University investing may be appropriate later, but it should not displace the agreed protection and emergency-fund priorities at this stage.

• Investing the full £230 in a Stocks and Shares ISA overemphasises time horizon and ignores Priya’s higher-priority protection and cash-reserve needs.
• Recommending cover above the agreed monthly limit fails the affordability constraint, even if the protection need is genuine.
• Pension saving and tax relief may be relevant later, but they do not address the agreed immediate priorities in the fact-find.

The recommendation is justified by directly linking the action to Priya’s agreed priorities, material facts, affordability limit, and deferred lower-priority objective.

Question 5

Topic: Element 5: Financial Planning Recommendations

At an annual review, a client says she now wants to stop full-time work at age 65 rather than 67. Her risk profile has not increased and she wants to keep her emergency cash untouched.

Relevant figures are:

• Target retirement spending from age 65: £32,000 net per year
• Defined benefit pension payable from age 65: £15,000 net per year
• Planned sustainable ISA withdrawals: £4,500 net per year
• State Pension: starts at age 67, so it is not available between ages 65 and 67

Which review response is most suitable?

• A. Increase the ISA portfolio risk level so higher expected returns can replace the missing State Pension income.
• B. Revise the cash-flow plan and discuss how to bridge the £12,500 annual gap between ages 65 and 67.
• C. Defer any action until the next annual review because the State Pension will still start at age 67.
• D. Keep the existing plan because the defined benefit pension and ISA withdrawals meet the full income need from age 65.

Best answer: B

What this tests: Element 5: Financial Planning Recommendations

Explanation: A review should test whether the plan still matches the client’s priorities, assumptions and resources. The original plan is no longer aligned because the client now wants to stop full-time work two years before the State Pension becomes payable. Between ages 65 and 67, the available planned income is £15,000 from the defined benefit pension plus £4,500 from ISA withdrawals, a total of £19,500. Against a £32,000 target, this leaves a £12,500 annual gap. The adviser should update the cash-flow analysis and discuss realistic ways to bridge the shortfall, such as phased work, lower spending, additional saving, or use of other suitable resources. Simply leaving the plan unchanged or increasing investment risk would not properly address suitability or the client’s stated constraints.

• Treating the existing plan as sufficient ignores the missing State Pension income before age 67.
• Increasing investment risk conflicts with the client’s unchanged risk profile and short timescale.
• Waiting until the next review is unsuitable because a material change in retirement timing has already occurred.

The revised retirement date creates a two-year income shortfall of £32,000 minus £15,000 minus £4,500, so the plan needs updating before any solution is confirmed.

Question 6

Topic: Element 5: Financial Planning Recommendations

A client has one month of emergency savings and employer sick pay that falls to statutory sick pay after 13 weeks. The adviser recommends an income protection policy with a 13-week deferred period. The premium is £78 per month, which would reduce the client’s planned stocks and shares ISA contribution by the same amount. The policy excludes claims arising from an existing back condition, and the premium may be reviewed by the insurer every five years. The adviser expects to review the arrangement annually and after material changes such as a new job, income change, or family change.

Which client communication best applies the appropriate advice principle?

• A. Explain that the policy addresses the income shortfall after sick pay ends, but also set out the £78 monthly cost, reduced ISA saving, back-condition exclusion, reviewable premium, and need for future reviews.
• B. Focus on the tax efficiency of continuing ISA saving and advise the client to delay protection until the emergency fund has been rebuilt.
• C. Emphasise that the policy matches the main protection need and avoid discussing the reduced ISA saving because the client has already accepted the premium.
• D. Present the policy as the best solution because it is affordable today, and note that future premium reviews can be considered only if the insurer changes the price.

Best answer: A

What this tests: Element 5: Financial Planning Recommendations

Explanation: When a recommendation involves competing objectives, the adviser should communicate the advice in balanced, client-understandable terms. The client needs to know what need is being met, what is being given up, what the product will not do, what it costs, and when it should be reviewed. Here, the protection recommendation addresses a clear income shortfall after employer sick pay ends, but it also reduces ISA saving and contains an exclusion and reviewable premium. A suitable explanation should not hide those limitations or treat affordability at outset as the only consideration. It should link the recommendation to the client’s priorities and make clear that future changes in work, income, family circumstances, or product cost may affect suitability.

• Omitting the ISA trade-off would make the communication incomplete because the recommendation affects another part of the client’s plan.
• Treating current affordability as sufficient ignores the reviewable premium and the client’s changing circumstances.
• Prioritising ISA saving alone fails to address the identified protection shortfall after sick pay ends.

A suitable communication must make the recommendation understandable while clearly disclosing the trade-offs, limitations, cost, and review points relevant to the client.

Question 7

Topic: Element 5: Financial Planning Recommendations

At an annual review, Priya tells her adviser that she and her spouse have had their first child and moved home. Her regular ISA objective and risk profile are unchanged, and the ISA portfolio remains within the agreed asset-allocation tolerance.

Review facts:

• Existing level term assurance: £250,000
• New mortgage balance: £310,000
• Additional family capital need if Priya dies: £140,000
• Emergency fund: fully funded and not intended to meet protection needs

For this review, assume the protection need is the mortgage balance plus the additional family capital need, less existing life cover. Which additional matter is most clearly indicated for discussion at the review meeting?

• A. Discuss switching the ISA to cash because the school-fees objective now has less than one year to run.
• B. Discuss rebalancing the ISA because the review shows the portfolio is outside its agreed allocation range.
• C. Discuss reducing life assurance because the existing £250,000 cover exceeds the £140,000 family capital need.
• D. Discuss increasing life assurance by about £200,000 to cover the revised mortgage and family need.

Best answer: D

What this tests: Element 5: Financial Planning Recommendations

Explanation: A review meeting should focus on material changes in circumstances, objectives, affordability, risks, and existing arrangements. Priya’s new child and larger mortgage alter the protection need. Using the stated basis, the revised need is £310,000 + £140,000 = £450,000. Existing life cover is £250,000, so the shortfall is £200,000. That makes additional life assurance, and related points such as term, ownership, trust use, premium affordability, and underwriting, a clear review discussion. The ISA objective and risk profile have not changed, and the portfolio remains within agreed tolerance, so the facts do not point to a cash switch or rebalancing as the main new issue.

• Comparing existing cover only with the family capital need ignores the new mortgage balance.
• Moving the ISA to cash is not supported because the ISA objective and time horizon are stated as unchanged.
• Rebalancing is not indicated because the portfolio remains within the agreed asset-allocation tolerance.

The revised need is £310,000 plus £140,000 less £250,000 existing cover, leaving a £200,000 shortfall.

Question 8

Topic: Element 5: Financial Planning Recommendations

An adviser recommends that Maya, age 43, redirects her full £450 monthly surplus into a personal pension to reduce a projected retirement shortfall. Maya is a higher-rate taxpayer, has two young children, holds £1,200 in instant-access savings, and her household essential spending is £3,400 a month. Her employer provides four weeks’ full sick pay, and she pays £52 a month for income protection with a 13-week deferred period.

Which is the single best point to explain before implementing the pension recommendation?

• A. The pension contribution should take priority because higher-rate tax relief makes short-term liquidity and protection needs less relevant.
• B. The pension contribution may be suitable for retirement funding, but it should be implemented only if she can still afford protection premiums and build a realistic emergency reserve.
• C. The income protection policy can be cancelled because the pension fund will provide an alternative source of financial security.
• D. The recommendation has no effect on other parts of her plan because retirement saving and protection planning are separate objectives.

Best answer: B

What this tests: Element 5: Financial Planning Recommendations

Explanation: A recommendation should be assessed in the context of the whole financial plan. Redirecting all surplus income into a pension may help Maya’s retirement objective and may be tax-efficient, but it also removes monthly flexibility. Her accessible savings are well below one month’s essential spending, and her sick pay does not cover the full 13-week income protection deferred period. If the pension contribution makes the protection premium unaffordable or prevents any emergency reserve being built, it could weaken her short-term financial resilience. The adviser should explain the trade-off and consider phased contributions, a lower initial contribution, or a cash-reserve target before full implementation.

• Prioritising tax relief alone ignores liquidity, affordability, and the protection gap.
• Cancelling income protection is unsuitable because the pension is not a practical substitute for income during sickness.
• Treating pension and protection planning as separate ignores how one recommendation can affect cash flow and risk management.

The pension recommendation affects cash flow and liquidity, so the adviser must consider the impact on protection affordability and emergency funding.

Question 9

Topic: Element 5: Financial Planning Recommendations

An adviser is explaining a recommended protection package to Priya, age 39. Priya is the main earner, has two children aged 7 and 10, and wants her family to have about £2,200 a month if she dies before the youngest child is financially independent. Her repayment mortgage is already covered by a separate decreasing term assurance policy. Her employer provides full sick pay for 26 weeks, but she has no long-term income cover. Her budget is limited.

Which explanation best shows how the recommended products meet Priya’s identified needs?

• A. Critical illness cover would meet the income-replacement need because it pays a lump sum if Priya becomes too ill to work for any reason after sick pay ends.
• B. A whole-of-life policy would meet the family income need because it pays whenever Priya dies and can be kept for estate planning after the children are independent.
• C. Family income benefit to the youngest child’s expected independence date would provide regular income on death, while income protection with a 26-week deferred period would replace earnings after employer sick pay ends.
• D. A new decreasing term assurance policy would be the best fit because the largest family liability is normally the mortgage, even though it is already insured.

Best answer: C

What this tests: Element 5: Financial Planning Recommendations

Explanation: Protection recommendations should be explained by linking product features directly to the client’s stated shortfall. Priya’s mortgage need is already covered, so the main gap is family income for a defined period and her own long-term earnings if illness or injury prevents work. Family income benefit is usually cost-effective where dependants need a regular income for a known term, such as until the youngest child is expected to be independent. Income protection addresses loss of earnings through incapacity and a 26-week deferred period fits her employer sick-pay period, helping affordability by avoiding unnecessary overlap.

• Whole-of-life cover may suit inheritance tax or lifelong protection needs, but Priya’s stated dependant income need is time-limited.
• Extra decreasing term assurance duplicates the existing mortgage protection and does not target monthly family income.
• Critical illness cover pays only on specified conditions and is not the same as long-term income replacement for being unable to work.

This matches the dependants’ income need, avoids duplicating mortgage cover, and aligns the income protection start date with existing sick pay.

Question 10

Topic: Element 5: Financial Planning Recommendations

At an annual review, a client’s retirement plan is based on continuing full-time work until age 67, paying £700 a month into a personal pension, and using an ISA portfolio for discretionary retirement spending. Since the last review, the client’s spouse has stopped working due to illness, household income has fallen, the emergency fund has reduced to one month’s expenditure, and the client says mortgage payments and family protection now take priority over increasing retirement income. The ISA and pension investments remain within the original agreed risk profile. Which response best applies suitable review practice?

• A. Rebalance the ISA and pension back to the original asset allocation because the investments remain within the agreed risk profile.
• B. Maintain the existing pension contributions because the original retirement objective has not formally changed in writing.
• C. Update the fact-find and cash-flow analysis, reassess objectives, risk, capacity for loss and affordability, then document any recommendation to alter or retain the plan.
• D. Suspend all investment and pension contributions immediately because reduced income automatically makes retirement saving unsuitable.

Best answer: C

What this tests: Element 5: Financial Planning Recommendations

Explanation: A review should test whether the plan still fits the client’s current circumstances, objectives and assumptions. Here, the original retirement strategy was built on stable earned income, regular pension contributions and the ISA being used for discretionary retirement spending. The spouse’s illness, reduced income, smaller emergency fund and changed priorities are material facts. Even though the investments remain within the agreed risk profile, suitability is broader than asset allocation. The adviser should update the client information, reassess affordability, cash flow, capacity for loss and priorities, and then decide whether pension contributions, investment strategy, protection or emergency savings need adjustment. Any recommendation to alter or retain the plan should be clearly explained and documented.

• Rebalancing only addresses investment drift; it does not deal with changed affordability, liquidity or family protection needs.
• Waiting for a written change ignores clear information given during the review meeting.
• Automatically stopping all saving overreacts to reduced income; the adviser still needs a balanced suitability assessment.

Material changes to income, liquidity and priorities require a renewed suitability assessment before deciding whether to amend or keep the existing plan.

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Related focused pages

• Free CISI IAD FPA Practice Exam
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• 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

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