Free CISI IAD Securities Practice Questions: Client Portfolio Advice and Suitability

CISI means Chartered Institute for Securities & Investment. IAD means Investment Advice Diploma, and this page is for the Securities unit. Use this focused CISI IAD Securities page as a short practice test for Client Portfolio Advice and Suitability. 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: Client Portfolio Advice, Review, and Securities Suitability

A securities adviser is reviewing a private client’s directly held UK share portfolio. The client asks for a recommendation to reinvest the whole £180,000 portfolio into securities that provide a steadier income. Relevant facts are:

• The portfolio is the client’s only significant liquid asset.
• The client has a £150,000 interest-only mortgage maturing in 15 months and no agreed repayment plan.
• The client says they do not want a wider financial review and asks the adviser to “just choose suitable bonds or equity income shares”.

Which action is most appropriate?

• A. Complete the securities switch and state in the suitability report that mortgage repayment was excluded at the client’s request.
• B. Recommend a diversified equity income portfolio for the full £180,000 because the client has rejected a wider review.
• C. Arrange a separate review or referral for the mortgage and cash-flow need, then base any securities recommendation on the amount and time horizon left after that review.
• D. Recommend short-dated investment-grade corporate bonds for the full £180,000 because they match the client’s request for lower volatility and income.

Best answer: C

What this tests: Client Portfolio Advice, Review, and Securities Suitability

Explanation: Securities advice should be based on the client’s real objectives, investment horizon, liquidity needs and ability to bear loss. An imminent interest-only mortgage maturity is not just a preference for lower volatility; it may require capital, debt advice, cash-flow planning, or another specialist review outside the securities selection itself. Because the portfolio is the client’s only significant liquid asset and the liability is £150,000 in 15 months, the adviser cannot sensibly recommend investing all £180,000 for income without first establishing how the mortgage will be dealt with. The appropriate course is to refer or separately review the broader need and then advise only on any genuinely investable balance.

• Short-dated investment-grade corporate bonds may reduce volatility, but investing the full portfolio ignores the near-term liability and liquidity need.
• Equity income shares can provide income, but they remain capital-risk securities and do not solve a 15-month mortgage repayment gap.
• Recording that the client rejected a wider review does not make a recommendation suitable if a known financial commitment drives capacity for risk.

The imminent mortgage liability is a broader planning need that determines liquidity and capacity for investment risk before securities can be recommended.

Question 2

Topic: Client Portfolio Advice, Review, and Securities Suitability

An adviser is preparing an annual review for a client with a balanced income-and-growth mandate. Review notes say breaches of agreed client limits should be raised before ordinary performance commentary.

• Agreed equity range: 45% to 55% of portfolio value.
• Agreed fixed-income range: 35% to 45%.
• Agreed cash range: 5% to 10%.
• Minimum portfolio income yield: 3.0% a year.
• Largest individual equity holding should not exceed 10% of portfolio value.
• 12-month benchmark return: 4.3%.

Using the report figures, which issue should be reviewed first?

• A. The income yield has fallen below the 3.0% minimum objective.
• B. The largest individual equity holding exceeds the 10% concentration limit.
• C. Equity exposure has risen to 60% of the portfolio, above the agreed upper range.
• D. The portfolio return is below the benchmark and needs performance escalation.

Best answer: C

What this tests: Client Portfolio Advice, Review, and Securities Suitability

Explanation: Client review priority should start with facts that indicate a breach of the agreed mandate or suitability parameters. The portfolio total is £360,000 + £210,000 + £30,000 = £600,000. Equities are therefore £360,000 / £600,000 = 60%, which is above the agreed 55% upper range. That suggests the client may now be taking more equity risk than agreed and should be reviewed first. The other figures do not breach the stated triggers: the portfolio return of 5.1% is 0.8 percentage points ahead of the benchmark, income is £19,200 / £600,000 = 3.2%, and the largest individual equity holding is £54,000 / £600,000 = 9%.

• Benchmark-relative performance is positive, not a shortfall, because 5.1% exceeds 4.3%.
• Income yield is above the minimum at 3.2%, so it is not the first review concern.
• The largest equity holding is 9% of the portfolio, within the 10% concentration limit.

The portfolio total is £600,000, so £360,000 in equities is 60%, exceeding the 55% client limit.

Question 3

Topic: Client Portfolio Advice, Review, and Securities Suitability

A client’s securities portfolio was built for a moderate-risk objective of income with some capital growth. It holds UK equity income investment trusts, sterling corporate bonds, and a small cash balance. The annual report shows a one-year return of 4.2% and compares it with the Nasdaq 100, which returned 27.0%. The report flags the portfolio as materially underperforming. The client’s circumstances, risk profile, and income requirement are unchanged, and the holdings are broadly in line with income-focused and corporate bond peer groups.

Which response best applies the principle of benchmark relevance in deciding whether a review trigger has arisen?

• A. Switch part of the portfolio into Nasdaq 100 securities because the reported comparison shows material underperformance.
• B. Take no action because the client’s income need and risk profile have not changed.
• C. Treat the benchmark mismatch in the report as the review trigger and reassess the comparator used for performance communication.
• D. Reduce the corporate bond allocation because bonds are unlikely to match the return of a growth equity index.

Best answer: C

What this tests: Client Portfolio Advice, Review, and Securities Suitability

Explanation: Client review triggers are not limited to changes in personal circumstances. A misleading benchmark can also trigger a review because it affects how performance, suitability, and client expectations are assessed. Here, an income-oriented portfolio containing equity income investment trusts and sterling corporate bonds is being compared with a technology-heavy growth equity index. The apparent underperformance may say more about the comparator than the portfolio. The appropriate response is to review the benchmark and communication basis before drawing conclusions about product underperformance or recommending portfolio changes.

• Moving into Nasdaq 100 securities would chase an irrelevant comparator rather than address the client’s income-focused objective.
• Doing nothing overlooks that client reporting itself can create a review issue when the benchmark is unsuitable.
• Reducing bonds assumes the portfolio should compete with a growth equity index, which conflicts with the stated income and moderate-risk remit.

A benchmark that does not match the portfolio’s objective or holdings can create a misleading underperformance signal and should prompt review of the reporting basis.

Question 4

Topic: Client Portfolio Advice, Review, and Securities Suitability

A retail client agreed a medium-risk securities portfolio with a strategic allocation of 60% UK equities and 40% sterling bonds. The review policy says the adviser should discuss rebalancing if any asset-class weight moves more than 5 percentage points from its target.

Current values are:

• UK equities: £82,000
• Sterling bonds: £38,000

Use current weight = current asset value ÷ total current portfolio value.

Which response best reflects ongoing portfolio monitoring rather than one-off product selection?

• A. Recommend an additional UK equity product because equities now have the larger portfolio value and have driven recent growth.
• B. Take no review action because each original holding was suitable when first recommended.
• C. Switch the bond holding to the highest-yielding bond fund available before considering the whole portfolio mix.
• D. Calculate equities at about 68% of the £120,000 portfolio and discuss rebalancing because the 60% target has been exceeded by more than 5 percentage points.

Best answer: D

What this tests: Client Portfolio Advice, Review, and Securities Suitability

Explanation: Ongoing portfolio monitoring looks at the client’s portfolio as it stands now, not only at whether an individual security or fund was suitable when first selected. Here the total portfolio is £120,000, so UK equities are £82,000 ÷ £120,000 = 68.3% of the portfolio. That is more than 5 percentage points above the agreed 60% target, so the adviser should discuss the drift and whether rebalancing is suitable in light of the client’s objectives and risk profile. One-off product selection would focus mainly on choosing or replacing a specific investment, often without first checking whether the overall portfolio remains aligned with the agreed allocation and review triggers.

• Adding more equities because they are larger focuses on recent product performance and would worsen the allocation drift.
• Relying on suitability at the purchase date treats advice as static and ignores the agreed review trigger.
• Switching the bond fund first is a product-selection action; the portfolio-level breach should be reviewed before choosing replacement investments.

The current equity weight is approximately 68.3%, so the agreed review trigger has been breached and a portfolio-level discussion is required.

Question 5

Topic: Client Portfolio Advice, Review, and Securities Suitability

A retail client was advised to hold a diversified securities portfolio for moderate risk, regular income, and a planned property deposit in 18 months. The agreed review notes state that at least 20% should be kept in liquid short-dated gilts or cash-like securities. The latest quarterly report shows that market movements and recent income withdrawals have left the portfolio with 5% in short-dated gilts, 30% in high-yield bonds, and 50% in growth shares. The client has not changed their stated objectives. Which action best applies the suitability principle?

• A. Leave the portfolio unchanged because growth shares may recover and the high-yield bonds still provide some income.
• B. Wait until the next annual review because the portfolio movement resulted from market conditions rather than a new instruction from the client.
• C. Sell all high-yield bonds immediately and place the proceeds into the highest-yielding ordinary shares available.
• D. Contact the client promptly, reconfirm their circumstances and objectives, and recommend documented rebalancing to restore the agreed risk, income, and liquidity profile.

Best answer: D

What this tests: Client Portfolio Advice, Review, and Securities Suitability

Explanation: A securities portfolio review should identify whether the holdings still meet the client’s objectives, risk profile, income needs, time horizon, and liquidity requirements. Here, the portfolio has moved materially away from the agreed position: liquid short-dated holdings are far below the stated 20% level, the portfolio is more exposed to growth shares and high-yield bonds, and the client still needs a property deposit in 18 months. The appropriate action is not simply to trade mechanically or to ignore the change until the next scheduled review. The adviser should contact the client, confirm that the objectives and circumstances remain current, explain the issue, and recommend a suitable rebalancing plan with proper documentation.

• Waiting for the annual review ignores a clear review trigger and leaves the client exposed to unsuitable liquidity and risk.
• Leaving the portfolio unchanged focuses on possible market recovery rather than the client’s stated objectives.
• Switching into higher-yielding shares would increase equity risk and does not address the agreed liquidity requirement.

The portfolio no longer matches the client’s agreed liquidity, income, and risk needs, so the adviser should review suitability and recommend corrective action rather than let the drift continue.

Question 6

Topic: Client Portfolio Advice, Review, and Securities Suitability

A securities adviser is reviewing a £300,000 portfolio for a client aged 70. The client’s stated priority is dependable income with limited capital volatility. She may need to withdraw up to £30,000 at short notice over the next 18 months for home adaptations.

Portfolio notes:

• 48% in one BBB- rated callable corporate bond issued by a UK housebuilder, maturing in 2032
• 18% in a UK equity income investment trust with 14% structural gearing
• 14% in a global equity ETF
• 12% in a short-dated UK gilt ETF
• 8% in cash and a sterling money market fund

Which adviser-level conclusion is most defensible?

• A. The main benchmark should be the FTSE All-Share Index because the portfolio includes UK equity income exposure.
• B. The main concern is over-concentration in a single credit and insufficient liquid, lower-volatility assets for the possible withdrawal need.
• C. The adviser should increase the equity income investment trust holding because gearing can improve income in rising markets.
• D. The portfolio is suitable because most holdings are income-producing securities and the bond has a fixed maturity date.

Best answer: B

What this tests: Client Portfolio Advice, Review, and Securities Suitability

Explanation: A suitable securities portfolio must be judged against the client’s objectives, risk tolerance, concentration risk and liquidity needs. Here, the client wants dependable income with limited volatility and may need a sizeable short-notice withdrawal. A 48% position in a single BBB- callable corporate bond creates material issuer-specific and credit-spread risk. The geared investment trust adds equity market and gearing risk. Cash, money market exposure and the short-dated gilt ETF together provide some liquidity, but they are not enough to offset the concentration and volatility risks for this client profile. The most defensible conclusion is therefore to reduce concentration and improve the liquid, lower-volatility component rather than simply focus on income yield.

• Income production alone does not make a portfolio suitable when issuer concentration and liquidity needs are significant.
• Increasing geared equity income exposure would add risk, not address the client’s need for lower volatility and ready access.
• A broad UK equity index is not the most relevant benchmark for a mixed portfolio with bonds, cash, money market exposure and global equities.

The client’s liquidity need and low-volatility objective are not well matched to a portfolio dominated by one medium-quality corporate issuer and geared equity exposure.

Question 7

Topic: Client Portfolio Advice, Review, and Securities Suitability

An adviser is considering how to reinvest £50,000 for a client in a taxable general account. The client is a higher-rate taxpayer, has no available ISA or pension wrapper, wants at least £1,200 annual after-tax income from this holding, does not want additional equity or property-market exposure, has low capacity for capital loss, and expects to hold for about three years. For this comparison, annual after-tax income is gross income less the stated tax rate; ignore dealing costs and CGT.

Assumed income tax rates are 40% on gilt and corporate bond coupons, 33.75% on UK equity dividends, and 40% on REIT property income distributions. Which recommendation is best supported by these facts?

• A. Buy the callable high-yield corporate bond, as its coupon gives the strongest after-tax income result.
• B. Buy the 3-year conventional gilt, as it meets the income target without adding equity or property exposure.
• C. Buy the UK equity income investment trust, as its after-tax dividend income is higher than the gilt income.
• D. Buy the UK REIT ordinary shares, as the property income distribution gives the highest suitable taxable income.

Best answer: B

What this tests: Client Portfolio Advice, Review, and Securities Suitability

Explanation: Suitability is not driven by yield alone. The income target is £1,200 after tax from a £50,000 holding. The conventional gilt produces gross income of £2,000, and after 40% tax this leaves £1,200, so it meets the stated minimum. It also avoids additional equity and property-market exposure and has the lowest credit-risk profile among the securities listed. The other securities offer higher calculated after-tax income, but they conflict with the client’s stated constraints. Equity ordinary shares and geared investment trusts add market risk, REITs add property exposure, and a sub-investment-grade callable bond introduces credit and reinvestment risk that is difficult to reconcile with low capacity for capital loss.

• The investment trust offers higher after-tax income, but ordinary-share exposure and gearing conflict with the client’s risk and exposure limits.
• The REIT offers higher after-tax income, but it adds commercial-property exposure that the client does not want.
• The high-yield bond offers higher after-tax income, but sub-investment-grade credit risk and call risk are unsuitable for the stated loss capacity.

The gilt produces £50,000 × 4.0% × 60% = £1,200 after tax and best matches the client’s low-loss-capacity and exposure constraints.

Question 8

Topic: Client Portfolio Advice, Review, and Securities Suitability

A retail client asks an adviser for a securities recommendation using £72,000 from a maturing gilt. The client wants to invest the whole amount in UK equity income shares.

The adviser’s securities review notes are:

• Essential household spending: £3,600 per month
• Minimum cash reserve guideline before investing in securities: 6 months of essential spending
• Existing instant-access cash: £8,500
• Interest-only mortgage capital repayment due in 18 months: £40,000
• The firm’s securities service does not cover mortgage advice, protection advice, or full financial planning, but referrals are available.

Which action is most suitable?

• A. Set aside £53,100 for the cash-reserve shortfall and mortgage repayment need, refer the mortgage issue for separate review, and consider securities advice only for the remaining £18,900.
• B. Invest the full £72,000 in equity income shares because the client has stated an income objective.
• C. Invest £32,000 in shares and use the remaining £40,000 for the mortgage, without making any referral or separate review.
• D. Set aside only £13,100 for the cash-reserve shortfall and invest £58,900 in higher-yielding shares to help meet the mortgage repayment.

Best answer: A

What this tests: Client Portfolio Advice, Review, and Securities Suitability

Explanation: A securities recommendation should not absorb wider financial-planning needs that are outside the securities mandate. The cash-reserve requirement is 6 × £3,600 = £21,600. With £8,500 already held in instant-access cash, the client needs a further £13,100 before investing surplus funds. The £40,000 interest-only mortgage repayment due in 18 months is also a short-term liability and a broader planning issue. It should be dealt with separately or referred to an appropriate adviser, rather than being treated as a target for an equity income portfolio. After setting aside £13,100 plus £40,000, only £18,900 remains potentially available for securities advice, subject to the client’s risk profile and objectives.

• Investing the full gilt proceeds ignores both liquidity needs and the short-term mortgage liability.
• Keeping back only the cash-reserve shortfall still uses securities to address a near-term mortgage repayment need.
• Reserving £40,000 for the mortgage is sensible, but failing to refer or separately review the wider mortgage issue misses the boundary between securities advice and broader planning.

The six-month reserve is £21,600, leaving a £13,100 cash shortfall, and the £40,000 mortgage repayment is a near-term broader planning need rather than a reason to recommend equity securities.

Question 9

Topic: Client Portfolio Advice, Review, and Securities Suitability

An adviser is reviewing a client’s advised securities portfolio before recommending a switch. The client has a balanced risk profile, wants income, and has an agreed constraint: exposure to any one corporate issuer, measured at current market value across both equity and debt issued by that company, must not exceed 15% of the portfolio. The proposed switch keeps the total portfolio value unchanged.

• Portfolio value before switch: £180,000
• Holding in Meridian plc ordinary shares: £19,000
• Holding in Meridian plc corporate bond: £7,000
• Proposed trade: sell £10,000 of a short-dated gilt and buy £10,000 of Meridian plc 5.25% 2031 bond
• Bond-quality rule: bonds must be investment grade; BBB- or above qualifies
• Meridian plc 5.25% 2031 bond rating: BBB-

Which adviser-level conclusion is most defensible?

• A. Recommend the switch, because selling a gilt and buying a corporate bond leaves the total portfolio value unchanged.
• B. Do not recommend the switch solely because BBB- bonds fail the portfolio’s bond-quality rule.
• C. Do not recommend the switch, because Meridian exposure would be £36,000, or 20% of the portfolio.
• D. Recommend the switch, because the proposed bond is investment grade and portfolio income would increase.

Best answer: C

What this tests: Client Portfolio Advice, Review, and Securities Suitability

Explanation: A suitability review must consider portfolio-level constraints as well as the features of the proposed security. Here, the relevant constraint is aggregate exposure to one corporate issuer across both shares and bonds. The portfolio total remains £180,000 because the trade is a switch of equal value. After the purchase, Meridian exposure would be £19,000 in ordinary shares, £7,000 in an existing bond, and £10,000 in the new bond, giving £36,000 total exposure. The portfolio weight is £36,000 / £180,000 = 20%. That exceeds the agreed 15% issuer concentration limit, so the adviser should not recommend the switch even though the new bond meets the stated investment-grade rule.

• Focusing only on investment-grade status misses the separate issuer concentration constraint.
• Treating the unchanged portfolio value as sufficient ignores the change in portfolio composition and issuer weight.
• Rejecting solely on BBB- quality misreads the stated bond-quality rule, which permits BBB- or above.

The switch would take aggregate Meridian exposure to £36,000 (£19,000 + £7,000 + £10,000), which is 20% of £180,000 and breaches the 15% issuer limit.

Question 10

Topic: Client Portfolio Advice, Review, and Securities Suitability

An adviser is reviewing a retired client’s securities portfolio. The client needs regular income over the next five years, wants to reduce equity-market and single-company risk, and can accept modest credit and price risk but not a highly volatile holding. The current portfolio is 60% UK and global equities, including a large holding in one former employer’s bank shares, 20% equity income investment trusts, and 20% cash. The client asks how to invest £40,000 of the cash while keeping daily marketability.

Which recommendation is most suitable?

• A. Additional ordinary shares in the former employer’s bank, because the client already understands the company.
• B. A geared UK equity income investment trust, because it may enhance dividend income from shares.
• C. A diversified short-dated sterling investment-grade corporate bond ETF, with duration and credit quality monitored.
• D. A high-yield emerging-market bond, because its coupon is likely to be higher than a sterling investment-grade bond.

Best answer: C

What this tests: Client Portfolio Advice, Review, and Securities Suitability

Explanation: A suitable securities recommendation should match the client’s income need, five-year horizon, risk capacity, existing exposures, and marketability requirement. The portfolio is already heavily exposed to equities and has a material single-company bank share concentration, so adding more equity or concentrated issuer risk would not address the review findings. A diversified short-dated sterling investment-grade corporate bond ETF can provide income exposure with daily exchange trading, lower equity sensitivity, and less duration risk than longer-dated bonds. It is not risk-free: bond prices can fall, credit spreads can widen, and ETF prices may move away from net asset value in stressed markets. However, under the facts given, it is the best fit among the alternatives because it directly targets diversification, income, and controlled securities risk.

• More shares in the former employer would increase the client’s existing single-company and equity risk.
• A high-yield emerging-market bond may offer a higher coupon, but adds credit, currency, liquidity, and market risk beyond the stated tolerance.
• A geared equity income investment trust could raise income potential, but gearing and equity exposure conflict with the aim of reducing volatility.

It adds income potential while reducing equity and single-issuer concentration, and its short duration and investment-grade exposure fit the client’s moderate risk constraint.

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