CFP UK (CISI) cheat sheet

CISI Level 4 planning process: establish relationship, gather data, analyse objectives, prepare the plan, implement, review - the review step closes the loop and is not optional.

Net worth = total assets (including pension and property values at realistic realisable value) minus total liabilities; it is a stock measure, while cash flow is a flow measure over a period.

Emergency reserve rule of thumb: 3-6 months of essential expenditure held in instant-access cash; self-employed and single-income households typically need the upper end.

Inflation erodes purchasing power: real return ≈ nominal return − inflation; £100 at 3% inflation is worth about £74 in today's terms after 10 years.

Tax year runs 6 April to 5 April; income tax bands in England/Wales are 20% basic, 40% higher, 45% additional, with a £12,570 personal allowance tapering £1 for every £2 of adjusted net income above £100,000.

Personal allowance is lost entirely at £125,140 adjusted net income; the effective marginal rate in the taper zone is 60%.

National Insurance Class 1 is charged on earnings between the primary threshold and upper earnings limit; Class 4 applies to self-employed profits between lower and upper profits limits.

A financial plan must document assumptions (inflation, investment return, life expectancy) and stress-test them; a single deterministic projection is not a plan.

Vulnerability checks and suitability documentation are regulatory requirements under FCA rules; the client's attitude to risk must be assessed independently of capacity for loss.

Real return = (1 + nominal return) / (1 + inflation) − 1; use this rather than simple subtraction when compounding over long horizons.

Compound growth: FV = PV × (1 + r)^n; the rule of 72 estimates doubling time as 72 / annual percentage return.

Total return = income yield + capital growth; a bond's total return depends on coupon, purchase price, and holding period, not coupon alone.

Duration measures a bond's price sensitivity: approximate percentage price change ≈ −duration × change in yield (modified duration).

Diversification reduces unsystematic risk; systematic (market) risk cannot be removed by holding more assets.

Correlation ranges from −1 to +1; combining assets with low or negative correlation lowers portfolio volatility for a given expected return.

Sharpe ratio = (portfolio return − risk-free rate) / standard deviation; it measures excess return per unit of total risk.

Equities historically outperform cash over long periods but with greater volatility; past performance is not a reliable predictor of future returns.

Collective investment schemes: OEICs are single-priced; unit trusts are dual-priced with bid/offer spread; both are UCITS-regulated and diversified by construction.

Money purchase annual allowance (MPAA) is £10,000 once flexible pension income is accessed; it replaces the standard annual allowance for future contributions.

Standard annual allowance is £60,000; it tapers for high earners by £1 for every £2 of adjusted income above £260,000, down to a £10,000 minimum.

Carry forward allows unused annual allowance from the previous three tax years, but only if the member was a member of a registered scheme in that year.

Pension contributions receive tax relief at the member's marginal rate; relief is capped by relevant UK earnings, and the £3,600 gross limit applies to non-earners.

Lifetime allowance was abolished from 6 April 2024; the lump sum and death benefit allowance (LSDBA) of £1,073,100 now caps tax-free lump sums.

Pension commencement lump sum is normally 25% of fund value, capped by the LSDBA; the remainder can be used to buy an annuity or enter drawdown.

Annuity rates depend on age, interest rates (gilt yields), and health; enhanced/impaired-life annuities pay more where life expectancy is reduced.

State Pension requires 35 qualifying years for the full new State Pension and a minimum of 10 to receive anything; voluntary NI contributions can fill gaps.

Normal minimum pension age rose to 55 in 2021 and is legislated to rise to 57 in 2028; earlier access is only on ill-health or protected grounds.

Life assurance pays a lump sum on death; term assurance covers a fixed period, whole-of-life covers to death and typically includes an investment element.

Level term assurance pays a fixed sum; decreasing term assurance reduces the sum in line with a repayment mortgage and is cheaper for the same initial cover.

Critical illness cover pays a tax-free lump sum on diagnosis of a specified condition; it is distinct from income protection, which pays a monthly benefit.

Income protection typically pays up to 50-70% of pre-tax income after a deferred period; benefits are paid until recovery, retirement, or the end of the policy term.

Deferred period should match the employer's sick-pay entitlement; a longer deferred period reduces the premium.

Own occupation definition is the most favourable for income protection claims; any occupation is the least favourable and cheapest.

Trusts: a suitable trust (e.g. discretionary or split trust) can keep a life policy payout outside the estate for inheritance tax and speed up payment.

Premiums for protection are priced on age, health, occupation, smoking status, and sum assured; level premiums are fixed at outset while reviewable premiums can rise.

Under the FCA's Consumer Duty, protection advice must deliver fair value and suitable outcomes; non-advised sales still require clear product information and eligibility checks.