Financial Planning: the advice process, FCA standards and the tax arithmetic behind a recommendation
Financial Planning tests the advice process itself: how you gather and analyse client data, how FCA rules shape the recommendation, and the tax arithmetic that must be right before any product is discussed. Questions are scenario-based and reward precision with current thresholds.
The advice process and the rulebook
Advice must satisfy the suitability rules in COBS 9 and follow the six-stage process: establish the relationship and disclose status and charges; gather objectives, timescales, attitude to risk and, separately, capacity for loss; analyse; recommend; implement; review. The Consumer Duty requires good outcomes under four pillars - products and services, price and value, consumer understanding, consumer support. A firm is independent only if it considers all retail investment products across the whole market; restricted firms must disclose their restriction. Since the Retail Distribution Review, commission on retail investment products is banned and advice is paid through explicit, agreed adviser charges. Unresolved complaints go to the Financial Ombudsman Service after eight weeks; the FSCS covers investments to £85,000 per person per firm.
Tax figures to know cold
- Personal allowance £12,570, tapering £1 for every £2 of adjusted net income above £100,000, so it is gone at £125,140.
- England, Wales and Northern Ireland non-dividend rates: 20% to £50,270, 40% to £125,140, 45% above; Scotland has separate bands.
- Dividend allowance £1,000 in 2024/25, £500 from April 2025; personal savings allowance £1,000, £500 or nil by band.
- CGT annual exempt amount £3,000; ISA allowance £20,000; pension annual allowance £60,000.
- IHT nil rate band £325,000 plus residence nil rate band £175,000, tapered £1 for every £2 above a £2m estate.
Worked example
Priya earns £110,000 and pays £8,000 net into a relief-at-source personal pension. The provider reclaims £2,000, so the gross contribution is £10,000. Her adjusted net income falls from £110,000 to £100,000, restoring her personal allowance from £7,570 to £12,570: £5,000 of income moves from 40% to nil, saving £2,000. Higher-rate relief on the contribution is £10,000 × 40% = £4,000; £2,000 was already added by the provider, so she claims £2,000 through self assessment. Total tax saved is £6,000 on £8,000 of cash.
Traps that cost marks
Using England and Wales bands for a Scottish taxpayer; forgetting that pension and Gift Aid contributions reduce adjusted net income for the taper; quoting the old £6,000 CGT exempt amount; ignoring the £2m taper on the residence nil rate band; treating "independent" as meaning "best"; recommending a product before capacity for loss is recorded.