CISI Introduction to Securities and Investment common mistakes
CISI Introduction to Securities and Investment · Understand the traps and how to avoid them.
Treating 'money laundering' and 'terrorist financing' as interchangeable and picking whichever option sounds most serious when a question asks which offence the firm's controls target.
Both terms appear in the same regulation chapter and candidates skim past the distinct definitions; the cleanest giveaway is that money laundering requires concealment of criminal proceeds while terrorist financing can involve legitimately sourced funds, so the two answers are not interchangeable.
What to do instead
Write a one-line definition of each on a single card and force yourself to justify the answer by naming which element (proceeds of crime vs. any funds used for a terrorist act) the scenario actually contains before choosing.
Assuming the FCA's Principles for Businesses are optional guidance that sits behind the detailed rulebook, and choosing the detailed rule as the 'real' requirement.
Principles are short and abstract while the Conduct of Business rules look more concrete, so candidates rank them by apparent specificity rather than by status; in fact the Principles are rules in their own right and can be enforced on their own.
What to do instead
Memorise that the Principles are high-level but binding and can be used to sanction behaviour even where no detailed rule is broken; when an option says the Principles 'only apply where no other rule exists', eliminate it immediately.
Confusing a central bank raising interest rates with a government tightening fiscal policy, and picking the wrong transmission channel when asked how a rate rise affects bond prices.
Both are 'tightening' and both appear in the same macro chapter, so candidates pattern-match on the word 'tightening' instead of on the institution and the mechanism; the inverse relationship between yields and prices is then applied to the wrong lever.
What to do instead
Anchor each lever to its institution and its direct effect: central bank sets the policy rate, which moves yields and therefore moves existing bond prices inversely; government sets tax and spending. Practise two-line answers that name the institution first.
Reading nominal GDP growth as real growth and concluding an economy expanded when inflation was higher than the growth figure.
The word 'GDP' triggers a memorised definition and candidates skip the adjective; real versus nominal is a small textual difference with a large numerical consequence, and exam figures are often chosen so the two give opposite signs.
What to do instead
Whenever a GDP number appears, circle whether it is real or nominal, then convert: real growth is approximately nominal growth minus the inflation rate. If the question gives both figures, always compute the real figure before evaluating any option.
Choosing cumulative preference shares as the answer whenever a question mentions 'unpaid dividends', without checking whether the question is about arrears being paid or about voting rights.
Cumulative preference shares are the most memorable preference variant, so the term becomes a reflex; candidates stop distinguishing the feature being tested (arrears of dividend) from the feature they have memorised.
What to do instead
Build a three-row comparison of ordinary, preference and cumulative preference shares across dividends, voting and capital priority, and answer by locating the exact feature named in the stem rather than the share class you recall first.
Applying the price/yield relationship to a bond's coupon rather than its yield, and stating that a bond's coupon rises when market interest rates rise.
Coupon and yield are both percentages attached to a bond and candidates conflate the fixed contractual rate with the market-determined return; the fixed nature of the coupon is the point being tested but is easy to overlook under time pressure.
What to do instead
State the rule in one sentence before answering: the coupon is fixed at issue, the price moves inversely with yield. Any option implying the coupon changes after issue can be discarded without further calculation.
Describing a futures contract as giving the buyer the right, but not the obligation, to trade, and thereby treating it as interchangeable with an option.
Both are exchange-traded derivatives and both involve a future date and a set price, so the shared language dominates; the words 'right' and 'obligation' are the only discriminator and are easily lost in a long stem.
What to do instead
Memorise the single discriminator as a pair: option equals right, futures equals obligation, and only the option buyer pays a premium. Scan every derivatives stem for those two words before reading the options.
Assuming an open-ended fund's price is always its net asset value, and failing to distinguish a unit trust priced at NAV plus initial charge from an investment trust whose price is set by supply and demand.
Both are collective investments and both are described as 'funds', so candidates apply one pricing model to both; the structural difference (open-ended versus closed-ended) is the actual test and is buried under similar vocabulary.
What to do instead
Sort every fund question into open-ended or closed-ended first. Open-ended creates and cancels units at NAV-based prices; closed-ended has a fixed share count whose price can trade at a premium or discount to NAV.
Treating 'attitude to risk' and 'capacity for loss' as the same thing, so a client with a high tolerance is recorded as able to bear large losses regardless of their financial position.
Both phrases appear in the suitability section and both concern risk, so the distinction between a psychological willingness and a financial ability collapses; candidates default to the client's stated comfort level.
What to do instead
Keep the two as separate lines in every suitability answer: attitude is what the client is willing to accept, capacity is what their finances can absorb. If an option uses one to justify the other, it is wrong.
Answering conflict-of-interest questions by saying the firm must 'avoid' the conflict, when the requirement is to identify, manage and disclose it, with avoidance only required where management is not possible.
The word 'conflict' carries an everyday moral connotation of something to be eliminated, and candidates import that intuition instead of the regulatory hierarchy; the same intuition leads them to treat disclosure alone as sufficient.
What to do instead
Memorise the ordered test: identify, then manage or control, then disclose; avoid only as a last resort. Reject any option that offers disclosure as the sole measure or that requires avoidance in every case.