CIIN Certificate CF6 cheat sheet

Six-step financial planning process: establish relationship, gather data and goals, analyse and assess, develop recommendations, implement, review and monitor.

Regulator split in the UK: the FCA regulates conduct for retail advice; the PRA regulates prudential matters for banks and insurers.

The FCA's six treating customers fairly outcomes cover culture, products, consumer communications, advice suitability, post-sale service and claims handling.

Retail Distribution Review (2012) banned commission on advised investment and pension products; adviser charging must be agreed with the client.

Consumer Duty (in force 2023) sets a higher standard: act in good faith, avoid foreseeable harm, and enable customers to pursue their financial objectives.

Financial Ombudsman Service can award up to £430,000 per complaint (limit from 1 April 2024); it can also direct a firm to take remedial action.

Financial Services Compensation Scheme limits: 100% of the first £85,000 per person per firm for deposits and investments; 100% of pension claims with no upper cap.

Suitability report requirements: client objectives, risk profile, capacity for loss, recommended product rationale and costs disclosed before advice is given.

Net worth = total assets minus total liabilities; a negative figure signals balance-sheet insolvency, not necessarily cash-flow insolvency.

Emergency fund target is typically 3-6 months of essential expenditure; 6-12 months for single-income or variable-income households.

Current ratio = liquid assets / current liabilities; a ratio below 1.0 indicates short-term liquidity strain.

Savings ratio = (net income - total expenditure) / net income; a common planning benchmark is 10-20% of gross income.

Housing cost ratio: total housing costs above 28-35% of gross income is a stress indicator for affordability.

Total debt service ratio above 36-40% of gross income is a common lending threshold; above this, consolidation or refinancing is considered.

Inflation erodes real purchasing power: real return ≈ nominal return - inflation rate; use (1+nominal)/(1+inflation)-1 for precision.

Budget methods: zero-based (every pound assigned), envelope/cash-flow, and 50/30/20 (needs/wants/savings) as a quick diagnostic.

Risk treatment options: avoid, reduce, retain, transfer (insurance) and share; insurance is appropriate for low-frequency, high-severity risks.

Human life value method: present value of future earnings net of self-maintenance, discounted at a real rate, gives the cover need.

Needs analysis method: income replacement + debts + education + funeral costs minus existing assets and cover equals the shortfall.

Term assurance pays a lump sum only on death within the term; whole-of-life has no fixed term and typically accumulates cash value.

Income protection pays a replacement income (typically 50-70% of gross earnings) after a deferred period, usually to selected retirement age.

Critical illness cover pays a tax-free lump sum on diagnosis of a listed condition; it is not a substitute for income protection.

Trusts for life policies: placing a policy in trust can keep the payout outside the estate and avoid probate delay.

Indemnity vs valued policies: indemnity pays the value at time of loss; valued/agreed-value pays a pre-agreed sum without averaging.

Asset allocation drives most of a portfolio's return variability; security selection and market timing contribute less.

Expected portfolio return = weighted average of asset class expected returns; portfolio risk is not a simple weighted average because of correlation.

Diversification benefit rises as the correlation between assets falls; negative correlation gives the largest risk reduction.

Sharpe ratio = (portfolio return - risk-free rate) / portfolio standard deviation; higher values indicate better risk-adjusted return.

Beta measures sensitivity to market movements (market beta = 1.0); alpha is the excess return not explained by beta.

Risk tolerance is a combination of attitude to risk and capacity for loss; capacity is objective and can override stated attitude.

Time horizon drives sequencing: short-term goals should use cash or short-duration bonds; long-term goals can carry more equity exposure.

Rebalancing to target weights enforces a sell-high/buy-low discipline; calendar and threshold (e.g. 5% drift) triggers are common.

UK State Pension requires 35 qualifying years for the full new State Pension; 10 years minimum for any entitlement.

Defined benefit schemes promise a pension based on accrual rate, salary and service; defined contribution schemes depend on contributions and investment returns.

Annual Allowance is £60,000 (2024/25); unused allowance from the previous three years can be carried forward.

Money Purchase Annual Allowance is £10,000 once flexible access has been triggered; the tapered Annual Allowance can fall to £10,000 for high earners.

Lifetime Allowance was abolished from 6 April 2024, replaced by Lump Sum Allowance (£268,275) and Lump Sum and Death Benefit Allowance (£1,073,100).

Pension Commencement Lump Sum is typically 25% of the fund, capped by the Lump Sum Allowance; the remainder is taxable at marginal rates.

Normal Minimum Pension Age is 55, rising to 57 in 2028; protected retirement ages may apply for certain scheme members.

Annuity purchase converts capital into guaranteed income; drawdown keeps the fund invested but transfers longevity and investment risk to the member.

Income tax bands in England/Wales (2024/25): personal allowance £12,570, basic 20% to £50,270, higher 40% to £125,140, additional 45% above.

Personal allowance tapers by £1 for every £2 of adjusted net income above £100,000, disappearing entirely at £125,140.

Capital gains tax annual exempt amount is £3,000 (2024/25); residential property gains are reported and paid within 60 days of completion.

ISA annual allowance is £20,000; returns are free of income tax and CGT, and ISAs are not subject to the personal savings allowance limits.

Inheritance tax nil rate band is £325,000; residence nil rate band is £175,000, tapered by £1 for every £2 of estate above £2 million.

Inheritance tax is charged at 40% on the taxable estate; 36% applies where at least 10% of the net estate goes to charity.

Pension contributions receive tax relief at the marginal rate; a £100 gross contribution costs a basic-rate taxpayer £80 and an additional-rate taxpayer £55.

Gift aid and charity: gift aid declarations let charities reclaim basic-rate tax, and higher-rate taxpayers can claim the difference via self-assessment.

Intestacy: without a valid will, assets pass under statutory rules; a surviving spouse does not automatically inherit the whole estate.

Potentially exempt transfers (PETs) are gifts to individuals; they become exempt if the donor survives seven years.

Chargeable lifetime transfers (CLTs) to trusts are immediately chargeable above the nil rate band; tax is charged on lifetime and death rates.

Taper relief reduces IHT on failed PETs: 3-4 years 20%, 4-5 years 40%, 5-6 years 60%, 6-7 years 80% of the full charge.

Annual exemption is £3,000 per donor; small gifts of £250 per recipient and normal expenditure out of income are also exempt.

Gifts between spouses/civil partners are exempt; transfers to non-domiciled spouses are capped at the nil rate band.

Business relief and agricultural relief can reduce qualifying assets by 100% (or 50% for some holdings), subject to ownership periods.

Trust structures: bare trusts are simple and absolute; discretionary trusts offer flexibility but face periodic and exit charges.

FCA Principles for Businesses: integrity, skill care and diligence, management and control, financial prudence, market conduct, customers' interests, communications, conflicts, customers' relationships of trust, and client assets.

The client's best interests rule requires advisers to act honestly, fairly and professionally in the client's best interests.

Conflicts of interest must be identified, managed and disclosed; inducements that impair independence are prohibited.

Know your client (KYC) and anti-money-laundering checks require identity verification, source of funds and ongoing monitoring.

Data protection (UK GDPR) requires lawful basis for processing, minimisation, accuracy and secure retention of client data.

Vulnerability: firms must identify clients in vulnerable circumstances and adapt communication and service accordingly.

Record keeping: suitability reports and advice records should be retained for at least five years (longer for pensions and complaints).

Whistleblowing and complaints: firms must have clear complaint-handling procedures and report to the FOS if unresolved after eight weeks.