R01 Independent and restricted advice, charging and basic advice: free practice questions

1. Question 1 of 5

   What must a firm do to describe its advice as independent?

   Option A: Assess a sufficiently broad and diverse range of productsOption B: Offer pension transfer and long-term care advice to clientsOption C: Charge clients only on an hourly fee basis for all adviceOption D: Hold at least a Level 6 qualification in financial planning

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   The answer is A: Assess a sufficiently broad and diverse range of products

   Independent advice requires considering a sufficiently broad and diverse range of products. Firms don't need to offer pension transfer or LTC advice to be independent.

   Why the other options are wrong

   B

   Independent firms don't have to offer these specialist areas.

   C

   Charging structure doesn't define independence.

   D

   Qualification level doesn't define independence.

2. Question 2 of 5

   How is 'restricted advice' defined?

   Option A: Advice given only to clients the firm has classed as restrictedOption B: Any personal recommendation that isn't independent adviceOption C: Advice given only by trainee advisers under supervisionOption D: Advice on products that the FCA has restricted from general sale

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   The answer is B: Any personal recommendation that isn't independent advice

   Restricted advice is any personal recommendation that isn't independent advice. It includes basic and simplified advice, tied and multi-tied advisers, and restricted whole of market advisers.

   Why the other options are wrong

   A

   The term relates to the advice, not the client.

   C

   Trainees don't make a firm restricted.

   D

   The FCA doesn't restrict individual advice in this sense.

3. Question 3 of 5

   An adviser recommends the firm's centralised investment proposition to a client it doesn't suit, simply because it's the firm's preferred solution. What is this called?

   Option A: ShoehorningOption B: FacilitationOption C: Focused adviceOption D: Churning

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   The answer is A: Shoehorning

   Recommending a firm's preferred solution to a client it doesn't suit is shoehorning, and it's bad advice.

   Why the other options are wrong

   B

   Facilitation is the provider deducting adviser fees from the product.

   C

   Focused advice is a legitimate specialised independent service.

   D

   Churning is replacing products when not in the client's interest.

4. Question 4 of 5

   An adviser charges 2% of a £150,000 investment. How must the fee be disclosed?

   Option A: As £300Option B: Only as 2%Option C: In monetary terms, as £3,000Option D: It needn't be disclosed until after the investment

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   The answer is C: In monetary terms, as £3,000

   Fees must be disclosed in monetary terms even if they're a percentage: 2% × £150,000 = £3,000.

   Why the other options are wrong

   A

   £300 is 0.2%, not 2%.

   B

   A cash figure must be given, not just the percentage.

   D

   Charges must be disclosed upfront.

5. Question 5 of 5

   What is the maximum annual management charge on medium-term stakeholder investment and pension products?

   Option A: 2% a year, falling to 1.5% after five yearsOption B: 1.5% a year, falling to 1% after ten yearsOption C: 1% a year throughout the plan's lifeOption D: 0.75% a year throughout the plan's life

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   The answer is B: 1.5% a year, falling to 1% after ten years

   The cap is 1.5% a year, reducing to 1% after ten years, which can now make stakeholder products more expensive than alternatives.

   Why the other options are wrong

   A

   2% exceeds the cap.

   C

   The cap starts at 1.5%.

   D

   0.75% isn't the cap.

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