R01 Financial promotions, know your customer and suitability: free practice questions

1. Question 1 of 5

   What is the overriding requirement for all communications about regulated business?

   Option A: They must be approved by the FCA before they are issuedOption B: They must be fair, clear and not misleadingOption C: They must include at least five years' past performanceOption D: They must always be made in writing, never orally

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   The answer is B: They must be fair, clear and not misleading

   All communications about regulated business must be fair, clear and not misleading, and since 31 July 2023 must support the Consumer Duty outcomes.

   Why the other options are wrong

   A

   The FCA doesn't pre-approve promotions.

   C

   Past performance isn't required.

   D

   Communications can be oral.

2. Question 2 of 5

   A promotion mentions a fund's past performance. What must it state?

   Option A: That past performance isn't an indication of future performanceOption B: Only the best calendar year's return achieved by the fundOption C: Nothing extra, as past performance speaks for itselfOption D: That past performance is a reliable guide to future returns

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   The answer is A: That past performance isn't an indication of future performance

   It must state clearly in the main text that past performance isn't a guide to future performance, and the data must be relevant, cover a sufficient period and state the period.

   Why the other options are wrong

   B

   Cherry-picking the best year would be misleading.

   C

   A clear warning is required.

   D

   Past performance never guarantees future returns.

3. Question 3 of 5

   The financial promotion rules do NOT apply to which of these?

   Option A: A newspaper advert for a unit trustOption B: A personal illustration prepared for one clientOption C: A social media post promoting an ISAOption D: A leaflet sent to all clients about pensions

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   The answer is B: A personal illustration prepared for one client

   The rules target marketing. They don't apply to communications to one recipient only, specific products for a specific recipient, or personal quotations and illustrations.

   Why the other options are wrong

   A

   Newspaper adverts are financial promotions.

   C

   Social media posts are covered.

   D

   A general leaflet is a financial promotion.

4. Question 4 of 5

   When must a suitability report be provided for an investment recommendation?

   Option A: Within 30 days after the transactionOption B: Before the transaction is concludedOption C: At the first annual reviewOption D: Only if the client asks for one

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   The answer is B: Before the transaction is concluded

   For investments, the report must be given before the transaction is concluded. Different timings apply to some pensions and life policies.

   Why the other options are wrong

   A

   For investments it must come before the transaction.

   C

   It can't wait until a review.

   D

   It's required, not optional.

5. Question 5 of 5

   How does capacity for loss differ from attitude to risk?

   Option A: They are two names for exactly the same thingOption B: Capacity for loss is simply chosen by the client on a scale of 1 to 10Option C: Capacity for loss only matters for pension recommendationsOption D: Risk attitude is subjective; capacity for loss is assessed objectively

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   The answer is D: Risk attitude is subjective; capacity for loss is assessed objectively

   Risk appetite is the client's subjective tolerance. Capacity for loss is objective and must be assessed by the adviser, for example using cashflow modelling. A client may want risk they can't afford.

   Why the other options are wrong

   A

   They are different concepts.

   B

   Capacity for loss is assessed objectively, not self-rated.

   C

   It applies to all investment recommendations.

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