R02 Tax wrappers, platforms and discretionary management: free practice questions
5 free questions on Tax wrappers, platforms and discretionary management, part of learning outcome 8 (Investment planning). Pick an answer to check it, or open the answer to see why each option is right or wrong.
Question 1 of 5
On which two main factors should the choice of tax wrapper be based?
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The answer is B: The client's tax and financial circumstances, and the assets held
Wrapper choice follows asset allocation and fund selection, and depends on the client's current and likely future tax position and on the underlying assets.
Why the other options are wrong
A
These shouldn't drive wrapper choice.
C
These relate to fund selection.
D
These aren't the two main factors.
Question 2 of 5
For which client does an ISA give relatively little benefit over holding collective funds directly?
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The answer is B: A basic-rate taxpayer unlikely to pay CGT
A basic-rate taxpayer who doesn't pay CGT gains relatively little, though an ISA still avoids reporting income and protects against future rises in their tax rate.
Why the other options are wrong
A
An ISA protects against future higher rates.
C
ISAs shelter their taxable interest.
D
They benefit most from an ISA.
Question 3 of 5
When can a maximum investment plan, a qualifying life policy, give tax-free access in practice?
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The answer is C: After seven and a half years
Qualifying policies can build funds free of higher- or additional-rate tax after ten years of contributions, capped at £3,600 a year, with tax-free access after three-quarters of the term.
Why the other options are wrong
A
Access depends on the policy term, not age.
B
That's far too early.
D
Access is possible earlier.
Question 4 of 5
Which of the following are typical features of an investment platform?
1. Consolidated valuations across accounts
2. Access to ISAs, SIPPs and investment bonds
3. Automatic rebalancing of portfolios
4. Guaranteed returns on all funds
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The answer is B: 1, 2 and 3 only
Platforms offer consolidated valuations and tax statements, a wide fund choice, access to wrappers, allocation across wrappers, adviser fees from cash, rebalancing and research tools.
Why the other options are wrong
A
Platforms don't guarantee investment returns.
C
Many platforms also offer automatic rebalancing.
D
Platforms don't guarantee returns; consolidated valuations are a key feature.
Question 5 of 5
What must an adviser check before placing a client's money with a third-party discretionary manager?
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The answer is B: That the manager's risk profiles match the adviser's
The adviser must ensure the discretionary manager's risk profiles correspond to their own, so clients don't take more risk than assessed. Sample portfolio returns also need careful evaluation.
Why the other options are wrong
A
No manager can guarantee returns.
C
Discretionary managers invest across assets.
D
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