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Tips for exam preparation

16 June 2017

In this extended Paraplanner Pointers, Neil Clarke paraplanner with Montfort International, who has written exam questions in the past and marked the advanced (AF) exams for the CII, offers some of his tips for candidates when prepping to take their exams.

When writing the advanced exam questions, the writers try to make them as unambiguous as possible and only information relevant to the questions asked is included in the case studies so there are no red herrings or extra pieces of information. They are also intended to be practical and topical, dealing with the kind of situations and knowledge that candidates will encounter as part of their roles as paraplanners and advisers.

Some candidates taking the advanced exams complain that they are tested on knowledge that is not relevant to their day-to-day job. In the case of investments, whilst paraplanners might predominantly use collective funds such as Oeics, that doesn’t means that at some point in the future they won’t be using other vehicles such as investment trusts or REITs. If you are recommending a fixed interest fund that invests in government gilts or corporate bonds then you should have a good understanding of how the underlying investments work and what factors affect their potential returns. Similarly when looking at equity funds, the manager’s strategy needs to be understood which may require knowledge of company accounts and fundamental ratios such as dividend yield, sharpe ratio or price/earnings (PE) ratio. Before recommending a VCT you should have some knowledge of investing in AIM listed or unquoted companies.

When it comes down to the practicalities of taking exams, a lot of candidates fall into the same kinds of traps. These can be the simplest of things, like not reading the question properly before starting on their answer or not setting out the answer in the way that the examiner would want to see it set out.

These errors often are highlighted in the Examination Guides written by the senior examiners, which should be essential reading for candidates. I would encourage all candidates to read the Examination Guides because they do see the same things over and over again and the reports flag up what candidates should be looking at.

The reports are also designed to educate in some circumstances, he adds. They may give a model answer for areas where candidates were particularly weak, for example the calculation of a redemption yield for a bond has been highlighted in the past and most candidates are now prepared should this come up.

Based on my experience, my three 3 top tips for exam candidates it would be these:

1. Answer the question asked

It seems obvious that you should answer the question asked and relate your answer to the case study provided but under the pressure of the exam, many candidates simply misread questions or use incorrect numbers.
Pay attention to how the question is phrased for example “State and explain the risks of investing in bonds” will require both stating a risk such as “interest rate risk” and then explaining what that means.
Many candidates fall into the trap of simply writing everything they know about a subject or they give an answer that they have seen to a similar question on a previous exam paper.
For example a question may ask you to explain the currency option a client could buy to ensure they receive £200,000 in sterling six months in the future when the funds are needed.
A knowledgeable candidate may give the following correct definition of a call option, which gives “the right but not the obligation to buy sterling at an agreed price at a fixed point in the future”. However this would not score full marks as it does not relate back to the specific need in the case study to have a known exchange rate (say £1 = 1.2 euros in order to generate £200,000) in six months time.

2. Show you understand the concept

Set out your answer in a way that clearly shows the marker you fully understand the concept being tested
For most question in the advanced exams the marking scheme is set out as series of short bullet points with one mark for each.
Generally your answers should be in a similar format i.e. a series of concise statements with one point per line. In particular try and avoid having large paragraphs of text with lots of detail where the examiner has to hunt around for the key phrases he is looking for. Just provide enough explanation to show the examiner you understand the concept rather than going into a great deal of depth that you don’t have time for. Leave space between answers so if you come back and add additional information you don’t have to start writing vertically up the margins or squeezing in lines of tiny text which can be hard to read.
Also whilst the markers do spend considerable time deciphering poor handwriting and have been known to go to great lengths such as enlarging scripts to A3, if it is so bad to be illegible then you run the risk of not receiving a mark.
For example a question may ask a candidate to compare the performance of a fund with the market return or benchmark. In the case study Fund A may have a beta value of 1.5 and has produced a return of 11% which is higher than the market return of 10%.
A good candidate is expected to say
• Fund A has a better return than the market (state the obvious!)
• the market beta is 1
• the beta of the fund is 1.5 which is greater than 1
• which means the fund is more volatile than the market
• which means the return on the fund is below that expected
• which means the manager is not adding value
• which means fund may not be suitable for the clients cautious attitude to risk.
A weaker candidate may simply say “the fund is more risky and the manager has underperformed so it is not suitable.” This may only score 2 marks out of the 7 available as there is no explanation of why it is more risky or what it is more risky than and the answer does not explicitly state that it is outside the client’s attitude to risk, which will also be given in the case study. The examiner can’t assume that you understand beta unless you explain it.
It is not necessary to write “which means” for every bullet point, however it can be helpful to think these words as you compose the structure of your answer.

3. Calculations and workings

For exams with calculation questions ensure that as well as knowing the formulas you have the mathematical ability to work out the answer and always show all you workings.
The Capital Asset Pricing Model is often examined in the CII investment exams. There are three elements to the equation so in this particular case study the expected return may be 1 + 2 (6 – 1).
The correct order to do the calculation is (6 – 1) then multiply by 2 and then add 1. There are often candidates who incorrectly add 1 + 2 first or who will add 2 to (6 – 1) rather than multiplying.
You should always show all of the steps in the calculation to ensure you score full marks for the correct method. In this case the answer on its own will score 1 mark out of 5. If you made a mistake on one of the numbers in the first line you will still obtain credit for otherwise following the correct method in which case you would receive 4 marks out of 5 despite having the wrong answer.
Expected return = 1 + 2 (6 -1)
Expected return = 1 + 2 (5)
Expected return = 1 + 10
Expected return = 11
It is often worth attempting a calculation even if you are unsure of the formula since you can still be given credit for getting one or two numbers in the correct places.
Finally the question may give you the expected return and ask you to calculate one of the other variables e.g. 10 = 1 + B (6 – 1). Again you need to be able to rearrange this formula to obtain B which in this case is 11/5.

Do you have any pointers for your peers?

If you’ve discovered a great technical website or a shortcut in Excel or another piece of software, or you’ve found a useful tool to help increase your processes and the way you work, or you have a view on best practice please get in touch and we’ll share it with the paraplanning community. Email me at; robkingsbury@researchinfinance.co.uk

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