All this week the Brand Financial Training team is answering questions paraplanners have submitted regarding the upcoming exams, including specific exam questions, study tips and general questions on exam technique. Make sure you check our daily email every day for their help and insight.
Today we answer two similar questions around inclusion of ESG in the upcoming exams.
Questions: For the R06 April sitting, do you think one of the case studies may cover ESG as it is seems the hot topic at the moment.
And: Is it likely that ethical investments will be mentioned in the case studies if they are going to be examined?
Answer: Socially Responsible Investing (SRI) is certainly a hot topic at the moment and the CII have noted in their examiner’s comments recently that ‘this is a big area of concern and interest in current financial planning’.
Given the high profile of SRI generally we do feel that this, or more specifically Environmental, social and governance criteria (ESG), could well be examined in one of the forthcoming R06 exams. ESG criteria is covered in R02 but we would also suggest candidates revise negative and positive screening as well, as this has also been tested regularly in the past.
To give you a bit of background on how SRI has been tested in the past: The last time this was examined, was in the February 2021 exam. The case study clearly indicated the clients wished to invest ethically so it should have been no surprise when the exam offered up two ethical questions. One was a pretty straightforward question worth 5 marks asking for the reasons why a fund manager might decide to invest in a particular company. The other question asked for an explanation as to why it may be better to invest in ethical investments via a collective investment fund, rather than selecting individual companies. It was good to see that, despite this question being seen by candidates as a curveball, the examiner noted that the question was well answered.
In January 2018 and October 2015 SRI was also examined and again a clear indication was given in both the case studies that it could be tested. The areas examined in both exams were the key investments which may be excluded by socially responsible managers and the drawbacks of SRI.
The good news is when ethical investment has been examined heavily in the past, i.e. two questions with ten plus marks on offer, it has been clearly indicated in the cases studies. However, the April 2019 exam did throw up a six-point question without any warning (again the drawbacks of SRI were asked, this time in relation to pensions). So, a good level of basic understanding, especially given the current profile of this subject, has got to be the way to go!
Information in this article is correct as at 31st March 2022.
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