This week the Brand Financial Training team will be answering the questions put forward by paraplanners around forthcoming exams, studying methods and motivation.
Q: What are the key topics I need to master for the AF4 exam?
The AF4 exam isn’t always an easy exam to predict, however taking a look at the exam guides will help you to understand what has come up in the most recent exam sittings and if you study enough of the guides you will start to see some common trends in the topics that are tested.
The topics that should form part of any revision programme include how to calculate Sharpe ratio, information ratio and alpha (and be able to explain how and why they are used) as well as dividend yields, price earnings ratio, net asset value etc. Money weighted and time weighted rates of return are also frequently tested so it is worth practising both of these as within the lower level exams it is often just the theory that is tested rather than the actual workings out. Investment theory should also be studied; the efficient frontier, CAPM and behavioural finance have all been tested in the past.
Investment products will of course also appear in the AF4 exam and can often be the slightly less mainstream products such as REITs or EISs. Be prepared to be tested not only on the technical detail of the product but also how these would suit clients with the appropriate risk profile. Questions on risk generally should also be expected and you will need to use the information in the case study to work out the risks the clients are exposed to and refer to this in your answers.
Often the CII will throw in a question on current economic conditions and this seems to be becoming more popular so you should keep abreast of what is happening with inflation and interest rates and understand how these impact the different asset classes.
Most candidates will use J10 and R02 as their main source of revision, J10 being the most useful as it covers a wider syllabus than R02, but it’s become increasingly obvious that candidates will need to read and research beyond this as well.
Over the past few years, CII figures show that around 50% of candidates pass AF4 although 2020 did see an increase to 55%. This pass rate has reduced quite significantly since the earlier years of the exam when it was up around 63%, so don’t expect an easy ride as the exam seems to be getting tougher.
Whatever is covered in your exam you’ll need to be prepared and ensure you understand the different investment products, investment theory as well as the numerous formulas that form part of the AF4 syllabus.
Information in this article is correct as at 10th September 2021.