PRACTICE QUESTIONS TO TEST YOUR KNOWLEDGE AHEAD OF THE FASEA EXAM

Question 1.

From the licensee’s point of view, which of the following is a mandated obligation in the provision of advice to a retail client, as opposed to a wholesale client?

  1. Only a retail client is required to be given a FSG, SoA, PDS
  2. Dispute resolution & compensation arrangements only apply to retail clients
  3. FOFA requirements concerning best interests obligations, ongoing fee disclosure and conflicted remuneration only apply to retail clients
  4. All of the above

Question 2.

An FSG is not required to be given to a client in certain circumstances, including where the client is not a retail client.  TRUE or FALSE 

Question 3. 

In its example Statement of Advice, ASIC points out that an SOA serves which of the following purposes?

  1. A compliance tool
  2. A mechanism to protect the providing entity against liability
  3. A complete record of all information that you would expect to find in the client file (i.e. the information kept about the advice provided to the client); or
  4. A communication tool that sets out and explains the advice
  5. A place to include additional information not required by law
  6. All of the above

Question 4.

A Statement of Advice can be combined into a single document with a Financial Services Guide TRUE or FALSE 

Question 5.

Ryan is an authorised representative and advice provider who recommends a replacement life insurance policy (product switch).  In determining whether his client is likely to be in a better position by following his advice, Ryan must take into account all of the circumstances, including the overall cost savings of the product replacement (i.e. making the switch).   In determining overall cost savings to the client, Ryan must include his fees if his fees are payable only if the switch is made.  However, his fees do not need to be included in the overall cost determination if his fees are payable regardless of whether the product switch is made or not.  TRUE or FALSE

Question 6.

  Which of the following statements is NOT true of scaled advice?

  1. The rules that apply to ‘scaled advice’ and ‘comprehensive advice’ are identical
  2. Scaled advice can include advice on a single topic or advice on multiple topics
  3. Scaled advice can be simpler and of lower quality where the subject matter is not complex
  4. When giving scaled advice, it should be very clear in your SOA what advice you have provided and what advice you have not provided

Question 7.

Authorised Representative and Advice provider Sarah recommends that that her client withdraws money from bank account savings and invest it in managed funds.  Sarah considers this to be an investment into a new product rather than a replacement product (i.e. product switch) and does not provide further disclosure (as required by s947D) in her Statement of Advice (SoA).  Sarah’s SoA is not defective.  TRUE or FALSE

Question 8.

In regard to the Financial Planners and Advisers Code of Ethics 2019, even if an adviser follows the steps set out in s961B of the Corporations Act (i.e. the safe harbour steps), that adviser may still not have complied with the duty under the Code (i.e. the Financial Planners and Advisers Code of Ethics 2019) to act in the client’s best interests.  TRUE or FALSE  

Question 9.

Which of the following is one of the main factors in determining whether or not you have provided personal advice rather than general advice?

  1. You provided a current FSG to the client
  2. You considered at least one aspect of the client’s relevant circumstances
  3. You asked general questions at the fact find interview
  4. You were in possession of at least two aspects of the client’s relevant circumstances

Question 10.

Standard 3 of the Financial Planners and Advisers Code of Ethics 2019 requires that you must not advise, refer or act in any other manner where you have a conflict of interest or duty.

Homer is an authorised representative and advice provider employed by a bank.  He recommends the bank’s own brand of risk insurance products to his client.  As part of Homer’s employment contract, he earns bonuses which are directly related to the volume of risk business he writes.  Homer has breached Standard 3?  TRUE or FALSE

Question 11.

In relation to general advice in advertisements, which of the following statements is true?  Financial product advertisements must:

  1. Not identify the issuer of the product
  2. Refer potential buyers to a contact telephone number.
  3. Provided that the advertisement also states that the client should consider whether the financial product is appropriate for them, the advertisement does not need to contain the s949A warning
  4. Contain the s949A warning regardless

 Question 12.

There are two categories of advice. They are. ‘scaled advice’ and ‘comprehensive advice’, and there are different best interests duty requirements for each.  TRUE or FALSE 

Question 13.

Which of the following does NOT make a Statement of Advice defective?

  1. There is a misleading or deceptive statement in the SoA
  2. There is an omission of one or more of the main SoA requirements required by section s947B, s947C
  3. There is a failure to provide the additional SoA information required by s947D where advice recommends replacement of one product with another
  4. Information has been incorporated by reference into the SoA and the document containing the information has already been given to the client and the SOA states that a copy of the information may be obtained from the providing entity on request, at no charge

Question 14.

Read the following scenario and answer the questions below.

Scenario

A client couple approaching retirement meets with an advice provider to seek advice on what to do with their superannuation when they retire.

The clients have healthy superannuation balances because they have been contributing to their superannuation for the past 35 years. They have no experience with investing.

The clients’ existing superannuation fund has no pension option. The clients understands that they need to start making some decisions about their superannuation but, because they have no previous investment experience, they are nervous about this process.

They want a simple, cost-effective solution that they can easily understand and does not require too much of their time.  They have been told that SMSFs are an easy way to maximise the value of their superannuation but they are unsure.

They are looking forward to retirement and do not want the burden of watching the market every day, as they have seen some of their colleagues do.

The advice provider recommends an SMSF and reassures the client that they do not need to be too involved because the advice provider will look after it for them.

Questions

  1. Has the adviser acted in the best interests of the client? (provide at least one Corporations Act reference to support your answer)
  2. Which of the seven (7) elements of the safe harbour has the adviser failed to satisfy?
  3. In regard to the Financial Planners and Advisers Code of Ethics 2019, in what way has the adviser failed to demonstrate realise or promote the values of ‘trustworthiness’ and ‘fairness’?
  4. How has the adviser breached Standard 2 of the Financial Planners and Advisers Code of Ethics 2019?
  5. How has the adviser breached Standard 5 of the Financial Planners and Advisers Code of Ethics 2019?
  6. How has the adviser breached Standard 7 of the Financial Planners and Advisers Code of Ethics 2019?
  7. How has the adviser breached Standard 9 of the Financial Planners and Advisers Code of Ethics 2019?

Question 15.

Read the following scenario and answer the questions below.

Scenario

Mary arranges a first appointment with you for retirement advice. She and her husband Bob are both 68.  Mary is in good health but Bob has been diagnosed with dementia.  They both worked as high school teachers before Bob was forced to retire 3 years ago due to his condition and Mary retired a year ago to look after him.  Between them, they have close to $1 million in accumulated super.

Your advice addressed the following areas:

  • Commence superannuation income streams from their respective accounts
  • Re balance their superannuation investment (your only consideration was to match their asset allocation to their respective risk profiles)
  • Nominate / Reversionary beneficiaries, Wills and Enduring Powers of Attorney
  • Eliminate the relatively small amount of debt they had
  • Their eligibility or otherwise for the Age Pension and carer’s allowance
  • Their primary short term goal to travel overseas while Bob is still able
  • Their primary short term goal to visit family interstate while Bob is still able
  • Their longer term goal to leave an inheritance to their two adult children

You didn’t pay much attention to scoping the extent of your retirement advice in your SoA, but at the time your clients were happy with the advice you provided and they paid your fees immediately.  Three months later, still worried about Bob worsening condition, Mary seeks a second opinion from another adviser.  She is told that not only is your advice incomplete, it is in breach of the Code of Ethics

Questions

1. Which standard of the Financial Planners and Advisers Code of Ethics 2019 have you primarily breached?

2. When you identify the correct standard, then go to the Explanatory Statement and identify at least two (2) additional issues that you should have considered in your advice?

3. Did you satisfy every element of the s961B safe harbour?  If not, why not?

Question 16.

Read the following scenario and answer the questions below.

Scenario

You are referred to a new client, Jane by a long time loyal client and advocate, Betty.  You duly identify the subject matter and accurately scope your advice; and satisfy every other element of the s961B safe harbour.  Jane is happy with your advice, implements it and, in no time, improves her financial well-being.  So far you have acted in Jane’s best interest according to the Corporations Act, and you have satisfied the Code of Ethics best interests test in Standard 2, paragraph 29. (i.e. the test is, in short: will your advice and recommendations improve the client’s financial well-being?)

Jenny and Jane are close friends and discuss your advice and your service between them.  Your long time client and advocate, Betty becomes envious of the time you are spending with Jane, and of the increase in Jane’s wealth as a result of your advice.

To your astonishment Betty makes a complaint.

Then you recall that Standard 2 paragraph 34 states that “This Code does not have any equivalent provisions. So, even if you follow the steps set out in section 961B of the Act, you may still not have complied with the duty under the Code to act in the client’s best interests.”

Questions

1. As strange as this might sound, you may have breached the Code of Ethics.  If so, which Standard would you most likely have breached in this circumstance, and why?

Question 17.

In RG175.(252 – 257), ASIC sets out a number of processes for complying with the best interests duty.  In regard to those processes, which of the following statements is NOT true?

1. The scope of the advice includes all the issues that must be considered for the advice to meet the client’s objectives, financial situation and needs (including the client’s tolerance for risk)

2. If the scope of the advice changes, the change is consistent with the client’s objectives, financial situation and needs

3. The advice provider should focus on providing advice that is not product specific, or on a combination of advice that is both product specific and non-product specific, where this would better suit the client’s objectives, financial situation and needs.

4.  Processes for complying with the best interests duty can still be effective even if an advice model typically leads to a one-size-fits-all outcome

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