R01 exam – 3 key technical areas you should know

CII exam results

R01 exam – 3 key technical areas you should know

A student’s perspective:

I’m Sam, I passed all of my R0 exams (including the R01 exam) within the last year and this is my view as a student.  Please bear in mind that I am writing this from the perspective of a 23 year old. I had little previous knowledge of the financial services industry prior to completing my diploma exams.

Here are three key technical areas that everyone sitting the R01 exam should know. These are three areas of the R01 exam that I, and others I have spoken to, found either technically difficult or confusing.

R01 exam: monetary vs fiscal policy – know the difference!

I found that questions on monetary and fiscal policies can be confusing when asked under the pressure in an exam. The government can influence how quickly the economy grows by using monetary policy, fiscal policy, or a combination of both. Here are the main differences between monetary and fiscal policy:

Monetary policy

  • This is concerned with the management of interest rates and the supply of money.
  • The increase of interest rates will generally reduce an individual’s ability to spend because if they have borrowing, this will cost more. A reduction in interest rates will do the opposite.
  • The government can also increase the supply of money through quantitative easing as a method to increase spending.
  • If the government were to reduce interest rates and increase money supply, these will incentivise individuals and businesses to borrow and spend more money. As a result, the economy will grow.

Fiscal policy

  • This is about the level of tax and spending.
  • The government can increase or reduce tax levels, to increase or decrease growth in the economy.
  • Government spending also has a big impact on the economy. Building a new railway, for example, uses concrete and steel. It also means more people are employed who then have money to spend which increases economic growth.
  • If the government wanted to increase economic growth using fiscal policies, it could reduce taxes and/or increase government spending.
  • The government usually has to borrow to fund this extra spending which it does by issuing gilts.

Tip: In the R01 exam, read the question closely to see whether it refers to monetary or fiscal policy.

R01 exam: COBS, ICOBS and MCOB

COBS, ICOBS and MCOB are found within the Business Standards part of the FCA handbook. These requirements govern most of the day-to-day (or conduct) rules that you will have come across in a regulated firm.

COBS (Regulatory rules for investment advice)

  • Apply to firms that deal in regulated life, pensions and investment actions, as well as deposit-taking businesses.
  • It places obligations on firms, such as a the disclosure requirements, suitability reports and on inducements and indirect benefits.

ICOBS (Regulatory rules for non-investment insurance advice)

  • ICOBS apply to firms conducting protection and general insurance business.
  • Before offering advice, the client must be supplied with various documents such as the Initial Disclosure Document (IDD) and Demands and Needs Statement, and clients must also be made aware of the cancellation periods, which is 14 days for general insurance and 30 days for pure protection contacts and PPI.

MCOB (Regulatory rules for home finance advice, i.e. mortgages)

  • MCOB apply to firms conducting mortgage lending and advising, home reversion plans and sale and rent back agreements.
  • How individual firms operate will have an effect on how MCOB rules affect them, with the 3 different compliance levels being Direct Authorisation, Appointed Representative and Introducer Status.
  • The difference between information and advice is also covered within MCOB, with information being accurate and neutral facts, whilst advice involves giving an opinion on the merits of a particular product.

Tip 1: the rules that apply to each of the three regimes are broadly similar, but the detail is different, reflecting the fact that investment business is more of a risk than the other two regulatory regimes. For example, investment advisers use a suitability report to confirm the advice they give. This is more detailed than the suitability letter that a mortgage adviser would give. This, in turn, more detailed than the demands and needs statement provided by a general insurance adviser. Each is intended to explain what the advice is and why it is suitable, but vary in terms of depth.

Tip 2: in the R01 exam, don’t try and remember which ‘block’ of the FCA handbook a rule can be found in or, for example, what ICOBS 5 is. The exam questions tend to test the use of the information, not if you can remember where to find it.

R01 exam: MiFID client categorisation – retail clients, professional clients and eligible counterparty

  • Any individual who receives advice must be classified by the firm into one of these three categories:

Retail client

  • A retail client could be classed as anyone who does not fit the criteria of being labelled a professional client or an eligible counterparty.
  • This will probably be 99%+ of the clients you deal with.
  • Retail clients get the most consumer protection, e.g. FSCS

Professional client

  • A professional client could be more experienced and knowledgeable by way of qualifications and/or their experience.
  • A professional client could be either ‘per se’ or ‘elective’.
  • A per se professional client is by virtue of their characteristics. For example, they would be a public authority, a company, national government or bank.
  • An elective professional client is therefore any client who is not one of the above per se clients, and is also not a retail client.  They must sign documentation acknowledging that they understand that they qualify for lower levels of investor protection.

 Eligible counterparty

  • A typical investment adviser is unlikely to ever come across this category. Whether someone is an elective or per se counterparty depends largely on the nature of the business transaction (not the experience or otherwise of the investor).
  • For example, arranging a deal at the request of the client would make that client an eligible counterparty.
  • You can also have a per se eligible counterparty, which would be a national bank, government or other financial institutions.

If you would like to study for your R01 exam whilst on the go, click here for details of a talking book

I hope that you find the focus on these three areas useful.

Sam Patterson


3 Comments so far

Samantha ThomsettPosted on  10:13 am - Feb 1, 2018

Thanks very useful

MIRIAM jnnPosted on  3:52 pm - Feb 2, 2018

Thanks so much Sam you have given me a clear intricate detail on these topics which is much needed as i did my RO1 exam today and failed! BUT I do recall questions to do with these topics in the exam.

At this moment in time I feel like i would like to know where i went wrong and how to fix it. I read the whole study text and practised with 500 mock exam questions which i passed each time so i thought i had a vast knowledge. BUT DAMN! the exam made me feel like i what i did wasn’t enough!

I found the wording in the exam questions confusing because although i thought i had a vast knowledge on the topics, i was thrown off by the wording of the questions. Plus, Its hard to know what to brush up on for the resit as CII doesn’t provide you with the exam paper you sat or specify which questions you failed or passed.

Can i just ask when you sat your RO1 exam and what you found to be difficult/ tricky in the exam? I also found i was running out of time and had little time to go through my flagged questions i wanted to revisit the answers to. I needed this pass for a confidence boost as i’m switching careers from investment banking to financial advisory and i’m self funding for my diploma.. so any tips to help me on my journey will be much appreciated. 🙂

    Sam PattersonPosted on  10:01 am - Feb 7, 2018

    Hi Miriam,
    It sounds like it might not be your knowledge that’s lacking, but being overly nervous. Maybe you should go with your gut more. I found when I was doing it that I would often second guess myself in the exam. Whilst sitting it, I would sort of go through the exam quickly, not rushing, but just go through the exam quickly and flag any questions I wasn’t sure of. Then when I went back over the flagged questions. I had plenty of time because I went through it originally fairly quickly, but also more importantly, I was more relaxed and had got over the initial shock of ‘I’ve got 2 hours to pass this exam or my life is over’ sort of touch. In relation to preparation, I think it’s easy to get bogged down in the details. You are never going to fail an exam because you didn’t know one of the FCA handbook chapters back to front. Yes you may drop a mark or so, but you aren’t going to fail the whole exam on tiny details. You can ‘fail’ 35 questions and still pass. So my tip would be don’t worry yourself over every tiny detail, because the syllabus is so wide-ranging, the exam is going to ask broad questions to test your knowledge and understanding, and that maybe sounds where you have gone wrong. What I mean by this is that in the exam, under the pressure every candidate feels, you simply forgot the tiny details, and then this threw you off when asked a awkwardly-written question on a broad subject. I may be wrong on that, but it’s certainly something I can relate to, I was too worried to drop a single mark, when in fact it’s perfectly ok to drop marks if that means passing the overall exam. So my big thing would be just keep doing past questions (such as the CII RevisionMate questions) which are sometimes harder than those in the exam. Do them over and over and over again, each time going back over the exam and making notes, and eventually I have no doubt you will pass.

    Best wishes


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