65 - Unit 19

Which of the following would be the most appropriate portfolio mix for an aggressive investor?

10% cash equivalents, 20% bonds, and 70% stocks

A couple, ages 63 and 66, are long-time clients of your firm and are in good health. They plan to retire from gainful employment in 4 years and wish to discuss decumulation strategies. One of the important factors to consider is the time horizon for this couple. Which of the following would be the best estimate to use?

25 years

Several investors open an account in joint tenancy. Financial information is required on which of the following investors?

All the investors

An investment adviser representative's client lost her father to lung cancer. Among the assets bequeathed to her were 2,000 shares of a tobacco stock. Which of the following is NOT a consideration when recommending to her what to do with the stock?

Her father's years of investment experience

An elderly widow with no independent income wishes to invest the proceeds from her recently deceased husband's life insurance. Which of the following would be the most suitable recommendation?

High-grade corporate bond mutual fund

Investment advisers must recognize the difference between their client's goals and objectives and investment constraints. Which of the following would be considered an objective rather than a constraint?

Income in retirement

It is generally accepted that agents and IARs will give greater consideration to which of the following when making recommendations to their senior clients?

Life stage Retirement savings

A married couple in their early 50s saving for retirement would most likely have which of the following objectives?

Moderate risk, moderate safety, low liquidity

Construction of an investment policy statement (IPS) requires identifying the client's objectives and constraints. Which of the following would not be in the list of constraints?

Risk tolerance

Which of the following should be considered by an investment adviser in determining whether a specific investment is suitable for an individual investor?

The investor's anticipated time horizon The level of the investor's acceptance of risk and volatility

What is among the most important nonfinancial considerations in determining the suitability of investments for a client?

Tolerance for risk

The study of why people often make decisions using rules of thumb rather than rational analysis, basing those decisions on factors economists traditionally don't consider, such as fairness, past events, and aversion to loss, is known as

behavioral finance

A client who states that she wants to avoid petroleum company stocks is expressing a

non-financial consideration

An adviser always inquires into her clients' investment objectives, financial situations, and needs. The investment adviser is

obtaining the information required to fulfill her professional obligation regarding suitability

A client of an investment adviser excitedly calls the adviser with the news that he is now going to handle his own investments. "I just read some great investment books, and now I know what to do." Based on the study of behavioral finance, it would appear that this individual is

overconfident.

Included in the list of subjective considerations would be

risk tolerance

It would be CORRECT to state that when an investor has a shorter time horizon,

the need for liquidity is more important

Subjective considerations are

the nonfinancial ones

One of your clients excitedly calls to inform you that his daughter has just been accepted for the coming year into the engineering program at one of the most respected universities in the country. She has been given a generous scholarship but that will leave the family short by about $100,000 for the 4-year program. You check the client's account and see that the current value is $25,000. The client offers to add another $25,000 and asks you if you think the account performance over the next 4 years can provide the necessary funds. You would probably reply

the short time horizon is an investment constraint that will make reaching this goal highly unlikely

All decisions are

ultimately up to the client, but there is nothing wrong with the IAR attempting to educate the client, especially when it could lead to greater investment success.

A customer within 1 year of retirement informs his agent that he wants to use the equity in his house to make enough money within the year to fully fund his retirement. According to the Uniform Securities Act, the agent should

urge the customer to reconsider his investment strategy