Module 2 QB

Financial manipulation takes several forms. Which of these types of financial manipulation is correctly described? 1. Financial abuse is controlling an individual's ability to use, obtain, or possess financial resources. 2. Financial enmeshment most often involves one partner being more financially literate than the other.

1

Which of these statements regarding financial transparency is CORRECT? 1. It is important that partners always share financial goals and values. 2. Partners should be open about assets owned separately or debt incurred on their own. 3. Partners should be transparent regarding their finances only if they have joint accounts. 4. If partners appear uncomfortable discussing the details of their finances, the planner should, at the very least, get an overview of them.

2

The ability to meet current and future financial obligations and the financial freedom of choice to maintain a desired lifestyle is known as A) financial well-being. B) integrated financial planning. C) financial therapy. D) interior finance.

A) financial well-being.

All of these signal financial conflict among partners during meetings except A) one partner pausing longer than the other before answering questions directed at them. B) partners sitting far from one another. C) no eye contact between partners. D) one partner speaking more frequently than the other.

A. one partner pausing longer than the other before answering questions directed at them.

Which of the following may be affected by a client's risk tolerance and risk perception? i.Investment decisions ii. Decisions concerning insurance coverage iii.Decisions concerning types and amount of mortgages iv.Decisions concerning pension payout options

All options

Max is meeting with his clients, Steve and Anne, to define their goals. Steve tells Max one of his goals is purchasing a boat in two years, and Anne rolls her eyes. What is the best action for Max to take next?

Ask Anne if the boat is a mutually agreed-upon goal.

Which of these statements regarding emotional biases is CORRECT? 1. They are more difficult to overcome than cognitive biases. 2. They are a result of feelings, intuition, or impulse and are not related to conscious thought

Both I and II

Which of these statements regarding financial conflict is CORRECT? A) To decrease conflict between parents and the adult children they support, it is prudent to have general conversations regarding expectations for each party. B) Although it is important to notice nonverbal behaviors, it is more important to pay attention to spoken words. C) Because married partners with dissimilar risk tolerance levels can present challenges during investment planning, there must be open and honest discussion between them regarding how joint funds should be invested. D) To identify potential financial conflict, financial planners should place more emphasis on what client partners discuss than how they discuss it.

C) Because married partners with dissimilar risk tolerance levels can present challenges during investment planning, there must be open and honest discussion between them regarding how joint funds should be invested.

All of these statements regarding client psychology are CORRECT except A) a client's profile is largely influenced by context, which includes past history or any conditions that presently exist. B) beliefs are a type of attitude because they reveal a person's understanding of some aspect of his life. C) a planner should recognize his own attitudes, values, biases, and behaviors, and be certain they do not impact recommendations made to clients. D) a client's context represents what he believes to be right.

D) a client's context represents what he believes to be right. A client's strong attitudes and beliefs are considered values and represent what the client believes to be right. All of the other statements are correct.

Which of the following statements regarding the economic and resource approach to financial counseling is CORRECT? 1. Clients are assumed to be rational. 2. The focus is on obtaining and analyzing quantitative data, such as cash flow, assets, and liabilities. 3. In this approach, the client is the agent of change. 4. Individuals will change to the most favorable behavior if given the appropriate counseling.

I, II, and IV

Which of these questions a financial planner might ask a client are open-ended? 1. Do you have disability insurance coverage? 2. How do you feel about investing in the stock market? 3. Do you have a car payment? 4. How are your job prospects for the future?

II and IV

Ed has accumulated $10,000 in a savings account over the last few years and has earmarked that money as a down payment on a new boat. His air conditioner breaks and requires $5,000 in repairs. Ed is reluctant to spend the money in his savings account to make the repairs because he wants to use that money for the boat down payment. Instead, he puts the $5,000 repair bill on his credit card at an annual interest rate of 23%. This is an example of which of these behaviors?

Mental accounting

Justin and Maddie have asked you to provide them with a comprehensive financial plan. During your initial meeting, you asked several questions to understand their feelings, goals, and objectives. Based on this discussion, you believe a consultative approach should be used that specifically identifies their strengths and weaknesses, among other factors. Which of these techniques is most closely aligned with your financial counseling approach in this case?

Strategic management approach

framing bias

The tendency of decision makers to be influenced by the way that problems are framed.

Which of these statements regarding people who have a kinesthetic learning style is CORRECT?

They prefer their goals and objectives to be presented as a to-do-list in bullet form.

Which of the following statements regarding interpersonal communication between financial planners and their clients are CORRECT? 1. Mirroring is accomplished by imitating the client's body language or verbal style. 2. Body language can impact how clients receive and interpret messages more than any other type of communication. 3. Emotional intelligence includes the ability to recognize emotional expressions and select socially appropriate responses. 4. Proper use of these communication skills helps develop a relationship of honesty and trust between financial planners and their clients.

all

The cognitive-behavioral approach to financial counseling

believes that clients' behaviors are influenced by their attitudes, beliefs, and values. Making recommendations to improve clients' financial status is not part of financial counseling.

Which of these statements regarding behavioral finance is CORRECT? 1. Behavioral finance attempts to understand why people often act irrationally when making financial decisions. 2. Concepts used in behavioral finance include herding and confirmation bias.

both

Which of these statements regarding the classical economics approach to financial counseling are CORRECT? 1. A choice among alternatives is based on objectively defined cost-benefit and risk-returns. 2. It is based on the belief that increasing financial resources or reducing financial expenditures results in improved financial results.

both

Which of these statements regarding the forms of representativeness is CORRECT? 1. Sample-size neglect makes the initial classification based on an overly small and potentially unrealistic sample of data. 2. Base rate neglect occurs when a stock is classified as a growth stock even though new information asserts this may no longer be the case.

both

A client's assessment of the magnitude of the risks being traded off is known as

risk perception.

During his initial interview with a financial planner, Sam explains the tradeoffs he is willing to make between potential risks and rewards. These tradeoffs illustrate Sam's

risk tolerance

Achoring bias

tendency to focus on one piece of information when making a decision or solving a problem

Which of these statements regarding the field of behavioral finance is CORRECT? 1. Two concepts common to behavioral finance are anchoring and overconfidence. 2. Behavioral finance attempts to explain why people sometimes make rational decisions regarding their finances.

1

Jason is meeting with Christine, who was recently referred to him by a friend. Which of these strategies might Howard use in a meeting with Christine to foster good communication? 1. Adopting the client's body language 2. Imitating the client's word use, tone of voice, and communication method 3. Asking as many questions as possible that require only a "yes" or "no" answer 4. Paying full attention to what the client is saying and responding by paraphrasing the client's comments

1, 2, 4

Which of these questions regarding cultural humility is CORRECT? 1. Planners honestly make an effort to understand clients' identities. 2. It involves evaluation in which planners critically consider their clients' beliefs only.

1.

Which of these is an action planners can take to address the goal incongruence that results from conflicting goals or indecision when establishing them? A) Planners can share their own experiences, beliefs, and emotions to help partners agree on more common goals. B) Although goal incongruence is not common, planners should advise partners that planners can help them work toward more common goals if it does occur. C) Planners should help partners understand why they disagree with one another. D) Planners should stress the importance of each partner maintaining their own individual perspective, even if it does not help partners from moving toward more common goals.

C) Planners should help partners understand why they disagree with one another.

Under some circumstances, financial planners attempt to substitute clients' negative beliefs that lead to poor financial decisions with positive attitudes that should result in better financial results. This represents what approach to financial counseling?

cognitive-behavioral approach

Brittany's mother, Joan, passed away two years ago. As part of Brittany's comprehensive financial plan, her financial planner recommends that Brittany sell the ABC stock she inherited from Joan. Because Joan purchased the stocks on the day Brittany was born, they are sentimental to Brittany and she doesn't want to sell. This best describes what type of emotional bias on Brittany's part?

endowment bias The answer is endowment bias. This is an example of endowment bias, which occurs when an asset is felt to be special and more valuable simply because it is already owned.

The behavioral finance concept that asserts that people are given a means of reference, a set of beliefs or values, which they use to interpret facts or conditions as they make decisions, is known as

framing bias

One of your clients, Phil, has a tendency to follow the actions of a larger group of people when making financial decisions, whether those actions are rational or not. Phil's behavior is an example of A) herding. B) overconfidence. C) confirmation bias. D) anchoring.

herding

A client is presented with two equal investment opportunities. The first is stated in terms of potential gains, and the second is stated in terms of potential losses. Without having any additional information, the client selects the first investment. The client's decision reflects

loss adversion theory

Unconscious attitudes regarding money, often as a result of childhood experiences, which affect adult perceptions and behaviors are known as

money scripts