Series 65 Unit 17

An investment adviser would be least likely to gather information about a new client A) from social media. B) on a smartphone app. C) by using a questionnaire. D) during a face-to face interview.

A) from social media. There are many different ways to gather the necessary information about a new client, but it is highly unlikely that an investment adviser would rely on social media posts. LO 17.a

In determining suitability for a client who has recently opened a new account, an agent should NOT: A) send the client a questionnaire to fill out. B) have his assistant interview the client. C) make assumptions on behalf of the client if he refuses to supply financial information. D) interview the client personally.

C) make assumptions on behalf of the client if he refuses to supply financial information. An agent should use any and all means for gathering information to determine suitability, including questionnaires and interviews. An agent should not make assumptions about the client when making recommendations. LO 17.a

Financial planners frequently assist their clients with budgeting. One can't really prepare a budget without knowing the family's cash flow. In preparing a family cash flow statement, all of the following items would appear except A) salary B) taxes C) interest on saving accounts D) assets

D) assets A family cash flow statement basically tracks the money coming in versus the money going out. Assets don't "flow"; salary and interest flow in and taxes flow out. LO 17.a

As part of its suitability determination, an IA firm requires that all potential nonbusiness clients complete a family balance sheet. Items that would be included are I. gold jewelry II. loan secured by the family automobile III. the amount paid thus far this year for Botox injections IV. the balance owed to the dentist for new crowns A) I, II, III and IV B) II and III C) I, II and IV D) I and IV

C) I, II and IV The balance sheet contains assets and liabilities as of a specific point in time. Personal property currently owned, such as jewelry, is an asset. A loan still outstanding, such as the car loan and the debt to the dentist, are liabilities. The amount already paid for the Botox injections is no longer on the balance sheet. LO 17.a

When making recommendations to an advisory client, which of the following carry the most weight? I. The client's risk tolerance II. Past performance of the adviser representative's recommendations III. The client's investment needs and objectives IV. The client's previous investment experience with other advisers A) I and IV B) I and III C) II and III D) II and IV

B) I and III Investment objectives and risk tolerance should determine recommendations to an individual advisory client. LO 17.d

An investor concerned about preservation of capital would be most apt to purchase A) call options B) warrants C) investment-grade corporate bonds D) common stock

C) investment-grade corporate bonds Capital risk is the danger of losing principal. Corporate bonds have the least capital risk because of the issuer's legal obligation to pay principal and their higher priority in the event of bankruptcy. Options are a wasting asset that can expire in a short time with total loss of capital. Common stock bears a higher capital risk than corporate bonds because bonds have a higher priority in the event of bankruptcy; common stock has only a residual claim in the event of bankruptcy. Warrants bear risk similar to that of options; they can be viewed as long-term call options. LO 17.d

You are onboarding a new client. Which of the following is the least important indicator of the client's risk tolerance? A) Expected retirement date B) Current age C) Attitude toward taking a loss D) Highest education level

D) Highest education level Although those with more education might be able to understand the concept of risk versus reward, it is far more important to know the client's age, time horizon (expected retirement date helps there), and attitude toward taking a loss. LO 17.b

What is among the most important nonfinancial considerations in determining the suitability of investments for a client? A) Tolerance for risk B) Rate of interest on Treasury bills C) Assets under management D) Client's income needs

A) Tolerance for risk A client's risk tolerance is among the most important nonfinancial considerations when recommending an investment. The risk-free rate or the Treasury bill rate has no reference to the client's investment profile, but it serves as a comparison to evaluate the additional return expected versus additional risk taken. A client's income need is a financial, not a nonfinancial, consideration, and must be considered when determining the suitability of investments. The amount of assets the client has with the investment adviser representative is a financial, not a nonfinancial, consideration. LO 17.b

A couple in their early 30s has been married for 4 years, their disposable income is relatively high, and they are planning to buy a condominium. If they need a safe place to invest their down payment for about 6 months, which of the following mutual funds is the most suitable for these customers? A) ATF Capital Appreciation Fund B) LMN Cash Reserves Money Market Fund C) XYZ Investment-Grade Bond Fund D) ABC Growth & Income Fund

B) LMN Cash Reserves Money Market Fund These customers are preparing to make a major purchase within the next few months, so they require a highly liquid investment to keep their money safe for a short amount of time. The money market fund best matches this objective. LO 17.d

Which of the following situations would most likely cause an individual's application for a disability income insurance policy to be denied? A) Type 2 diabetes B) BMI over 26 C) Being over 50 years of age D) Working in a hazardous occupation

D) Working in a hazardous occupation In most cases, those who work in hazardous occupations will be denied disability income coverage. Premiums will be higher as one gets older and Type 2 diabetes or too high a BMI can lead to a premium surcharge (rated), but those are generally not causes for denial of coverage. LO 17.c

One of the tasks of an investment adviser representative is gathering information to complete a client financial profile. Among the sources of this information would be all of the following except A) the client's bank and brokerage statements. B) the client's tax returns. C) the client's life insurance policies. D) the client's social media accounts.

D) the client's social media accounts. Although there are some people who divulge a great deal of personal information on their social media accounts, those are not the most reliable sources of the financial numbers an IAR needs to properly evaluate a client's financial position. Tax returns, bank and brokerage account statements, and life insurance policies (especially those with cash value) are a window to the client's assets. LO 17.a