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Wealth Management Exam

Instructions:
  • Answer 50 questions in 15 minutes.
  • If you are not ready to take this test, you can study here.
  • Match each statement with the correct term.
  • Don't refresh. All questions and answers are randomly picked and ordered every time you load a test.

This is a study tool. The 3 wrong answers for each question are randomly chosen from answers to other questions. So, you might find at times the answers obvious, but you will see it re-enforces your understanding as you take the test each time.
1. Inherited wealth - suddenly wealthy - endowments and foundations






2. Private banks - mutual funds - retail brokerages - hedge/private equity funds






3. Investment banks - financial consultants






4. In a fee based environment - base salary typically has a sig. variable component in the form of commissions or bonuses - variable compensation determined by quantitative and qualitative factors - similar to fee arrangement for client






5. Restricted and unrestricted funds - characteristics and constraints






6. Don't want stocks highly correlated if trying to diversify






7. Accumulate wealth over time by spending less than they earn - invest 20% of income per year - incomes are about average - advanced degrees






8. Amount of money you have paid into the house






9. Payoff-expected value






10. High ethical standards - communication skills - quantitative and analytical skills - attention to detail - work independently - current events - financial matters - client interests






11. Determines broad portfolio composition across asset classes - allocation between stock - bond - and cash determined more than 90% of the variability of returns






12. Brokerages - investment banks - commercial banks - trust departments - large comprehensive accounting firms - independent financial planners - insurance companies






13. Used to minimize issuer specific risks - principle of holding more than one risk at a time






14. You would have missed 96% of market's gains






15. 3 yrs qualified work experience - complete cfp courses and exams - financial planning - employee benefits planning - investment planning - risk management - retirement planning






16. Strategy of reducing idiosyncratic risk by making two investments whose payoffs are unrelated






17. High income upside potential - low base salary - greater requirement to sell in many cases - including cold call - cutting edge investment thinking - products - and support - SEC licensing required - potential long term commitment required






18. Broker/dealer- FINRA - SEC - bank exemption- fed and state regulators - employers - industry associations






19. Payoff X probability - payoff is the potential return of the investment






20. 1. define your needs and objectives 2. develop investment sections 3. regularly monitor your portfolio 4. validation






21. Review at least annually to manage gains/losses - clients adding or taking distributions require more frequent monitoring






22. Define investor profile and liquidity needs over time - identify the proportion of each section in line with your risk profile - investor profile - asset allocation






23. Only those who will be sellers of equities in the near future should be happy at seeing stocks rise. prospective purchasers should much prefer sinking prices






24. Asset allocation and diversification






25. Paid per transaction for your idea






26. Reduce risk and can increase returns






27. Paid as percentage of assets under management for your advice






28. Economy wide risks - consumer spending - economy






29. Execution at 18 mo intervals provides most of the benefits with less costs






30. Increases risk and reduces sharpe (return/risk) ratios






31. You would have missed 96% of market's gains






32. Increases risk and reduces sharpe (return/risk) ratios






33. Probability X squared deviation of payoff from expected value






34. Who wants significant input on investment selections or who has very few transactions and very little change in circumstances






35. Payoff-expected value






36. Across and within asset classes - internationally as well as domestically - find investments with low correlation R2 - asset correlation changes over time - for stocks diversify across and within sectors - diversify over time with dollar cost averagi






37. Value of the worst possible outcome - measures maximum potential loss - over a specific time horizon - at a given probability - used widely in the management and regulation of financial institutions






38. Assets are comparable - style - type of securites - value and growth






39. 3 yrs qualified work experience - complete cfp courses and exams - financial planning - employee benefits planning - investment planning - risk management - retirement planning






40. Check compliance with concentration rules and diversification in the portfolio - validate the proposal or develop a new asset allocation - revision






41. Commission - fee - salary - hourly fee for service






42. Client is unwilling to make appropriate trades due to tax impact or sentimental attachment - wealth management is unable to determine correlations between stocks - trading them through time (actively managing account)






43. Who wants ongoing service over financial affairs; should align interests insofar as the wealth management professional wants to see the portfolio grow as much as the client






44. Monitoring performance and adherence to policy - reviewing IPS on regular basis






45. Target: a proportion for allocation under 'normal' circumstances - range: an allowable band for allocation under variable circumstances






46. Majority of diversification benefit is reached with a portfolio of as few as 15-20 stocks => no more than 5% of stock portfolio in any one company - depends on definition of market






47. Monitoring performance and adherence to policy - reviewing IPS on regular basis






48. How far does it stray? - do other client characteristics justify the variance? what changes need to be made to correct? - how long? - - cost in taxes and transaction costs? - worth it to reallocate?






49. Who wants ongoing service over financial affairs; should align interests insofar as the wealth management professional wants to see the portfolio grow as much as the client






50. The longer the time with payments the more the risk - fixed income (bonds) the more time the more risk - stocks: the longer the time less volatility