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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. Probability theory






2. 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)






3. Take account of the bank's strategy - product - recommendations - ideas and investment themes - apply allocation rules - investment proposal






4. Inherited wealth - suddenly wealthy - endowments and foundations






5. Asset allocation and diversification






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






7. Rebalance tax deferred accts first to reduce tax consequences - use tax loss harvesting in your taxable accounts prior to dec. 31 - try taking gains in taxable acct after 12/31 - when taking distributions - sell from overweight classes first - when a






8. Get paid on hourly basis for advice






9. 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






10. Bringing portfolio back to our allocation policy when market forces or life events changed the mix






11. Economy wide risks - consumer spending - economy






12. Square root of variance/initial investment






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






14. Reduce risk and can increase returns






15. Sum of probabilities - probability weighted sum of the possible outcomes






16. 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






17. 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






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






19. Priority of income - growth - safety of principal - benchmarks






20. Invest some fixed amount of money at regular intervals - allows to buy more shares when prices are low - not market timing doesn't work - reduces down side risk of putting lump sum in prior to a drop in value






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






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






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






24. Paid for U.S. corp or qualified foreign corp - taxed at 15% for those in tax bracket of 25% or more - taxed at 0% for those in tax bracket less than 25% - holding period requirement






25. Ordinary income tax rate (high - up to 35%) - capital gains rate (low - 0% or 15%)






26. More stability - higher salary - less upside potential for income - may need fiduciary skill - more focus on client service - less on asset gathering - sec licensing likely not required - call primarily on bank customers






27. Brokerages - insurance companies






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






29. 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






30. Risk by keeping investor with pre-determined risk profile






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






32. 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)






33. Sell assets with losses and offset with sales of those with gains - rebalance in tax advantaged accounts (IRA or 401K)






34. Paid per transaction for your idea






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






36. Private banks - mutual funds - hedge funds - trust companies - brokerages






37. 4 yrs qualified investment work experience - completion of cfa program - 3 6hr exams - 2-5 yrs to complete






38. Income and capital gain/loss in value - income is passed through to shareholders - gain/loss occurs on the mutual funds shares as well as on the underlying fund portfolio - fund portfolio gains are passed to shareholders; losses are retained in the f






39. Weighted average of the expected returns of its components






40. Take account of the bank's strategy - product - recommendations - ideas and investment themes - apply allocation rules - investment proposal






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






42. Never - monthly - quarterly - if more than 5% from target at month's end - if more than 5% from target at quarter's end






43. Payoff-expected value






44. Recovery rate (how much get back if default)


45. Priority of income - growth - safety of principal - benchmarks






46. Private banker - financial advisor - insurance agent - research analyst - portfolio manager - mutual fund manager/ marketer - hedge fun manager - family office - fund of funds manager - private equity manager/ analyst - financial consultant






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






48. Representation in domestic and international - large - mid - small cap - no individual stock more than 5% of total portfolio






49. Focus on integrated services/ cross selling - may be less pressure to sell than brokerage but more than community bank - blurring lines between brokerage and trust areas






50. General economic conditions - tax consequences of change - role of asset w/ in total portfolio - total return including income and principal - other resources - need for liquidity - income - preservation or appreciation of principal