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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. 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






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






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






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






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


6. Buy low and sell high






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






8. Restricted and unrestricted funds - characteristics and constraints






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






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






11. Restricted and unrestricted funds - characteristics and constraints






12. 3 yrs qualified work experience - complete cfp courses and exams - financial planning - employee benefits planning - investment planning - risk management - retirement planning






13. Probability theory






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






15. 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






16. The theoretical rate of return of an investment with no risk of financial loss - i.e. short dated domestic govt bond (default benchmark)






17. The theoretical rate of return of an investment with no risk of financial loss - i.e. short dated domestic govt bond (default benchmark)






18. Who wants objective advice - does not need ongoing attention - or who just wants a second opinion on what they are doing with no strings attached






19. Understand incentives of journalists - analysts - and companies in trying to make you take action - stay in the market - continue to add to your portfolio - buy and hold works






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






21. 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






22. 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






23. 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






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






25. Strategy of reducing idiosyncratic risks by making two investments with opposing risks






26. 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?






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






28. Measure of uncertainty about the future payoff to an investment measured over some time horizon and relative to a benchmark






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






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






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






32. If stocks are chosen carefully to create lowest possible correlation of returns - if those stocks are monitored carefully to assure that they will continue to have uncorrelated returns






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






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






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






36. 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)






37. 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?






38. 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






39. 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






40. If stocks are chosen carefully to create lowest possible correlation of returns - if those stocks are monitored carefully to assure that they will continue to have uncorrelated returns






41. 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






42. Unique risks






43. Assumption of trustee for assets - standard of prudence applied to whole portfolio rather than individual asset - tradeoff between risk and return - trustee can invest in anything that plays an appropriate role in risk/return profile - diversificati






44. Probability X squared deviation of payoff from expected value






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






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






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






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






49. 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






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