Chapter 3

Question 1

Firms must report any large cash or otherwise suspicious client transactions to

Answer 1

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).

Question 2

The primary form used to collect client information is the

Answer 2

account application

Question 3

This financial information gives you a clear picture of the client’s situation and provides valuable
insight into whether their goals are achievable.

Answer 3

Net Worth and Cash Flow Statements

Question 4

______ are a client’s life needs and aspirations. For example, a 33-year-old client would like to buy a four bedroom house in the next three years and retire at age 63.

Answer 4

Goals

Question 5

__________ refer to the investment return the client requires and the risk he must tolerate to achieve his goals

Answer 5

Objectives

Question 6

Any actions that help the client achieve his desired return are considered ___________

Answer 6

Objectives

Question 7

The ________objective is a measure of how much the client’s portfolio is expected to earn each year on average.

Answer 7

return

Question 8

The _________objective is a measure of the portfolio’s expected annual total return

Answer 8

Return

Question 9

A client’s ________ _________ is an estimate of the average annual return needed to meet his or her goals.

Answer 9

required return

Question 10

Client’s willingness to accept risk is called:

Answer 10

Risk Tolerance

Question 11

Client’s ability to endure potential financial loss

Answer 11

Risk Capacity

Question 12

Risk tolerance and risk capacity are separate considerations that together make up the client’s overall risk _______

Answer 12

profile

Question 13

The risk profile for a client should reflect the ________of their willingness to accept risk and the their ability to endure potential financial loss

Answer 13

lower (lesser)

Question 14

What is home bias?

Answer 14

Some clients/ investors favor investments inside Canada because it is familiar to them.

Question 15

Once you and your client have determined the appropriate risk profile, you must explicitly state the

Answer 15

risk objective

Question 16

You will need this information to recommend an appropriate asset allocation for the client.

Answer 16

Risk profile & Risk objective

Question 17

Common investment constraints include:

Answer 17

Time horizon, liquidity requirements, and tax situation

Question 18

A short-term time horizon is less than ______ years

Answer 18

3

Question 19

A medium-term time horizon is more than ______ years, but less than ______

Answer 19

3 years but less than 10 years

Question 20

A long-term time horizon is _____ years or more

Answer 20

10

Question 21

__________ requirements represent a client’s actual and potential cash needs.

Answer 21

Liquidity

Question 22

When you understand everything about the client’s tax situation, you can suggest or implement techniques to reduce the amount of tax the client must pay. This aspect of wealth management is known as

Answer 22

Tax Management

Question 23

How far back can you carry capital losses? How far forward?

Answer 23

Capital losses not used to offset capital gains in the current year can be applied against capital gains from the previous 3 years.

They can also be carried forward indefinitely to offset capital gains in future years.

Question 24

The methods used to collect and document all the information you need to create a comprehensive wealth plan is often called the

Answer 24

client discovery process

Question 25

The wealth management approach to client discovery has three distinct phases:

Answer 25

1. Setting the stage and building rapport
2. Conducting emotional discovery
3. Bridging to financial discovery

Question 26

However, the wealth management approach to client discovery focuses the discussion on the _____ issues first, rather than financial issues.

Answer 26

Life Issues

Question 27

Four general planning issues flow from emotional discovery:

Answer 27

accumulation, protection, conversion, and transfer of financial wealth

Question 28

It refers to the possibility that a client will fail to meet a personal or financial goal. Some clients define risk in terms of this concept.

Answer 28

Goal Shortfall

Question 29

These represent a client’s actual and potential cash needs. A high or pressing liquidity requirement may dictate a need for some investments that can be converted to cash quickly and at little cost.

Answer 29

Liquidity Requirements

Question 30

It is a measure of how much the client’s portfolio is expected to earn each year on average. It may be stated in absolute or relative terms.

Answer 30

return objective

Question 31

It is an estimate of the average annual return needed to meet a client’s goals. It should take into consideration the client’s current and expected financial situation.

Answer 31

required return

Question 32

It is a combined measure of a client’s willingness to accept risk and their ability to endure potential financial loss.

Answer 32

Risk Profile

Question 33

This is a statement declaring how much risk the client can sustain to meet a return objective. It is based on the client’s willingness to accept risk and ability to endure potential financial loss.

Answer 33

Risk Objective

Question 34

How are return objectives usually stated?

Answer 34

1. On an after-tax, inflation-adjusted basis. (real)

2. On an after-tax, before-inflation basis. (nominal)

Question 35

Investment Industry Regulatory Organization of Canada (IIROC)-licensed advisors are bound by which rules?

Answer 35

1. Suitability Requirements.

2. Know Your Client