Chapter 4

Question 1

Objective of an Effective Financial Plan

Answer 1

Accommodating changed in lifestyle and income level

Question 2

Financial Planning Process Step 1

Answer 2

Establishing the client - advisor relationship.

• Can a long term relationship exist?
• Conflict of interest?
• Communicate that there will have to be decisions made regarding alternative strategies for dealing with planning issues
• Discuss the financial planning process

Question 3

Financial Planning Process Step 2

Answer 3

Collecting Date and Information

• understand the difference between “client’s current status” and “future requirements and goals” and helping to resolve these differences
• Essential details:
  - current financial and personal status
  - investment goals and preferences
  - risk tolerance

Question 4

Financial Planning Process Step 3

Answer 4

Analyzing Data and Information

Question 5

Financial Planning Process Step 4

Answer 5

Recommending strategies to meet goals

Question 6

Financial Planning Process Step 5

Answer 6

Implementing Recommendations

Question 7

Financial Planning Process Step 6

Answer 7

Conducting a periodic review or follow-up

Question 8

Why formalize client relationship with either a letter of engagement or formal contract

Answer 8

To ensure that the client is fully aware of exactly what services the advisor will provide and what information the advisor will require in order to prepare a plan

Question 9

What action must be taken if a client refuses to provide any part of the minimum information required on a standard application to open an account

Answer 9

Obtain a written wavier for the client and consult the compliance officer

Question 10

What mutual fund fulfills the safety of capital objective

Answer 10

Money Market

Question 11

Appropriate Asset Allocations and it’s categories

Answer 11

The weight of the various components (cash, debt, equity and market securities) in an investor’s portfolio

Question 12

Define Discretionary Income

Answer 12

The difference between money coming in from employment as well as other sources and the amount of money going out to pay expences

Question 13

Define Net Worth

Answer 13

Total assets minus total liabilities

Question 14

Identify the check box on a mutual fund account application form that best indicates how attainable goals are likely to be

Answer 14

Annual Income Box
Or
Net Worth Box

Question 15

Financial Planning Pyramid: Security (where and what?)

Answer 15

Insurance - Will

Bottom (1)

Question 16

Financial Planning Pyramid: Independence (where and what?)

Answer 16

Debt Elimination - House - RRSP - Emergancy Fund

Second to bottom (2)

Question 17

Financial Planning Pyramid: Conservative Investment (where and what?)

Answer 17

Fixed-income securities (Bonds, Debentures, preferred shares, GIC, certain mutual funds)

3rd from bottom (3)

Question 18

Financial Planning Pyramid: Moderate Investment (where and what?)

Answer 18

Stocks, mutual funds

4th from bottom (4)

Question 19

Financial Planning Pyramid: Agressive Investment (where and what?)

Answer 19

Tax Shelters, Commodities, Derivatives

2nd from top (5)

Question 20

Financial Planning Pyramid: Very Agressive Investment (where and what?)

Answer 20

Art, IPO’s, Over The Counter securities, Real Estate, Precious metals

Top (6)

Question 21

What is Risk Tolerance take into account?

Answer 21

Psychological - some can handle more risk by nature than others

Personal & Financial circumstance and Investment Knowledge