Chapter 4

Question 0

40+9

Answer 0

40 recommendations to prevent money laundering and 9 for terrorist financing

Question 1

Financial planning steps

Answer 1

1) interview the client
2) gather data and identify goals and objectives
3) identify financial problems and constraints
4) develop a written financial plan
5) implement the recommendations
6) periodically review and revise the plan

Question 2

client communication and planning process

Answer 2

Evaluates investment suitability based on financial goals and objectives

Client info provides you with view of client circumstances and future goals

Financial planning pyramid help identify a clients current situation and needs

Question 3

Money laundering

Answer 3

Accepting illegal cash and making it appear legitimate

Question 4

Behavioural finance

Answer 4

The application of psychology to understand human behaviour in finance or investing

Question 5

Behavioural bias

Answer 5

Systematic errors in financial judgement or imperfections in the perception of economic reality

Question 6

Cognitive bias

Answer 6

Basic statistical, information processing or memory errors that are common to human beings

Question 7

Emotional bias

Answer 7

Spontaneous decisions based on emotion rather than conscious effort

Question 8

Emotional

Endowment

Answer 8

People place more value on an asset they hold property rights to than on an asset they do not hold property rights to

Question 9

Emotional

Loss aversion

Answer 9

People feel a stronger impulse to avoid losses than to acquire gains

Question 10

Emotional

Regret aversion

Answer 10

People avoid making decisions because they fear that whatever they decide to do will be wrong or bad

Question 11

Status quo

Emotional

Answer 11

People, when faced with a variety of options, will choose to keep things the same (maintain status quo)

Question 12

Biases men are susceptible

Answer 12

Overconfidence (cog)
Loss aversion (emo)
Availability (cog)
Cognitive dissonance (c)

Question 13

Biases for women

Answer 13

Endowment (emo)
Status quo (e)
Representativeness (c)
Regret aversion (e)

Question 14

Stages in the life cycle

Answer 14

1) early earnings- to age 30
2) family commitments- 25-35
3) mature earnings - 30-50
4) nearing retirement - 45-65
5) retired - 50+

Question 15

Stage 1- early earnings

Answer 15

Start when an individual starts to work and ends when family commitments begin
80% equity funds
10% bond funds
10% money market funds

Question 16

Stage 2 family commitment -25-35

Answer 16

Stage 2 is married with kids and wants to buy a home. More commitments and responsibilities
50% equity funds
20% bond funds
30% money market funds

Question 17

Stage 3- mature earnings- 30-50

Answer 17

Earnings increase. Start to focus on retirement savings and minimizing taxes 
40% equity growth funds 
30% equity funds
20% bond funds
10% money market funds

Question 18

Stage 4- nearing retirement- 45-65

Answer 18

Fewer family commitments. More risk averse ( less risky). Want tax minimization 
20% equity growth funds
40% equity funds
30% bond funds
10% money market funds

Question 19

Stage 5- retired- 65+

Answer 19

Rely on retirement savings to maintain lifestyle. Risk averse. May start to focus on estate building and wealth transfer (RRIF)