Chapter 5 book test Flashcards
- harry age 38 will soon be able to join his new employer’s pension scheme. his wife, bridget, age 35 currently has no pension arrangement. they would like to retire when Harry reaches age 60 and retain their current lifestyle. which of the following is likely to be the most improtant starting point for advice?
A) analysis of their household income and expenditure
B) details of their will
C) a copy of their last income tax return
A) - Analysis of their household income and expenditure
which of the following investors likely to have the MOST flexibility in achieving their retirement objectives, assuming they all wish to retire with the same living standard?
A) an investor age 32 - retiring at 55
B) an investor age 42 - retiring at 60
C) an investor age 35 - retiring at 50
D) an investor age 23 - retiring at 65
D ) generally, the more time there is to invest, the more flexibility in achieving investment objective
which of the following statements regarding a client fact-find is true?
A) a client must complete a fact find prior to their first meeting with an adviser
B) a fact find must be documented on paper and signed by both the client and the advisor
C) a copy of the client fact find must be attached to any recommendations
D) there are no regulatory requirements regarding the nature and content of the fact find
D) there are no regulatory requirements regarding the nature and content of the fact find
in the course of establishing a client’s current circumstances, advisers sometimes make use of letters of authority to third parties. which of the following enquiries should not require the adviser to use a letter of authority?
A) finding out which funds a single premium life assurance bond is invested in
B) determining how much capital is outstanding on a repayment mortgage
C) ascertaining whether the client is a basic-rate or higher-rate taxpayer
C) ascertaining whether the client is a basic-rate or higher-rate taxpayer
the adviser should be able to identify a client’s tax status by simply asking the client
which of the following asset classes is likely to have the lowest level of capital risk
A) overseas equities
B) UK equities
C) Gilts
D) cash deposits
D) cash deposits are generally not exposed to capital risk (the risk of loss of value of the amount invested)
which of the following is least likely to affect a client’s risk profile
A) the timescale of the investment
B) whether their objective for the investment is income or capital growth
C) if the client is a basic-rate or higher taxpayer
C) the rate of the tax paid by the investor on income is unlikely to affect their risk profile
which of the following statements regarding asset allocation is true?
A) asset allocation is influenced by a client’s risk profile and their investment objective
B) asset allocation must remain fixed for the duration of the portfolio and cannot be changed
C) asset allocation is less important than fund or investment selection
A) asset allocation is influenced by a client’s risk profile and their investment objective
collective investment products may form part of a recommended portfolio. which of the following factor is least critical to the fund selection process
A) the level of annual management charges within the product
B) the past performance of the fund compared with its peer group
C) the quality of customer service given by the prodcut provider
D) the size of the fund
D) The size of the fund is less important than charges, past performance and customer service in determining fund selection
which of the following statements regarding institutions’ asset allocation is typically correct?
A) life assurance funds have a higher allocation to equities and a higher allocation to fixed income securities compared to general insurance funds
B) life assurance funds have a higher allocation to equities and a lower allocation to fixed income securities compared to general insurance funds
B)
B ) life assurance companies have long-term liabilities so hold more assets that deliver higher return in the long run, ie equities. general insurance companies, however, need to manage cash flows over a shorter horizon to meet expected claims and so invest more in fixed income and cash
which of the following statements relating to defined benefit (DB) pension funds is correct?
A) a mature fund will have a higher liquidity requirement and thus have a higher allocation to short dated securities
B) a mature fund will have a lower liquidity requirement and thus have a higher allocation to Shor dated securities
A) a mature fund will need more access to cash to pay a greater proportion of maturing claims, and so it will prefer to invest in short-dated securities
