Competancy 7

Question 1

. The FDIC insurance limit aggregates all accounts of an individual at a single institution.

Answer 1

False. The limit applies per registration, so an individual with single and joint accounts can qualify for up to the limit with each type of account

Question 2

Risk premiums may be tied to market capitalization

Answer 2

T

Question 3

High-yield bond funds have return characteristics that are a hybrid of stocks and bonds.

Answer 3

T

Question 4

ETFs have become popular investments when the systematic withdrawal approach is followed because of the granularity that can be created with asset allocation.

Answer 4

T

Question 5

Immediate variable annuities may provide for some indirect inflation protection

Answer 5

T

Question 6

Under the systematic withdrawal approach, too much investing in equities will mean the client is exposed to inflation risk and longevity risk.

Answer 6

False. Too much in equities might mean the portfolio cannot recover from market decline. However, heavy exposure to equities can help with inflation risk and longevity risk

Question 7

Under the systematic withdrawal approach, the planner must account for the fact that a part of the portfolio will provide annual income for the client

Answer 7

T

Question 8

ETFs have become popular investments when the systematic withdrawal approach is followed because of the granularity that can be created with asset allocation

Answer 8

T

Question 9

Under the systematic withdrawal approach, the client typically owns enough asset classes so that it is likely the planner can sell a “winner” to create retirement income.

Answer 9

T

Question 10

Bond unit investment trusts have maturity dates for the bond portfolio and can give the client the best of diversification as well as maturity dates to create current income.

Answer 10

T

Question 11

An immediate life annuity is typically more attractive when interest rates are low.

Answer 11

False. An immediate life annuity is more attractive when interest rates are higher

Question 12

Target date funds are similar from vendor to vendor.

Answer 12

False. The construction of target date funds varies widely

Question 13

$2 million decumulation portfolio should use a “2 mutual fund approach

Answer 13

False. It should be actively managed

Question 14

Net worth takes on a different meaning in decumulation and planners need to factor in net worth as a percentage of required distributions.

Answer 14

T

Question 15

The near-term bucket is more likely to invest in institutional shares

Answer 15

False. The near-term bucket is less likely to be invested in institutional shares because of the lower amount of resources devoted to it.

Question 16

In the aggregate, the systematic withdrawal approach and bucket approach may have a similar asset allocation model.

Answer 16

T

Question 17

TIPs and I-bonds are attractive products to set the floor under the flooring approach

Answer 17

T

Question 18

Clients may not be clear about what they want from the relationship with the financial advisor

Answer 18

T

Question 19

It is best to present the final retirement income plan to the client with a formal presentation expecting the client to accept it as presented

Answer 19

False. It is better to have a conversation and to work together with the client to come up with a plan that is acceptable to the client.

Question 20

A client’s resistance to adopting a plan may be because they have not “bought into” the plan.

Answer 20

T

Question 21

The financial advisor should stay focused entirely on the facts and figures when developing a retirement income plan

Answer 21

False. A plan needs to address the client’s needs, which include more than just
facts and figures.

Question 22

A retirement income software tool can be a visual aid to help clients understand the tradeoffs involved.

Answer 22

T

Question 23

The RisQuotient calculation uses a Monte Carlo analysis

Answer 23

False. The RisQuotient avoids a Monte Carlo analysis

Question 24

The RisQuotient factors in expected investment return adjusted for inflation, volatility as measured by standard deviation, median remaining lifespan, and an inflation-adjusted spending rate

Answer 24

T

Question 25

If the RisQuotient is high, the client and the planner need to start dealing with potential problems

Answer 25

T

Question 26

The SORDEX is a tool used to stress test the portfolio

Answer 26

T

Question 27

A SORDEX is based on a single analysis of the client’s current situation

Answer 27

False. A SORDEX is based on both the client’s current situation and extreme
circumstances

Question 28

Under the capital preservation model, if the withdrawal rate is more than 10 percent above where the client started, then the client should reduce spending by
20 percent

Answer 28

False. If the withdrawal rate is more than 20 percent above where the client started, then the client needs to reduce withdrawals by 10 percent

Question 29

Under the capital preservation model, withdrawals can never be increased

Answer 29

False. If the withdrawal rate is more than 20 percent below where the client started, then the client can increase the amount taken out by 10 percent.

Question 30

The 10 percent cutback by the capital preservation model is not the same as a
10 percent lifestyle cutback

Answer 30

T