Psychology of Financial Planning 7%

Question 1

Strategic Management Approach

*Driven by client’s GOALS & VALUES

Answer 1

The client’s GOAL & VALUES drive the client-planner relationship and the planner serves as a consultant.

1. SWOT analysis
2. The advisor uses clients’ goals and values to drive the client-planner relationship.

Question 2

Cognitive-behavioral approach

Attitudes-Beliefs-Values influence behavior

Answer 2

Believes a client’s attitudes, beliefs, and values influence their behavior and tries to replace negative beliefs with positive attitudes that should result in better financial results.

Question 3

Classical economics approach

Answer 3

Planners attempt to achieve better financial outcomes by increasing financial resources or reducing expenditures.

I. Clients choose among alternatives based on objectively defined cost-benefit and risk-return tradeoffs.

II. This approach believes that increasing financial resources or reducing financial expenditures results in improved financial outcomes.

Question 4

Leading Response

Answer 4

Guides the client to provide more detail

Question 5

Risk Perception

Answer 5

A client’s assessment of the magnitude of the risks being traded off

Question 6

Risk Tolerance

Tradeoff between Risk/Reward

Answer 6

Refers to the tradeoffs people are willing to make between potential risks and rewards

Question 7

The Myers-Briggs assessment

Answer 7

Used to determine whether a person is

1. introverted or extroverted,
2. driven by senses or intuition,
3. influenced by thinking or feeling,
4. apt to perceive and/or judge.

Question 8

Statements describe interpersonal communication?

Answer 8

1. Leading responses guide the client to give more detail.
2. Context refers to past history or conditions that exist during the communication.
3. Mastering interpersonal communication involves understanding differences when communicating across generations, cultures, and genders.

Question 9

Which of these statements regarding the forms of representativeness is CORRECT?

1. Sample-size neglect makes the initial classification based on an overly small and potentially unrealistic sample of data.
2. Base rate neglect occurs when a stock is classified as a growth stock even though new information asserts this may no longer be the case.

Answer 9

Both 1 & 2

Question 10

Which of these statements regarding emotional biases is CORRECT?

I. They are more difficult to overcome than cognitive biases.
II. They are a result of feelings, intuition, or impulse and are not related to conscious thought.

Answer 10

Both I & II

Question 11

Interpersonal communication between financial planners and their clients

Answer 11

I. Mirroring is accomplished by imitating the client’s body language or verbal style.

II. Body language can impact how clients receive and interpret messages more than any other type of communication.

III. Emotional intelligence includes the ability to recognize clients’ expressions and select socially appropriate responses.