Test Flashcards
Martin, an IFA, is selecting a platform for his client Paul. The area that is LEAST likely to be a major consideration is the:
Select one:
a. range of investments available.
b. cost to the client.
c. range of tax wrappers offered by the platform.
d. past performance of the investments.
d. past performance of the investments.
chapter reference 9A1I
At the start of a client relationship an adviser should provide the client with information about the scope of the services that are being offered and the cost of any work that the adviser will carry out. This information is usually contained in the:
Select one:
a. client agreement.
b. FCA rule book.
c. key features document.
d. sales literature.
a. client agreement.
chapter reference 9A1A
James wishes to take an ethical approach with his investments, which means that he:
Select one:
a. may take advantage of both positive and negative screening.
b. can expect to pay higher fees than non-ethical investments.
c. will only be able to take advantage of positive screening.
d. will have to make all investment decisions himself.
a. may take advantage of both positive and negative screening.
chapter reference 9A1G
Which of these clients has the lowest risk portfolio?
Select one:
a. Andrew, with an equal mix of emerging market bond funds and smaller company funds.
b. Jan, with an equal mix of equity income funds and gilt funds.
c. Neil, with an equal mix of equity income funds and high-yield bond funds.
d. Paul, with an equal mix of equity income funds and alpha funds.
b. Jan, with an equal mix of equity income funds and gilt funds.
chapter reference 9A1F
If Stevie has an investment which does not depend on investment performance, it must be a[n]:
Select one:
a. stocks and shares ISA.
b. defined benefit pension fund.
c. personal pension scheme.
d. OEIC.
b. defined benefit pension fund.
chapter reference 9B1
Michael’s portfolio manager has changed the asset allocation in his portfolio to align it closer to his risk profile. This process is best described as:
Select one:
a. netting.
b. switching.
c. rebalancing.
d. encashing.
c. rebalancing.
chapter reference 9C4
Juliet, an ethical investor, only wishes to invest in companies that avoid dealing in alcohol and tobacco. The process she is adopting is best known as:
Select one:
a. negative screening.
b. positive screening.
c. ethical screening.
d. green screening.
a. negative screening.
chapter reference 9A1G
A cautious investor is considering some funds to include in their portfolio. Which of the following funds would be considered to be lower risk?
Select one:
a. Gilt funds.
b. High-yield bonds.
c. Emerging market bond funds.
d. Alpha funds.
a. Gilt funds.
chapter reference 9A1F
If Emilia is seeking the value of her investment to rise from both capital gains and the reinvestment of income, she is looking for:
Select one:
a. capital preservation.
b. capital erosion.
c. total return.
d. capital appreciation.
c. total return.
chapter reference 9B1B
Akeel took out a personal pension in May 2020. Generally, the best time to review this would be:
Select one:
a. between November 2020 and May 2021, then annually thereafter.
b. at Akeel’s request only.
c. June 2020 and then quarterly thereafter.
d. August 2020 and then half yearly thereafter.
a. between November 2020 and May 2021, then annually thereafter.
chapter reference 9A1K
With an investment portfolio, a withdrawal rate of 4% means that this level of income can be taken:
Select one:
a. and the value of the portfolio should last around 20 years
b. adjusted for inflation, whilst maintaining the value of the portfolio.
c. whilst maintaining the value of the portfolio.
d. adjusted for inflation, and the value of the portfolio should last around 30 years.
d. adjusted for inflation, and the value of the portfolio should last around 30 years.
chapter reference 9C5
A body of research suggests that for many people in their 60s, an average withdrawal rate of over 4% risks running capital running down to almost nothing before death - which is now not likely to occur until after the age of 90 for someone in good health. A study in the USA over 20 years concluded that 4% is a safe withdrawal rate; i.e. 4% is the highest percentage of the initial portfolio, adjusted for inflation each year, which can be taken without running out of money over a 30-year period. This is just a guide but can provide a useful foundation for advising clients on how best to ensure a fund does not run out during their lifetime.
Cath, an adviser, is attempting to establish the risk profile of her client, Mary. Cath has ascertained that if Mary were to lose 20% of her investment, her income will fall proportionately and her lifestyle will become uncomfortably constrained. Cath should record this as Mary’s:
Select one:
a. capacity for risk.
b. capacity for loss.
c. tolerance of risk.
d. risk intolerance.
b. capacity for loss.
chapter reference 9A1D
Natalie has a balanced attitude to risk, but would like to aim for growth rather than income with her investment portfolio. The majority of her investment portfolio is most likely to be invested in:
Select one:
a. cash and property.
b. equities and property.
c. bonds and equities.
d. bonds and property.
c. bonds and equities.
chapter reference 9C1
Eric is an investment adviser who is considering how to meet his client’s investment objectives. Which of these facts would NOT be considered a constraint to his advice?
Select one:
a. His client would like him to include socially responsible investments.
b. His client has a cautious attitude to risk.
c. His client is a higher-rate taxpayer.
d. His client has a four year investment time horizon.
b. His client has a cautious attitude to risk.
chapter reference 9B2
In addition to establishing the investor’s objectives, the investment advisor also needs to consider contstraints that impact the investment made in the portfolio. These include:
- time horizon;
- liquidity;
- tax;
- legal and regulatory factors: and
- unique needs and preferences
Wendy’s portfolio has the largest percentage in equities and the lowest in cash. Her risk profile is most likely to be:
Select one:
a. risk-averse.
b. balanced.
c. adventurous.
d. cautious.
c. adventurous.
chapter reference 9A1E
Whilst completing the fact-find, Julio learns that Sasha, his client, is very keen on environmental issues, especially alternative energy. When constructing his portfolio Julio should consider ethical funds using which technique for stock selection?
Select one:
a. Positive screening.
b. Negative screening.
c. Bottom-up screening.
d. Discrete selection.
a. Positive screening.
chapter reference 9A1G
If Shannon’s investment portfolio consists of 75% equities, 10% property, 10% bonds and 5% cash her risk profile is most likely to be:
Select one:
a. growth.
b. speculative.
c. adventurous.
d. balanced growth.
c. adventurous.
chapter reference 9C1
Asha, 42, is risk-adverse and has only deposit-based savings. Bruce, 66, recently retired and lives off his investment income. Chloe, 26, wants to buy a house within the next two years. Dylan, 35, is a high-earner with surplus monthly income. Which client’s objective is most likely to be capital appreciation?
Select one:
a. Dylan.
b. Bruce.
c. Asha.
d. Chloe.
a. Dylan.
chapter reference 9B1B
Charles, a new client, has existing investments of £200,000 and a medium attitude to risk. For which of these reasons could it be good advice to invest a new lump sum of £200,000 entirely in equities?
Select one:
a. He requires a fixed level of income.
b. All his current investments are in cash and gilts.
c. He is a higher-rate taxpayer.
d. He wishes to utilise his capital gains tax exemption annually.
b. All his current investments are in cash and gilts.
chapter reference 9A1E
Medium-high risk: Cash allocation is kept to the minimum. The client will be prepared to invest outside the UK and in high risk funds. They will take a long-term view and may choose to sacrifice some diversification for a more focused and volatile portfolio.
Barry has a credit card with an outstanding balance of £10,000, a secured loan of £20,000 and a mortgage of £120,000. He has just won £50,000 on the lottery. Barry’s highest priority with his winnings should be to:
Select one:
a. clear his credit card balance.
b. pay off his secured loan.
c. invest in the stock market.
d. pay £50,000 off his mortgage.
a. clear his credit card balance.
chapter reference 9B2E
To complete the full advice process, it is important that an adviser:
Select one:
a. implements the financial planning recommendations he has made to his client.
b. invoices his client with his financial planning fee.
c. continues to monitor the financial plan and the financial planning relationship with his client.
d. obtains referrals from his client.
c. continues to monitor the financial plan and the financial planning relationship with his client.
chapter reference 9A1
Whilst completing the fact-find, Holly learns that Zeb, her client, has very strong views on, and campaigns for, animal rights. When constructing his portfolio, which technique for selecting ethical funds would be most appropriate for Holly to consider?
Select one:
a. Green screening.
b. Positive screening.
c. Impact investing.
d. Negative screening.
d. Negative screening.
chapter reference 9A1G
Lewis keeps the cash he holds to a minimum. He has a varied portfolio of investments both in the UK and overseas. Although he doesn’t hold any direct investments, some of his investments could be considered as quite volatile. His risk tolerance would best be described as:
Select one:
a. medium-high risk.
b. low-risk.
c. medium risk.
d. high-risk.
a. medium-high risk.
chapter reference 9B1A
Ed, an adviser, is attempting to establish the risk profile of his client, Joe. Ed has ascertained that Joe feels very uncomfortable about the possibility of his portfolio falling by 20%, although it would not directly affect him immediately. Ed should record this as Joe’s:
Select one:
a. capacity for risk.
b. tolerance of risk.
c. risk tolerance limit.
d. allowance for loss.
b. tolerance of risk.
chapter reference 9A1D/9B1A
Tracey is looking through the client agreement document given to her by her new adviser. From the document, she is LEAST likely to find information about the:
Select one:
a. firm’s model portfolios.
b. frequency of expected contact.
c. nature of the service to be provided.
d. duration of the agreement.
a. firm’s model portfolios.
chapter reference 9A1A
Charles, a new client, has some existing investments and a medium attitude to risk. It might be advantageous to invest a new lump sum entirely in gilts, if:
Select one:
a. he expects to start working overseas within twelve months.
b. he is a higher-rate taxpayer.
c. inflation is expected to decrease.
d. all his current investments are in cash and equities.
d. all his current investments are in cash and equities.
chapter reference 9A1E
Jeremy is an investment adviser who is considering how to meet his client’s investment objectives. Which of these would NOT be considered a constraint to his advice?
Select one:
a. The fact that his client is a basic-rate taxpayer.
b. The fact that his client is divorced.
c. The fact his client wants to retire abroad.
d. The fact his client is a charity.
b. The fact that his client is divorced.
chapter reference 9B2
Darcy has recently received an inheritance that she is looking to invest. Her adviser has recommended phasing the investment over several months. This is to:
Select one:
a. minimise inheritance tax.
b. ensure that the investment strategy is not high risk.
c. mitigate capital gains tax.
d. potentially take advantage of pound cost averaging.
d. potentially take advantage of pound cost averaging.
chapter reference 9C5
Larry is a long-term investor who is looking for growth in the value of his portfolio to come from both capital gains and reinvestment of income. What is likely to be his overall objective?
Select one:
a. Capital appreciation.
b. Capital preservation.
c. Long-term growth.
d. Total return.
d. Total return.
chapter reference 9B1B
Doug is interested in investing in a fixed-interest securities fund that could provide the highest reward. The most appropriate recommendation would be a[n]:
Select one:
a. investment grade corporate bond fund.
b. emerging market bond fund.
c. global government bond fund.
d. UK Gilt fund.
b. emerging market bond fund.
chapter reference 9A1F