Mixed Deck — All CFS Topics Flashcards
99 cards from real CFS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 20 Mixed Deck — All CFS Topics flashcards as text
What fiduciary duty applies to estate planning?
Answer: Act in the client's best interest with loyalty, care, and full disclosure
Fiduciary duty requires acting in the client's best interest with loyalty, care, and full disclosure of all material facts.
What is the typical 'two and twenty' fee structure in a hedge fund?
Answer: 2% management fee on AUM and 20% performance fee on profits
The '2 and 20' structure means a 2% annual management fee on assets under management plus a 20% incentive fee on profits generated.
Which rating from Moody's indicates the highest investment-grade bond quality?
Answer: Aaa
Moody's highest rating is Aaa, indicating the issuer has an exceptional capacity to meet financial commitments.
What is the significance of confidentiality in financial planning?
Answer: It maintains the privacy and trust between the advisor and client
Confidentiality is paramount in financial planning as clients entrust advisors with highly sensitive personal and financial information. Upholding confidentiality ensures the privacy of this data, which is crucial for building and maintaining a strong foundation of trust between the advisor and client. This trust encourages open and honest communication, enabling the advisor to develop the most appropriate and effective financial strategies.
What cleaning and sanitizing procedure is essential for regulatory compliance?
Answer: Clean and sanitize food contact surfaces before use, between tasks, and at regular intervals
Food contact surfaces must be cleaned and sanitized before use, between different food tasks, and at regular intervals to prevent contamination.
Which risk describes the possibility that a bond issuer will be unable to make scheduled interest or principal payments?
Answer: Default risk
Default risk (credit risk) is the chance that the bond issuer will fail to meet its contractual debt obligations.
What fiduciary duty applies to risk assessment?
Answer: Act in the client's best interest with loyalty, care, and full disclosure
Fiduciary duty requires acting in the client's best interest with loyalty, care, and full disclosure of all material facts.
What distinguishes an 'inverse ETF' from a traditional ETF?
Answer: An inverse ETF is designed to return the opposite of its benchmark index's daily performance
Inverse ETFs use derivatives to deliver returns opposite to their benchmark (e.g., if the index falls 1%, the inverse ETF aims to rise 1%), allowing investors to profit from declining markets.
What is the 'current yield' of a bond?
Answer: Annual coupon payment divided by the bond's current market price
Current yield is calculated by dividing the bond's annual coupon payment by its current market price, ignoring capital gains or losses.
How should risk be assessed in investment analysis?
Answer: Evaluate risk tolerance, capacity, time horizon, and investment objectives systematically
Comprehensive risk assessment considers tolerance, capacity, time horizon, and objectives to create appropriate strategies.
A 'putable' bond grants which right to the bondholder?
Answer: The right to sell the bond back to the issuer at a specified price before maturity
A putable bond gives the investor the right to sell (put) the bond back to the issuer at par on specified dates, providing downside protection.
Private equity funds differ from public equity primarily because they:
Answer: Invest in companies not listed on public exchanges
Private equity funds invest in companies not traded on public stock exchanges, giving them access to a different universe of investment opportunities.
What regulatory compliance requirement applies to investment analysis?
Answer: Full compliance with all applicable federal, state, and industry regulations
Full regulatory compliance is mandatory regardless of practice size, ensuring market integrity and client protection.
How should conflicts of interest be managed in risk assessment?
Answer: Identify, disclose, and mitigate all actual and potential conflicts of interest
All actual and potential conflicts of interest must be identified, disclosed to clients, and mitigated to maintain trust and compliance.
How should conflicts of interest be managed in client relations?
Answer: Identify, disclose, and mitigate all actual and potential conflicts of interest
All actual and potential conflicts of interest must be identified, disclosed to clients, and mitigated to maintain trust and compliance.
The 'expense ratio' of a mutual fund represents:
Answer: The annual cost of operating the fund expressed as a percentage of average net assets
The expense ratio is the annual percentage of fund assets used to cover operating costs including management fees, administrative expenses, and 12b-1 fees.
What is a key advantage of using asset allocation in a portfolio?
Answer: It reduces risk and improves long-term performance
A key advantage of using asset allocation in a portfolio is that it reduces risk by not putting all your eggs in one basket, and it improves long-term performance by balancing growth potential with stability. By strategically combining different asset classes, investors can create a portfolio that is resilient to market fluctuations. This approach helps achieve financial goals more consistently over time.
What regulatory compliance requirement applies to financial planning?
Answer: Full compliance with all applicable federal, state, and industry regulations
Full regulatory compliance is mandatory regardless of practice size, ensuring market integrity and client protection.
Which bond type allows the investor to exchange the bond for shares of the issuer's stock?
Answer: Convertible bond
Convertible bonds give the holder the right to convert the bond into a specified number of the issuer's common shares.
What should a financial advisor do if they identify a conflict of interest?
Answer: Disclose the conflict and manage it appropriately
If a financial advisor identifies a conflict of interest, their ethical obligation is to immediately disclose it fully and transparently to the client. This disclosure should explain the nature of the conflict and how it could potentially influence the advice given. Following disclosure, the advisor must then take appropriate steps to manage or mitigate the conflict, ensuring that the client's best interests remain the priority, or consider recusing themselves if the conflict cannot be adequately managed.