CIC Investment Policy & Planning 4

Question 1

A client who is retired and relies entirely on portfolio distributions for living expenses would have which type of liquidity profile in the IPS?

Accepted Answer

High liquidity requirement due to regular income distributions needed

Answer

Clients dependent on portfolio withdrawals for living expenses require significant liquidity planning to meet ongoing cash flow needs without forced asset sales.

Question 2

Which investment policy constraint refers to the minimum acceptable holding period before assets can be liquidated?

Accepted Answer

Liquidity constraint

Answer

Liquidity constraints specify how quickly assets must be convertible to cash, including both minimum hold periods and maximum transaction costs.

Question 3

An investment counselor revising an IPS after a client's divorce should pay closest attention to which potential change?

Accepted Answer

Changes to net worth, cash flow, risk capacity, and beneficiary designations

Answer

Divorce dramatically alters financial circumstances, liquidity needs, risk capacity, and estate planning elements that are fundamental to a valid IPS.

Question 4

A 'total return' investment objective in an IPS differs from an 'income' objective primarily in that:

Accepted Answer

Total return seeks to maximize the combination of income and capital gains

Answer

Total return combines both income (dividends, interest) and capital appreciation, whereas an income objective focuses primarily on cash yield generation.

Question 5

Which factor most directly determines whether a client's risk 'willingness' and 'ability' to take risk are aligned?

Accepted Answer

Whether subjective comfort with volatility matches objective financial capacity to absorb losses

Answer

Willingness is psychological comfort with risk; ability is financial capacity—when these conflict, the IPS must address the gap.

(CIC) Certified Investment Counselor Practice Test

(CIC) Certified Investment Counselor Practice Test

CIC Investment Policy & Planning 4