CIFC Risk Assessment and Financial Planning 5

Question 1

A client approaching retirement shifts from equities to fixed income. This strategy is BEST described as:

Accepted Answer

Life-cycle or age-based investing

Answer

Life-cycle investing involves systematically reducing equity exposure and increasing fixed income as a client ages toward and into retirement.

Question 2

Which risk is MOST associated with investing in a money market fund?

Accepted Answer

Inflation risk eroding real returns

Answer

Money market funds offer very low nominal volatility but carry inflation risk, as their returns may not keep pace with inflation over time.

Question 3

Under CIFC guidelines, a 'know your product' (KYP) obligation requires dealers to:

Accepted Answer

Understand the risks, costs, and structure of products before recommending them

Answer

KYP requires that dealer representatives understand the features, risks, costs, and suitability criteria of each product they recommend to clients.

Question 4

A client's risk tolerance questionnaire indicates a moderate risk profile, but they insist on investing in a high-risk speculative fund. What is the representative's BEST course of action?

Accepted Answer

Explain the risks, document the client's override, and ensure suitability concerns are on file

Answer

The representative must inform the client of suitability concerns, document the client's acknowledgment of those concerns, and keep records in case of regulatory review.

Question 5

Which of the following BEST describes the difference between risk tolerance and risk capacity?

Accepted Answer

Risk tolerance reflects psychological comfort with loss; risk capacity reflects financial ability to absorb loss

Answer

Risk tolerance is the investor's psychological willingness to accept loss, while risk capacity is their objective financial ability to sustain losses.

(CIFC) Canadian Investment Funds Course Practice Test

(CIFC) Canadian Investment Funds Course Practice Test

CIFC Risk Assessment and Financial Planning 5