Financial Planning Flashcards
7 cards from real CIM practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Financial Planning flashcards as text
A family wants to save for a child's college with tax-free growth for qualified education expenses. Which vehicle is most commonly used?
Answer: 529 plan
529 plans offer tax-free growth and tax-free withdrawals for qualified education expenses.
Which investment policy statement (IPS) element describes the client's ability to bear risk, as opposed to their willingness?
Answer: Risk capacity, based on horizon, wealth, liquidity needs, and income stability
Ability (capacity) is objective and driven by financial circumstances; willingness is psychological.
A client's willingness to take risk is high but ability is low. How should the planner generally set the overall risk objective?
Answer: Lean toward the lower ability and educate the client
When the two conflict, the more conservative measure usually governs, with client education.
Which behavioral bias is shown by a client who refuses to sell a losing stock until it gets back to its purchase price?
Answer: Disposition effect / loss aversion
Holding losers too long to avoid realizing losses reflects the disposition effect driven by loss aversion.
A client in a high tax bracket holds both taxable bonds and broad equity index funds. Which asset location is generally most tax-efficient?
Answer: Taxable bonds in a tax-deferred account, equity index funds in a taxable account
Interest taxed as ordinary income is best sheltered, while tax-efficient equities benefit from lower capital gains rates in taxable accounts.
Which situation is most likely to trigger an update to a client's financial plan?
Answer: Marriage, divorce, birth of a child, or job change
Major life events change goals, constraints, and risk capacity, requiring a plan review.
Tax-loss harvesting in a taxable account is limited by the wash-sale rule. What does that rule prohibit?
Answer: Claiming a loss if a substantially identical security is bought within 30 days before or after the sale
The wash-sale rule disallows the loss when substantially identical securities are bought within the 61-day window around the sale.