CIM Client Relations 3

Question 1

A client keeps holding a losing stock and says they will sell 'once it gets back to what I paid.' Which bias is this?

Accepted Answer

Disposition effect / loss aversion

Answer

Holding losers to avoid locking in a loss is the disposition effect, which comes from loss aversion.

Question 2

Which approach usually works best with a client who shows strong anchoring bias?

Accepted Answer

Reframe decisions around current fundamentals and forward-looking expectations

Answer

Moving the client's attention from a historical reference price to current information reduces anchoring.

Question 3

According to behavioral finance guidance, which kind of bias should managers generally adapt to rather than try to correct, especially for wealthy clients?

Accepted Answer

Emotional biases such as loss aversion

Answer

Emotional biases are hard to change, so managers often adapt to them, especially when the client's wealth gives them room to.

Question 4

A client asks the manager to guarantee that the portfolio will not lose money this year. What is the appropriate response?

Accepted Answer

Explain that returns can't be guaranteed and discuss risk-appropriate strategies

Answer

Guaranteeing investment results is misleading and generally prohibited; managers must communicate risk honestly.

Question 5

Which is the most effective way to report performance to clients?

Accepted Answer

Show returns against an appropriate benchmark and the client's IPS objectives, net of fees

Answer

Fair reporting compares net-of-fee results with relevant benchmarks and the client's stated goals.

CIM - Chartered Investment Manager Practice Test

CIM - Chartered Investment Manager Practice Test

CIM Client Relations 3