CIM Client Relations 5 — Questions and Answers
Question 1: A client has a required minimum distribution and plans to buy a house within 12 months. Which IPS constraint is most directly affected?
- Liquidity constraint (Correct answer)
- Legal constraint
- Tax-exempt status
- Unique circumstances only
Correct answer: Liquidity constraint
Known near-term cash needs are liquidity requirements the portfolio has to plan for.
Question 2: A client asks that the portfolio exclude tobacco and firearms companies. How should this be handled?
- Refuse the account
- Document it as a unique circumstance or restriction in the IPS and implement it (Correct answer)
- Only exclude them if returns would not change
- Ignore it because it may reduce returns
Correct answer: Document it as a unique circumstance or restriction in the IPS and implement it
Client-specific investment restrictions such as ESG exclusions belong in the IPS under unique circumstances.
Question 3: When onboarding a new client, why must the manager complete Know Your Customer (KYC) procedures?
- To decide the manager's bonus
- Only for marketing purposes
- KYC is optional for high-net-worth clients
- To verify identity, meet AML rules, and understand the client's financial profile for suitable advice (Correct answer)
Correct answer: To verify identity, meet AML rules, and understand the client's financial profile for suitable advice
KYC supports anti-money-laundering compliance and gives the basis for suitable recommendations.
Question 4: A client with a 30-year horizon and stable income wants to hold only money market funds. What is the manager's best course of action?
- Invest in equities anyway
- Comply without comment
- Educate the client on the long-term risk of inflation and shortfall, while respecting their final decision (Correct answer)
- Terminate the relationship
Correct answer: Educate the client on the long-term risk of inflation and shortfall, while respecting their final decision
The manager should explain the risk that an overly conservative portfolio won't meet long-term goals, then document the client's informed choice.
Question 5: Which client segment typically needs the most complex relationship management, including estate, tax, and multi-generational planning?
- Defined contribution plan participants
- Ultra-high-net-worth families (Correct answer)
- Young investors with small balances
- Mass-market retail investors
Correct answer: Ultra-high-net-worth families
UHNW families usually have complex structures, several stakeholders, and estate and tax issues that need coordinated advice.
Question 6: Which fee disclosure practice is best?
- Disclose only the advisory fee and omit fund expense ratios
- Clearly disclose all fees, including advisory, fund, transaction, and custody costs (Correct answer)
- Show fees as a percentage of returns earned
- Disclose fees only when the client asks
Correct answer: Clearly disclose all fees, including advisory, fund, transaction, and custody costs
Full fee transparency lets clients understand the total cost of the relationship and is required by disclosure rules.
Question 7: A client's portfolio has drifted to 75% equities against a 60% IPS target. What should the manager do?
- Leave it, since equities are performing well
- Rebalance toward the target within the IPS ranges, considering taxes and costs (Correct answer)
- Change the IPS target to 75% without consulting the client
- Sell all equities
Correct answer: Rebalance toward the target within the IPS ranges, considering taxes and costs
Rebalancing keeps the portfolio aligned with the risk level the client agreed to, while taking transaction and tax costs into account.
CIM Client Relations 5
A client has a required minimum distribution and plans to buy a house within 12 months.
Which IPS constraint is most directly affected?