CIMA Behavioral Finance and Client Management 2

Question 1

Recency bias in investing leads clients to:

Accepted Answer

Overweight recent performance when forecasting future returns

Answer

Recency bias causes investors to give disproportionate weight to recent events, leading them to extrapolate short-term trends and often buy high after bull markets.

Question 2

A CIMA professional developing an Investment Policy Statement (IPS) for a client with significant loss aversion should:

Accepted Answer

Establish a risk tolerance framework that explicitly accounts for the client's emotional response to drawdowns

Answer

The IPS must reflect the client's true risk capacity and tolerance, including behavioral tendencies like loss aversion, to ensure the strategy is sustainable long-term.

Question 3

The framing effect in behavioral finance demonstrates that:

Accepted Answer

Investors make different decisions based on how the same information is presented

Answer

The framing effect shows that whether a choice is presented as a gain or a loss significantly influences decisions, even when the underlying outcomes are mathematically identical.

Question 4

Which approach best describes a goals-based wealth management framework used by CIMA professionals?

Accepted Answer

Matching specific asset pools to distinct client life goals with varying risk levels

Answer

Goals-based wealth management segments a client's wealth into sub-portfolios aligned with specific objectives (e.g., safety, growth, legacy), each with an appropriate risk level.

Question 5

A client exhibits status quo bias when they:

Accepted Answer

Resist changing a portfolio allocation even when it no longer aligns with their goals

Answer

Status quo bias is the preference for the current state of affairs, causing investors to keep existing allocations even when changes would better serve their financial goals.

(CIMA) Certified Investment Management Analyst Practice Test

(CIMA) Certified Investment Management Analyst Practice Test

CIMA Behavioral Finance and Client Management 2