Behavioral Finance and Client Management Flashcards
6 cards from real CIMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 Behavioral Finance and Client Management flashcards as text
Recency bias in investing leads clients to:
Answer: Overweight recent performance when forecasting future returns
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.
A CIMA professional developing an Investment Policy Statement (IPS) for a client with significant loss aversion should:
Answer: Establish a risk tolerance framework that explicitly accounts for the client's emotional response to drawdowns
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.
The framing effect in behavioral finance demonstrates that:
Answer: Investors make different decisions based on how the same information is presented
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.
Which approach best describes a goals-based wealth management framework used by CIMA professionals?
Answer: Matching specific asset pools to distinct client life goals with varying risk levels
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.
A client exhibits status quo bias when they:
Answer: Resist changing a portfolio allocation even when it no longer aligns with their goals
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.
In client communication, the CIMA standard recommends that advisors use which technique to help clients avoid making impulsive decisions during market downturns?
Answer: Pre-established Investment Policy Statement with written rebalancing triggers
A written IPS with predefined rebalancing triggers creates a disciplined framework that helps clients avoid emotional, reactive decisions during market stress.