CPS Client Communication and Relationship Management 3

Question 1

What is 'confirmation bias' in investor behavior?

Accepted Answer

The tendency to seek information that confirms existing beliefs while ignoring contradictory evidence

Answer

Confirmation bias causes investors to focus on information that supports their existing views and dismiss data that contradicts them, leading to poor decisions.

Question 2

What is 'anchoring bias' in investment decision-making?

Accepted Answer

Over-relying on an initial piece of information when making investment decisions

Answer

Anchoring bias causes investors to fixate on an initial reference point (like a purchase price) rather than evaluating current market information objectively.

Question 3

What should a CPS professional do when a client's goals change significantly?

Accepted Answer

Update the investment policy statement and reassess the portfolio allocation

Answer

Significant life changes affecting client goals should trigger an immediate update to the investment policy statement and portfolio reassessment.

Question 4

What is the purpose of regular portfolio performance reporting to clients?

Accepted Answer

To keep clients informed, demonstrate value, and maintain trust through transparency

Answer

Regular performance reporting maintains client trust, demonstrates the value of professional management, and keeps clients informed about progress toward goals.

Question 5

What is 'herding behavior' in investor psychology?

Accepted Answer

Following the crowd and making investment decisions based on what others are doing

Answer

Herding behavior occurs when investors follow the crowd rather than conducting independent analysis, often amplifying market bubbles and crashes.

CPS - Certified Portfolio Specialist Practice Test

CPS - Certified Portfolio Specialist Practice Test

CPS Client Communication and Relationship Management 3