FASEA Risk Assessment and Management 5

Question 1

Under FASEA standards, when a client requests advice that the adviser believes is inappropriate given their risk profile, the adviser must:

Accepted Answer

Provide the client with written reasons why the advice may not be in their best interests and document the outcome

Answer

Advisers must clearly communicate and document concerns about advice that conflicts with the client's best interests, even if the client ultimately proceeds.

Question 2

Which of the following risk factors is most relevant when assessing the appropriateness of a geared investment strategy for a client?

Accepted Answer

The client's debt serviceability and ability to meet margin calls under adverse conditions

Answer

Gearing amplifies both gains and losses; assessing a client's ability to service debt and meet margin calls under stress is essential before recommending leveraged strategies.

Question 3

A client aged 35 with a 30-year investment horizon and stable income asks for a very conservative portfolio. The adviser should:

Accepted Answer

Explore whether the client's risk tolerance reflects their actual long-term interests and document the discussion

Answer

While respecting autonomy, advisers must explore mismatches between conservative risk tolerance and long-term objectives such as wealth accumulation, documenting the conversation.

Question 4

Which of the following is a key indicator of 'liquidity risk' within a client's investment portfolio?

Accepted Answer

Significant investment in unlisted or illiquid assets relative to the client's near-term cash needs

Answer

Liquidity risk arises when illiquid holdings cannot be readily converted to cash to meet the client's near-term financial needs.

Question 5

FASEA's ongoing service obligations require an adviser to review risk advice when:

Accepted Answer

There is a significant change in the client's personal or financial circumstances

Answer

Significant changes to client circumstances—such as job loss, inheritance, or health changes—trigger an obligation to review and potentially update risk advice.

(FASEA) Financial Adviser Standards and Ethics Authority Practice Test

(FASEA) Financial Adviser Standards and Ethics Authority Practice Test

FASEA Risk Assessment and Management 5