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Client Relations and Practice Management Flashcards

6 cards from real Financial Advisor practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

Read the first 6 Client Relations and Practice Management flashcards as text

  1. Which document formally establishes the scope of services, fee structure, and responsibilities between a financial advisor and client?

    Answer: Client Advisory Agreement

    A Client Advisory Agreement is the legal contract that defines the advisory relationship, including services provided, fees, termination terms, and each party's responsibilities.

  2. What is the primary purpose of an Investment Policy Statement (IPS)?

    Answer: To document a client's investment objectives, constraints, and guidelines for managing their portfolio

    An IPS provides a written framework for investment decisions, documenting client goals, risk tolerance, time horizon, liquidity needs, and return objectives.

  3. When gathering client data through a 'Know Your Customer' (KYC) process, a financial advisor should collect information about all of the following EXCEPT:

    Answer: Specific stock picks the client's friend recommends

    KYC information focuses on the client's own financial situation, goals, and risk profile—not third-party stock tips, which are irrelevant to establishing a suitability profile.

  4. Which behavioral finance concept explains why clients feel the pain of losses more intensely than the pleasure of equivalent gains?

    Answer: Loss aversion

    Loss aversion, identified by Kahneman and Tversky, describes the tendency for people to feel losses approximately twice as intensely as equivalent gains.

  5. A financial advisor who charges a percentage of assets under management (AUM) is using which fee model?

    Answer: Fee-only AUM-based

    An AUM-based fee model charges clients a percentage of their managed assets, aligning the adviser's compensation with portfolio growth.

  6. Under FINRA's suitability rule, which of the following is considered when determining if a recommendation is suitable for a client?

    Answer: The client's age, financial situation, investment objectives, and risk tolerance

    Suitability determinations must be based on the client's specific profile, including age, financial situation, investment objectives, tax status, and risk tolerance.