Client Investment Recommendations & Strategies Flashcards
7 cards from real IAR practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Client Investment Recommendations & Strategies flashcards as text
A 58-year-old client with a moderate risk tolerance wants to retire in 7 years. Which portfolio allocation is most appropriate?
Answer: 60% equities, 40% fixed income with gradual de-risking
A balanced 60/40 portfolio with a glide path toward less equity exposure aligns with a moderate-risk, near-retirement investor's goals.
When evaluating suitability for options trading, an IAR must primarily consider which factor?
Answer: The client's financial sophistication and risk capacity
Options are complex, leveraged instruments, so the client's ability to understand and financially absorb losses is the primary suitability concern.
A client asks an IAR to recommend a strategy that generates regular income while limiting downside risk. Which strategy best fits?
Answer: Covered call writing on existing stock holdings
Covered calls generate premium income and provide partial downside offset, making them suitable for income-seeking clients with existing equity positions.
Which of the following best describes dollar-cost averaging as an investment strategy?
Answer: Investing a fixed dollar amount at regular intervals regardless of price
Dollar-cost averaging involves investing a fixed amount at set intervals, which reduces the impact of volatility by purchasing more shares when prices are low.
A client has a very high risk tolerance but a short 2-year time horizon. How should an IAR handle this conflict?
Answer: Prioritize the short time horizon and recommend lower-volatility assets
When risk tolerance and time horizon conflict, the shorter time horizon typically takes precedence because volatility can cause permanent loss before recovery is possible.
An IAR recommends a municipal bond fund to a high-income client in the 37% federal tax bracket. What is the primary justification?
Answer: Tax-exempt interest income increases after-tax returns for high-bracket investors
High-income investors benefit most from tax-exempt municipal bond interest because their marginal tax rate makes the tax equivalent yield highly attractive.
Which of the following investment policy statement (IPS) components directly governs how the IAR may alter the portfolio without additional client approval?
Answer: Rebalancing and discretionary authority guidelines
The rebalancing and discretionary authority guidelines in an IPS define the parameters within which an IAR may act without seeking separate client approval for each trade.