Client Suitability and Portfolio Management Flashcards
6 cards from real Investment 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 Suitability and Portfolio Management flashcards as text
Which asset allocation approach involves periodically resetting a portfolio to its original target weights?
Answer: Rebalancing
Rebalancing involves periodically buying and selling assets to restore the portfolio to its target allocation after market movements have shifted the weights.
A client with a high risk tolerance and a 30-year time horizon is generally most appropriate for a portfolio weighted toward:
Answer: Equities with a small fixed income allocation
Long time horizons and high risk tolerance support heavier equity allocations, as equity markets tend to outperform fixed income over long periods despite short-term volatility.
The Sharpe Ratio measures:
Answer: Excess return per unit of total risk
The Sharpe Ratio calculates a portfolio's excess return above the risk-free rate per unit of standard deviation, measuring risk-adjusted performance.
A client who panics and sells investments during market downturns is exhibiting which behavioral bias?
Answer: Loss aversion
Loss aversion, a core concept in behavioral finance, describes the tendency for people to feel the pain of losses more intensely than equivalent gains, driving panic selling.
In a client needs analysis, 'liquidity needs' refer to:
Answer: The need for readily accessible funds to cover short-term obligations
Liquidity needs represent how much of the client's portfolio must be readily accessible for near-term spending, emergencies, or obligations.
Which portfolio strategy involves adjusting asset allocation in response to changing market conditions, rather than maintaining a fixed target?
Answer: Tactical asset allocation
Tactical asset allocation actively shifts portfolio weights based on short-term market opportunities or forecasts, deviating from the long-term strategic target.