RAA Risk Management & Asset Allocation 2

Question 1

A 68-year-old client has 90% of her portfolio in equities. Which risk is most relevant to address immediately?

Accepted Answer

Sequence of returns risk

Answer

Sequence of returns risk is critical near or in retirement because early portfolio losses combined with withdrawals can permanently impair long-term wealth.

Question 2

Which asset allocation strategy automatically rebalances by selling appreciated assets and buying underperforming ones on a set schedule?

Accepted Answer

Calendar rebalancing

Answer

Calendar rebalancing restores target weights at fixed intervals (e.g., annually) regardless of market conditions.

Question 3

A variable annuity's living benefit rider that guarantees income even if the account value drops to zero is called a:

Accepted Answer

GMWB

Answer

A Guaranteed Minimum Withdrawal Benefit (GMWB) allows withdrawals up to a specified percentage annually even if the account value is depleted.

Question 4

When diversifying across asset classes, correlation is measured on a scale from:

Accepted Answer

-1 to +1

Answer

Correlation coefficients range from -1 (perfect negative correlation) to +1 (perfect positive correlation), with 0 indicating no linear relationship.

Question 5

An advisor recommends shifting a client's fixed annuity to a variable annuity primarily to earn higher commissions. This best illustrates:

Accepted Answer

Suitability violation

Answer

Recommending a product that benefits the advisor rather than the client is a suitability violation and a breach of fiduciary/best-interest duty.

(RAA) Registered Annuity Advisor Practice Test

(RAA) Registered Annuity Advisor Practice Test

RAA Risk Management & Asset Allocation 2