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1: Choose the situation in which the client might identify liquidity as one of their financial
goals.

A. Marcus would like to take a Caribbean vacation in a couple of years. He doesn't

yet have all the details or timeframe.
B. Darlene is saving to buy a house and she believes that she will have enough for her
down payment in six years.
C. Oki invests his retirement money in four different funds and does not like to make
adjustments without a lot of research and thought.
D. Farah has stocks in her company and she would like to sell them to help fund her
retirement in ten years. She would like to make sure that she has money to cover the tax
consequences.

Rationale :

Liquidity is necessary for:

Financial emergencies. Generally, having three months’ living expenses on hand
as an emergency reserve is recommended.
A financial goal that falls within the next two years (e.g., the purchase of a home.)
Pending expenses (e.g., income tax.)
Taking advantage of unexpected investment opportunities.

2: Select the statement that is true with regard to the financial planning process.

A. The core of financial planning is defining the client's goals and objectives.
B. The process will identify the past performance of investments in order to identify suitable
future investments.
C. Retirement planning is not usually part of the financial planning process.
D. Probing questions should not be asked of the client if they are too personal.

Rationale :

Defining a client’s goals and objectives lies at the heart of financial planning.

3: Identify the cost that does not represent a liquidity need.

A. To pay known pending expenses.

B. To take advantage of investment opportunities.
C. To fulfil a financial goal within the next two years.
D. To plan for long-term purchases.

Rationale :
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Liquidity is necessary for:

Financial emergencies. Generally, having three months’ living expenses on hand
as an emergency reserve is recommended.
A financial goal that falls within the next two years (e.g., the purchase of a home.)
Pending expenses (e.g., income tax.)
Taking advantage of unexpected investment opportunities.

4: Which is not a consideration when exploring investment and savings options necessary for
a client's financial independence during retirement?

A. The amount of money the client can save each year.

B. The death benefit of an insurance policy.
C. The estimated inflation rate between now and retirement.
D. The annual income that will be required at retirement.

Rationale :

The number of years until retirement, and the years expected to be spent in retirement;
Annual income desired during retirement;
Existing retirement savings;
Amount of money that can be saved each year;
Inflation rate until retirement and during retirement;
The expected return on savings.

5: In order to meet the goal of having enough money for retirement, which factor can the
client not control?

A. Years to retirement
B. Required retirement income
C. Contribution of CPP to pension income
D. Rate of return on savings

Rationale :

Most clients are concerned with whether they will have sufficient funds to maintain their
desired lifestyle during retirement. Six variables determine whether that goal can be
achieved:
The number of years until retirement, and the years expected to be spent in
retirement;
Annual income desired during retirement;
Existing retirement savings;
Amount of money that can be saved each year;
Inflation rate until retirement and during retirement;
The expected return on savings.
All of these variables except two can be controlled by the client:
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The amount of savings that already exist; and

The rate of inflation.

6: During which stage of the financial life cycle are living expenses financed chiefly through
pension and investment income?

A. Accumulation
B. Gifting
C. Financial independence
D. Consolidation

Rationale :
Financial independence stage:Living expenses are paid mainly through investment and
pension income. The client is no longer in the workforce, and is, therefore, unable to make up
for significant loss in capital. Income-producing assets are most important. Risk tolerance
further decreases.

7: Identify the correct order of the steps in the financial planning process.

A. Data gathering, interviewing the client, plan formulation and recommendations,

plan implementation.
B. Interviewing the client, data gathering, financial analysis, plan formulation, plan
implementation, monitoring and plan review.
C. Data gathering, financial analysis, monitoring and plan review, plan implementation.
D. Interviewing the client, monitoring and plan review, financial analysis, plan
implementation.

Rationale :
Step One: Establishing the Client/Advisor Relationship
Step Two: Collecting Data and Information
Step Three: Analyzing Data and Information
Step Four: Recommending Strategies to Meet Goals
Step Five: Implementing the Recommendations
Step Six: Conducting a Periodic Review or Follow Up

8: Which term is used when a client re-evaluates the performance of their portfolio every
three months, even though they are saving for retirement in 30 years?

A. Myopic loss aversion

B. Biopic risk aversion
C. Investment duplicity
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D. Prospecting

Rationale :
For example, a client who re-evaluates the performance of their portfolio every three months,
when the statement is received, has a planning horizon of three months, even though they or
they are saving for retirement in 30 years. This is also known as myopic loss aversion.

9: Select the statement that is true of the known behavioural patterns of risk aversion.

A. Women generally accept a higher risk level in their portfolios than men.
B. Men generally accept a higher risk level in their portfolios than women.
C. Both men and women become less tolerant of risk as they become wealthier.
D. Risk tolerance decreases with age

Rationale :

Based on research:
Men generally accept a higher risk level in their portfolios than women.
Risk aversion increases with age.
Risk aversion decreases proportionate to wealth.

10: What determine the client's feelings toward risk, financial objectives and priorities,
lifestyle objectives, and attitudes toward financial products are examples of what?

A. Quantitative data
B. Investment objectives
C. Qualitative data
D. Fundamental data

Rationale :

Qualitative Data helps assess the client’s overall financial understanding and ability to
deal with financial matters. Examples include:
The priority of objectives;
Tolerance for risk;
Good and bad experiences with various types of investment products;
Feelings toward life insurance;
Difficulty in generating savings;
Need to obtain financial independence before retirement;
Desire to fund a university or college education for children;
General feeling toward money.

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11: Dorothy is unable to make up for any significant loss in capital in her investment portfolio.
Which stage of the financial life cycle is Dorothy in?

A. Financial independence
B. Gifting
C. Consolidation
D. Accumulation

Rationale :
Financial independence stage:Living expenses are paid mainly through investment and
pension income. The client is no longer in the workforce, and is, therefore, unable to make up
for significant loss in capital. Income-producing assets are most important. Risk tolerance
further decreases.

12: During which stage of the financial life cycle does a client have the highest need for
growth of assets and the highest risk tolerance?

A. Gifting
B. Accumulation
C. Financial independence
D. Consolidation

Rationale :
Accumulation stage:The major asset is home equity, income is relatively low, and priorities
include paying the expenses of daily living. Since time horizon to retirement is long, growth of
assets is key. Risk tolerance is at its highest level.

13: Gina is 49, single, and wants to retire at 55. Her advisor determines this is not realistic
because of Gina's lifestyle and savings habits. What is the best suggestion for Gina?

A. Gina should retire and not worry about her expenses. Her family members tend not to
live very long.
B. Gina should get married so that she can combine her retirement income with her new
partner.
C. Gina should ask her current employer to increase her retirement benefits so that she can
retire as planned.
D. Gina should reduce her retirement expenses.

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