CIC Assessing Client Investment Goals 2 — Questions and Answers
Question 1: A 58-year-old client wants to retire at 62 with $80,000 annual income. She has $600,000 saved and expects $24,000/year from Social Security. What is her approximate annual portfolio withdrawal need?
- $56,000 (Correct answer)
- $80,000
- $24,000
- $104,000
Correct answer: $56,000
She needs $80,000 total minus $24,000 Social Security = $56,000 from her portfolio annually.
Question 2: Which factor most directly determines a client's ABILITY to take investment risk?
- Financial capacity to absorb losses (Correct answer)
- Emotional tolerance for volatility
- Investment time horizon
- Knowledge of financial markets
Correct answer: Financial capacity to absorb losses
Ability to take risk is determined by financial capacity — income, assets, liabilities, and ability to recover from losses.
Question 3: A client states she is 'comfortable with moderate risk' but becomes anxious when her portfolio drops 5%. This conflict signals the advisor should:
- Rely on the behavioral response, not the stated preference (Correct answer)
- Override her anxiety and maintain moderate allocation
- Increase equity exposure to help her get comfortable with volatility
- Document only her stated preference for compliance
Correct answer: Rely on the behavioral response, not the stated preference
Behavioral responses to actual losses are more reliable indicators of true risk tolerance than self-reported comfort levels.
Question 4: Which of the following best describes a 'goal-based' investment approach?
- Allocating separate portfolios to specific life goals with tailored risk levels (Correct answer)
- Maximizing total portfolio return regardless of spending needs
- Selecting assets based solely on historical performance
- Minimizing taxes across all investment accounts
Correct answer: Allocating separate portfolios to specific life goals with tailored risk levels
Goal-based investing segments assets by distinct goals — such as retirement, education, or legacy — each with appropriate risk and time horizon.
Question 5: A client has a 20-year investment horizon but says he cannot sleep when markets fall. How should this tension be resolved?
- Design a portfolio reflecting the lower of his time horizon capacity or psychological tolerance (Correct answer)
- Ignore the psychological concern and invest for the 20-year horizon
- Recommend cash equivalents to eliminate all anxiety
- Defer the decision until market conditions improve
Correct answer: Design a portfolio reflecting the lower of his time horizon capacity or psychological tolerance
The portfolio should reflect the binding constraint — whichever of time horizon or risk tolerance is more restrictive — to ensure the client stays invested.
Question 6: Which document is the primary record of an investment counselor's understanding of a client's goals, risk tolerance, and constraints?
- Investment Policy Statement (IPS) (Correct answer)
- Form ADV Part 2
- Suitability questionnaire
- Account opening agreement
Correct answer: Investment Policy Statement (IPS)
The IPS formally documents the client's objectives, constraints, and the agreed investment strategy.
Question 7: A widowed client, age 72, needs $3,000/month from her $400,000 portfolio with no other income. Her primary investment goal should be classified as:
- Capital preservation with income generation (Correct answer)
- Aggressive capital appreciation
- Speculative growth
- Tax minimization only
Correct answer: Capital preservation with income generation
A 72-year-old dependent on portfolio withdrawals primarily needs capital preservation to sustain income without depleting assets too quickly.
CIC Assessing Client Investment Goals 2
A 58-year-old client wants to retire at 62 with $80,000 annual income.
She has $600,000 saved and expects $24,000/year from Social Security.
What is her approximate annual portfolio withdrawal need?