Risk Assessment & Mitigation Flashcards
7 cards from real RMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Risk Assessment & Mitigation flashcards as text
A retired couple wants to protect against 'black swan' events that could devastate their portfolio. Which allocation strategy MOST directly addresses tail risk in retirement?
Answer: Allocating a small portion to tail-risk hedges such as out-of-the-money put options or managed futures
Tail-risk hedges like put options or managed futures are designed to provide gains during extreme market downturns, partially offsetting catastrophic portfolio losses.
A retiree's withdrawal plan assumes a 6% annual portfolio return. If actual returns average 4% due to lower-than-expected bond yields, which risk has materialized?
Answer: Return assumption risk (shortfall risk)
Return assumption risk occurs when actual portfolio returns fall below the rate assumed in the financial plan, causing the plan to underperform projections.
Which type of annuity rider BEST addresses both longevity risk and sequence-of-returns risk simultaneously for a variable annuity owner?
Answer: Guaranteed lifetime withdrawal benefit (GLWB) rider
A GLWB rider guarantees a minimum annual withdrawal percentage for life regardless of account performance, protecting against both poor market returns and outliving assets.
An adviser implements a 'bucket strategy' for a client. What is the PRIMARY risk management benefit of this approach?
Answer: It psychologically and structurally separates short-term income needs from long-term growth assets, reducing panic selling
The bucket strategy keeps near-term spending needs in stable assets, preventing forced liquidation of growth assets during downturns and reducing behavioral risk.
A client has significant assets in tax-deferred accounts. Future tax law changes that increase ordinary income rates would MOST directly impact which retirement risk?
Answer: Tax risk on withdrawals from tax-deferred accounts
Assets in traditional IRAs and 401(k)s are fully taxable upon withdrawal at ordinary income rates, making them highly sensitive to changes in income tax policy.
Which measure BEST quantifies the risk that a retiree's spending plan is too aggressive for their portfolio size?
Answer: Withdrawal rate as a percentage of portfolio value
The withdrawal rate (annual spending ÷ portfolio value) directly indicates how much of the portfolio is consumed each year and is the primary metric for assessing spending sustainability.
A client is concerned that a major illness could force her to liquidate long-term investments at depressed values. Which risk mitigation tool MOST directly addresses this scenario?
Answer: Maintaining an adequate liquid emergency reserve separate from investment accounts
A separate liquid emergency reserve prevents forced liquidation of long-term portfolio assets during health crises or other unexpected large expenses.