Client Investment Recommendations and Strategies Flashcards
6 cards from real Series 65 – Uniform Investment Adviser Law Exam 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 Investment Recommendations and Strategies flashcards as text
Which of the following best defines 'suitability' in the context of investment advice?
Answer: Ensuring investment recommendations are appropriate given the client's financial situation, goals, and risk tolerance
Suitability requires that an investment adviser recommend products and strategies that align with the client's financial profile, including their goals, time horizon, and risk tolerance.
What is asset allocation?
Answer: Dividing a portfolio among different asset classes such as stocks, bonds, and cash
Asset allocation involves spreading investments across different asset classes to balance risk and return according to the investor's goals and risk tolerance.
What does 'rebalancing' a portfolio mean?
Answer: Adjusting the portfolio back to its target asset allocation after market movements have shifted weights
Rebalancing restores a portfolio to its original target allocation by selling overweighted assets and buying underweighted ones after market movements shift the proportions.
Which investment strategy is most appropriate for a client with a short investment time horizon and low risk tolerance?
Answer: Conservative portfolio emphasizing capital preservation with bonds and cash equivalents
A client with a short time horizon and low risk tolerance needs capital preservation, making conservative investments like bonds and money market instruments most appropriate.
What is dollar-cost averaging?
Answer: Investing a fixed amount at regular intervals regardless of market price
Dollar-cost averaging involves investing a fixed dollar amount at regular intervals, resulting in buying more shares when prices are low and fewer when prices are high.
What is the primary purpose of diversification in a portfolio?
Answer: To reduce unsystematic (company-specific) risk by spreading investments across different securities
Diversification reduces unsystematic risk by spreading investments so that poor performance of one security does not have an outsized impact on the overall portfolio.