IFIC Chapter 4 Definitions and Concepts
correctly answered to pass
The action of allocating assets into investments that have different levels of risk is called -
correct answer ✔✔asset allocation
Capital gains are the profits you make when you sell an asset for more than you paid for it.
Growth investments are investments that you expect to increase in value over time. - correct
answer ✔✔capital gains vs capital growth
Earning current income means not only preserving purchasing power but also generating
enough income so that the client can live off the proceeds of the investment and still preserve
the capital base. - correct answer ✔✔Current Income
The difference between your cashflow from your sources and the money needed for day to day
expenses. - correct answer ✔✔Discretionary Income
is the return generated on investments that are least likely to erode the client's capital even in
the short-term.
The only type of mutual fund with this characteristic is a money market fund.
All other funds contain some risk so that, in the short-term, capital may decline. This type of
return is expected to just maintain the client's purchasing power. It is not expected to increase
wealth. Safety of capital returns, since they come from investments such as term deposits and
money market funds, are in the form of interest income - correct answer ✔✔Safety of Capital,
define and what is the only type of mutual fund that offers this
, A mutual fund sales representative evaluates investment suitability usually on the basis of a
client's predetermined financial goals and objectives.
Client information provides you with a comprehensive view of client circumstances and future
goals.
One tool to help clarify a client's current situation and identify planning needs is the financial
planning pyramid - correct answer ✔✔Describe the client communication and planning process,
and a tool that is helpful to use
Gathering information properly fulfills legal requirements and allows an advisor to plan
effectively for the client. The six steps in the financial planning process are:
1 Establishing the Client-Advisor relationship
2 Collecting data and information
3 Analyzing data and information
4 Recommending strategies to meet goals
5 Implementing recommendations
6 Conducting a periodic review or follow-up - correct answer ✔✔Summarize the six steps of the
planning process, and describe how to apply them to client scenarios.
The basic idea behind the life-cycle hypothesis is that as people age, their objectives, financial
and personal circumstances, investment knowledge, and risk profile change as well. The life-
cycle suggests that if you know the age of your client, then you can infer a number of
characteristics, such as goals, circumstances and risk profile.
Stage 1 (Early earning years - to age 30) generally start when an individual begins to work and
ends when family commitments or other financial commitments start to impose demands.
correctly answered to pass
The action of allocating assets into investments that have different levels of risk is called -
correct answer ✔✔asset allocation
Capital gains are the profits you make when you sell an asset for more than you paid for it.
Growth investments are investments that you expect to increase in value over time. - correct
answer ✔✔capital gains vs capital growth
Earning current income means not only preserving purchasing power but also generating
enough income so that the client can live off the proceeds of the investment and still preserve
the capital base. - correct answer ✔✔Current Income
The difference between your cashflow from your sources and the money needed for day to day
expenses. - correct answer ✔✔Discretionary Income
is the return generated on investments that are least likely to erode the client's capital even in
the short-term.
The only type of mutual fund with this characteristic is a money market fund.
All other funds contain some risk so that, in the short-term, capital may decline. This type of
return is expected to just maintain the client's purchasing power. It is not expected to increase
wealth. Safety of capital returns, since they come from investments such as term deposits and
money market funds, are in the form of interest income - correct answer ✔✔Safety of Capital,
define and what is the only type of mutual fund that offers this
, A mutual fund sales representative evaluates investment suitability usually on the basis of a
client's predetermined financial goals and objectives.
Client information provides you with a comprehensive view of client circumstances and future
goals.
One tool to help clarify a client's current situation and identify planning needs is the financial
planning pyramid - correct answer ✔✔Describe the client communication and planning process,
and a tool that is helpful to use
Gathering information properly fulfills legal requirements and allows an advisor to plan
effectively for the client. The six steps in the financial planning process are:
1 Establishing the Client-Advisor relationship
2 Collecting data and information
3 Analyzing data and information
4 Recommending strategies to meet goals
5 Implementing recommendations
6 Conducting a periodic review or follow-up - correct answer ✔✔Summarize the six steps of the
planning process, and describe how to apply them to client scenarios.
The basic idea behind the life-cycle hypothesis is that as people age, their objectives, financial
and personal circumstances, investment knowledge, and risk profile change as well. The life-
cycle suggests that if you know the age of your client, then you can infer a number of
characteristics, such as goals, circumstances and risk profile.
Stage 1 (Early earning years - to age 30) generally start when an individual begins to work and
ends when family commitments or other financial commitments start to impose demands.
