Exam CIFC Topic 1 Question 117 Discussion

Actual exam question for IFSE Institute's CIFC exam
Question #: 117
Topic #: 1

Faruq is a Dealing Representative with Smart Planning Group, a mutual fund dealer. Faruq meets with his new client, Taline, and learns that she lives on a low, fixed income.
Taline tells Faruq that she wants to maximize her investment returns as high as possible to make up the difference. Taline also indicates that she cannot afford large investment losses because her income is low.
Which of the following CORRECTLY describes how Faruq should assess Taline's risk profile?

A. Taline's risk profile should be "high"" because she is willing to accept risk in order to maximize her investment returns. B. Faruq should override the risk that Taline is able to accept because her return expectations cannot otherwise be met. C. Faruq should assess Taline's risk profile based on the higher of her: (1) risk tolerance and (2) risk capacity D. Taline's risk profile should be "low" because her risk capacity is low and she cannot afford lame investment losses.

Suggested Answer: D Vote an answer

Explanation
Taline's risk profile should be "low" because her risk capacity is low and she cannot afford large investment losses. Risk capacity is the degree of risk that an investor must take in order to achieve their financial goals, while risk tolerance is the degree of risk that an investor is willing to take. Risk capacity is more important than risk tolerance in determining an investor's risk profile1. Taline has a low risk capacity because she lives on a low, fixed income and cannot afford to lose money. Her risk tolerance may be high, but that does not mean she should take more risk than she can handle. Faruq should not override Taline's risk capacity or assess her risk profile based on the higher of her risk tolerance and risk capacity, as that would be unsuitable and unethical. References: Unit 3: Suitability

by Algernon at Mar 13, 2025, 07:18 PM

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