H.65 Client and planner attitudes, values, biases Flashcards
(24 cards)
What is the main reason for a client to seek a financial planner’s services?
A) To have someone to manage their money
B) To have an expert provide them with financial advice
C) To make their money work harder for them
D) All of the above
To have an expert provide them with financial advice
Explanation: While managing money and making money work harder for them are potential benefits of financial planning, the main reason a client seeks a planner’s services is to obtain expert financial advice.
H.65 Client and planner attitudes, values, biases
Which of the following is NOT a bias that can affect financial decision-making?
A) Confirmation bias
B) Overconfidence bias
C) Herd mentality bias
D) All of the above are biases that can affect financial decision-making
All of the above are biases that can affect financial decision-making
How can a financial planner help mitigate the effects of cognitive biases on a client’s financial decision-making?
A) By providing unbiased advice
B) By educating the client about cognitive biases
C) By helping the client understand their own biases
D) All of the above
All of the above
Explanation: Providing unbiased advice, educating the client about cognitive biases, and helping the client understand their own biases are all ways a financial planner can help mitigate the effects of cognitive biases on a client’s financial decision-making.
H.65 Client and planner attitudes, values, biases
Which of the following is NOT an example of a client’s values that may impact their financial decisions?
A) A desire for financial security
B) A desire to leave a financial legacy for their family
C) A desire to keep up with the latest fashion trends
D) A desire to support charitable causes
A desire to keep up with the latest fashion trends
Explanation: A desire to keep up with the latest fashion trends is not typically considered a value that impacts financial decisions.
H.65 Client and planner attitudes, values, biases
Which of the following is an example of a confirmation bias that may affect a client’s financial decision-making?
A) A client only reads financial news from sources that confirm their existing beliefs
B) A client seeks out financial advice from a variety of sources
C) A client always makes decisions based on the latest financial trends
D) A client seeks out opinions that differ from their own
A client only reads financial news from sources that confirm their existing beliefs
H.65 Client and planner attitudes, values, biases
A client has recently inherited a large sum of money and is considering investing it in a high-risk stock. What bias may be affecting the client’s decision?
A) Overconfidence bias
B) Confirmation bias
C) Sunk cost fallacy bias
D) Herd mentality bias
Overconfidence bias
Explanation: This bias can cause clients to overestimate their ability to predict future market trends and take on higher levels of risk than they should
H.65 Client and planner attitudes, values, biases
A client is hesitant to invest in a certain stock because their friend lost money investing in the same stock. What bias may be affecting the client’s decision?
A) Confirmation bias
B) Overconfidence bias
C) Anchoring bias
D) Loss aversion bias
Loss aversion bias
Explanation: This bias can cause clients to avoid taking risks because they are more concerned with avoiding losses than achieving gains.
H.65 Client and planner attitudes, values, biases
A client is considering investing in a startup company founded by a close friend. What bias may be affecting the client’s decision?
A) Confirmation bias
B) Overconfidence bias
C) Anchoring bias
D) Affinity bias
Affinity bias
Explanation: This bias can cause clients to make decisions based on their personal connections rather than objective analysis of the investment opportunity.
H.65 Client and planner attitudes, values, biases
A client is considering investing in a stock because it has been performing well over the past year. What bias may be affecting the client’s decision?
A) Confirmation bias
B) Overconfidence bias
C) Sunk cost fallacy bias
D) Recency bias
Recency bias
Explanation: This bias can cause clients to place too much weight on recent events and ignore longer-term trends and data.
H.65 Client and planner attitudes, values, biases
A client is considering investing in a new product based solely on the recommendations of a single financial advisor. What bias may be affecting the client’s decision?
A) Confirmation bias
B) Authority bias
C) Sunk cost fallacy bias
D) Availability bias
Authority bias
Explanation: This bias can cause clients to give undue weight to the opinions and recommendations of authority figures, such as financial advisors, without doing their own research or analysis.
H.65 Client and planner attitudes, values, biases
A client is hesitant to invest in a socially responsible mutual fund because they believe it may underperform compared to other mutual funds. What bias may be affecting the client’s decision?
A) Overconfidence bias
B) Anchoring bias
C) Confirmation bias
D) Sunk cost fallacy bias
Anchoring bias
Explanation: This bias can cause clients to give too much weight to a single piece of information or reference point, such as the performance of other mutual funds, without considering other factors or options.
H.65 Client and planner attitudes, values, biases
A client is considering investing in a new startup company because it is run by a well-known entrepreneur. What bias may be affecting the client’s decision?
A) Recency bias
B) Affinity bias
C) Authority bias
D) Sunk cost fallacy bias
Authority bias
Explanation: This bias can cause clients to rely too heavily on the opinions and recommendations of experts or authority figures, such as well-known entrepreneurs or business leaders, without doing their own analysis or research.
H.65 Client and planner attitudes, values, biases
A client is hesitant to invest in a particular mutual fund because it has a higher expense ratio than other mutual funds. What bias may be affecting the client’s decision?
A) Confirmation bias
B) Sunk cost fallacy bias
C) Anchoring bias
D) Availability bias
Anchoring bias
Explanation: This bias can cause clients to give too much weight to a single piece of information or reference point, such as the expense ratio of a mutual fund, without considering other factors or options.
H.65 Client and planner attitudes, values, biases
A client is considering investing in a stock because they have heard many positive news stories about the company’s products and services. What bias may be affecting the client’s decision?
A) Confirmation bias
B) Availability bias
C) Overconfidence bias
D) Sunk cost fallacy bias
Availability bias
Explanation: This bias can cause clients to give too much weight to information that is easily available or memorable, such as news stories, without considering other factors or options.
H.65 Client and planner attitudes, values, biases
A client is hesitant to invest in a particular stock because they had a negative experience with a previous investment in the same industry. What bias may be affecting the client’s decision?
A) Recency bias
B) Loss aversion bias
C) Availability bias
D) Anchoring bias
Recency bias
Explanation: This bias can cause clients to give too much weight to recent events or experiences, such as a negative experience with a previous investment, without considering other factors or options.
H.65 Client and planner attitudes, values, biases
A client is considering investing in a stock because they believe the company’s products align with their personal values and beliefs. What bias may be affecting the client’s decision?
A) Affinity bias
B) Confirmation bias
C) Overconfidence bias
D) Availability bias
Affinity bias
Explanation: This bias can cause clients to give too much weight to their personal preferences or connections, such as aligning with their values, without considering other factors or options.
H.65 Client and planner attitudes, values, biases
A client is hesitant to invest in a particular mutual fund because they do not understand the investment strategy. What bias may be affecting the client’s decision?
A) Confirmation bias
B) Anchoring bias
C) Overconfidence bias
D) Familiarity bias
Familiarity bias
Explanation: This bias can cause clients to prefer investments or options that are familiar or easily understood, without considering other options or doing further research or analysis.
H.65 Client and planner attitudes, values, biases
A client is considering investing in a particular mutual fund because they have a personal connection with the fund manager. What bias may be affecting the client’s decision?
A) Affinity bias
B) Authority bias
C) Sunk cost fallacy bias
D) Availability bias
Affinity bias
Explanation: This bias can cause clients to give too much weight to their personal connections or relationships, such as knowing the fund manager, without considering other factors or options.
H.65 Client and planner attitudes, values, biases
Derek, a recent retiree, refuses to adjust his retirement investment portfolio due to his belief that the market will rebound to its former levels, even though analysts and financial data suggest otherwise. Which cognitive bias is Derek most likely exhibiting?
A) Hindsight bias
B) Anchoring bias
C) Confirmation bias
D) Status quo bias
Status quo bias.
Explanation: Derek’s resistance to changing his investment approach, despite evidence to the contrary, indicates status quo bias. This is a cognitive bias that favors maintaining the current state of affairs over any changes.
H.65 Client and planner attitudes, values, biases
Sarah has consistently invested in tech stocks because they have performed well for her in the past. She believes that because she has been successful with these investments before, she will continue to be in the future. Which cognitive bias is Sarah most likely exhibiting?
A) Confirmation bias
B) Representativeness heuristic
C) Availability heuristic
D) Gambler’s fallacy
Representativeness heuristic.
Explanation: This is an example of the representativeness heuristic, which is when people assess the probability of an event by comparing it to a similar event and assuming that the outcomes will be similar.
H.65 Client and planner attitudes, values, biases
Tom, a client of yours, decides to sell his stocks in a successful company because he’s been hearing news about an economic downturn. Despite the company showing strong performance indicators, he is swayed by the recent negative news. Which cognitive bias is Tom most likely exhibiting?
A) Hindsight bias
B) Confirmation bias
C) Availability heuristic
D) Anchoring bias
Availability heuristic.
Explanation: This is an example of the availability heuristic, where decisions are made based on the most readily available information.
H.65 Client and planner attitudes, values, biases
Rachel, a 45-year-old professional, firmly believes that she will not need to save for retirement as she expects to inherit a significant amount from her parents. This is despite your professional advice that it is not wise to depend solely on this expectation. What cognitive bias is Rachel most likely demonstrating?
A) Overconfidence bias
B) Self-serving bias
C) Anchoring bias
D) Confirmation bias
Overconfidence bias.
Explanation: This is an example of overconfidence bias, where people believe their own abilities or predictions to be more accurate than they actually are.
H.65 Client and planner attitudes, values, biases
Mike, a long-time client, feels more regret for losses in his portfolio than satisfaction for an equal amount of gains. This fear of potential losses causes him to be overly cautious in his investments. Which cognitive bias is Mike most likely exhibiting?
A) Hindsight bias
B) Confirmation bias
C) Loss aversion
D) Anchoring bias
Loss aversion.
Explanation: This is an example of loss aversion, a key concept in prospect theory, where the pain of losing is psychologically about twice as powerful as the pleasure of gaining.
H.65 Client and planner attitudes, values, biases
What is the number one fear clients have when meeting with a CFP® professional?
A) They will be judged
B) Their information will be leaked
C) They will be overcharged
D) They will be given wrong advice
They will be judged
H.65 Client and planner attitudes, values, biases
