Accredited Wealth Management Advisor (AWMA) Exam 3 Practice Test

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• A RAND study found great investor confusion regarding the differences between which two roles?
• Which of the following is NOT a typical consideration when funding a 529 plan?
• Compared with the mass affluent, high net worth individuals have which of the following tendencies regarding loss aversion?
• What is an ILIT and how does it help remove life insurance from the taxable estate?
• Which of the following private equity investments would generally be considered the most risky?
• Under the impartial conduct standards, which statement is true regarding conflicts of interest?
• The netting of swap contracts through CCPs primarily reduces which type of risk?
• Which of the following are unique tax benefits for C corporations? I. An income tax exclusion for the cost of providing the first $75,000 of group life insurance II. An income tax deduction for meals and lodging furnished for the convenience of the employer III. An income tax exclusion for dividends paid to shareholders IV. An employee income tax exclusion for benefits received from an accident or health plan sponsored by the employer
• Which statement best describes fixed versus variable annuities in retirement planning?
• Which defined benefit formula yields a fixed monthly benefit equal to a specific amount per year of service?
• How do trusts help avoid probate, and what is the role of a pour-over will?
• Estate tax portability requires timely filing.
• The stage of venture capital that involves beta testing and giving away free samples is known as which stage?
• Which is a characteristic of an unfunded excess benefit plan?
• Life insurance can provide liquidity to purchase a departing owner's share and support continuity.
• On May Day, May 1, 1975, which event occurred?
• How can life insurance be used to provide estate liquidity, and what are ownership considerations?
• Do beneficiary designations override wills for asset transfers?
• Which statement best describes the wealth allocation framework's majority asset category?
• Which statement about the goals-based form of financial planning is correct?
• Qualified charitable distributions may begin at what age?
• Explain the concept of gifting with the annual exclusion and how it helps with estate planning.
• The following are requirements of S corporations, except
• Which factor has most limited the diversification benefits of managed futures in portfolios?
• Academic studies have found that managed futures often diversify portfolios due to low correlations with traditional assets, but what has limited their effectiveness?
• The bucket strategy segments assets into short-term, intermediate, and long-term needs and allocates risk accordingly.
• Which statements correctly describe life insurance used to informally fund a nonqualified deferred compensation plan?
• A taxpayer incurs withholding on a retirement plan distribution in September of the current year. For estimated tax purposes, the withholding is treated as
• What is a spousal lifetime access trust (SLAT) and its purpose?
• The Securities Investor Protection Act of 1970 insures customers’ accounts to a maximum value of what amount, with cash coverage up to what portion?
• What is the deduction limit for ESOP contributions and amounts paid to repay ESOP debt, expressed as a percentage of participants' payroll?
• In the wealth allocation framework, the main diversified asset allocation would most likely include which of the following?
• Under Regulation BI, Form CRS is limited to how many pages?
• The loss on the sale of an individually owned rental property is
• Tin parachute is typically designed for which employee group?
• Which statement about inter vivos QTIP elections is correct?
• Which statement about a GRAT is correct?
• Which statement about a QTIP election can be considered true?
• What is the primary function of central clearing counterparties (CCPs) established under the Dodd-Frank Act?
• Medicaid's look-back period reviews asset transfers made before applying for Medicaid and can affect eligibility.
• Which would best be considered a long-term goal for a high net worth client?
• Which statement describes tax treatment of S corporation earnings held in an ESOP?
• The grantor of an inter vivos QTIP trust
• What is a potential pitfall of using a Family Limited Partnership (FLP) in estate planning?
• In charitable planning, which statement correctly describes a CRT?
• In order for a distribution to be treated as a qualified charitable distribution
• What are the basic tax advantages of 529 college savings plans and key withdrawal rules?
• Basis is the tax cost of an asset, and heirs receive a stepped-up basis to fair market value at death, which can reduce capital gains.
• Which of the following is NOT a form of a leveraged buyout (LBO)?
• In which circumstance is a buy-sell agreement not used to transfer a closely held business interest?
• What is the role of a financial planner in coordinating tax, estate, and retirement planning for a family?
• Investors seeking the least risk should acquire stocks with beta coefficients
• Which statement describes the tax impact of converting a traditional IRA to a Roth IRA?
• Which statement describes the unauthorized practice of law?
• Which statement best describes the key difference between a durable power of attorney and a health care directive?
• What is the purpose of family governance in multigenerational planning?
• What does a qualified personal residence trust (QPRT) retain for the grantor during the term?
• Tax deferral in an unfunded nonqualified deferred compensation plan may be achieved if the election to defer is made by which deadline?
• A taxpayer's 2019 AGI was $320,000 with a tax liability of $66,000. For 2020, estimated tax liability is expected to be $75,000 and wage withholding is $50,000. What is the minimum amount of estimated tax payments the taxpayer must make in 2020 if payments are in equal quarterly installments?
• Assume that a taxpayer has a self-employment tax liability of $21,000 and an additional Medicare tax of $150. What is the amount of the adjustment to income as a result of these additional taxes?
• Why is liquidity planning important at death in wealth management?
• Which charitable giving tools are explicitly considered for tax planning?
• Compared with mutual funds, hedge funds are typically more heavily concentrated and may use leverage. Which statement best describes this?
• When should a wealth plan be reviewed and updated?
• Which of the following is NOT among the top three specialty areas in which high net worth individuals seek advice?
• Differentiate between a durable power of attorney and a health care directive.
• If an RMD is not taken, penalties apply and taxes may increase.
• Which incentive would best serve a chief executive who fears a takeover and wants a strong retention package?
• What are the essential components of a comprehensive retirement income plan?
• Which is an income tax implication of a nonqualified deferred compensation plan for the employee when the plan lacks substantial risk of forfeiture?
• In the wealth allocation framework, the risky asset allocation would most likely include which of the following?
• If a stock has a beta of 0.8, what does this imply about its volatility relative to the overall market?
• In a hedge fund, carried interest most closely refers to which of the following?
• Human capital can best be defined as the high net worth individual's ability to leverage which of the following?
• Futures contracts are available on which of the following assets?
• Required Minimum Distributions start at age 72 for many retirement accounts.
• According to a College for Financial Planning study, which Big Five personality trait did successful financial advisers rank highest?
• Which factor has a direct bearing on the investments appropriate for achieving a financial goal?
• Estate tax portability allows a surviving spouse to use the deceased spouse's unused estate tax exemption.
• Which owner will NOT have their personal assets protected from business debts?
• The amount of debt used in a company's capital structure primarily relates to which risk?
• Which statements accurately describe limits that apply to qualified defined contribution plans?
• Diversification rules for ESOPs require certain diversification rights for stand-alone ESOPs and diversification rules for ESOPs maintained by publicly traded companies. Which statements are correct?
• Which statement about the prudent investor rule is most accurate?
• Which statement correctly describes the purpose of a QDOT?
• What describes the implications of a beneficiary designation change after marriage or divorce?
• When should long-term care insurance be considered in a wealth plan?
• Which coverage best protects individuals serving on a board from lawsuits due to board duties?
• What is the fiduciary obligation when conflicts of interest arise?
• In the wealth allocation framework, which statement about the main diversified assets category is most accurate?
• How can a family use trust structures to manage multigenerational wealth transfer?
• Coordinating Social Security benefits for a married couple involves considering spousal benefits, survivor benefits, and timing of claims.
• Differentiate between Donor-Advised Funds and Private Foundations in terms of control, liquidity, and tax benefits.
• Under the wash sale rule, if an investor sells 1,000 shares at a total loss and buys 750 shares within 30 days, how much of the loss is deductible in the current year?
• A buy-sell agreement is designed to ensure business continuity and value transfer in events like retirement, disability, or death.
• In hedge funds, carried interest is commonly taxed as which type of income?
• Which statement best captures key considerations when funding higher education via a 529 plan?
• Which statement correctly describes the applicability of qualified charitable distributions to satisfy required minimum distributions?
• The defined benefit plan benefit formula that provides $250 per month of service, 30 years maximum is known as a
• Which statement is true about a liquid asset within the framework?
• Which statement best describes the underwriting focus of second-to-die policies used in estate planning?
• Which statement best describes net Section 1231 gains and losses for the year?
• Which of the following options best describes the Chapter 14 rule reference in a recapitalization freeze?
• Which item is a tax preference item for purposes of the alternative minimum tax?
• Which gift is exempt from gift tax?
• Which of the following is a main category of hedge funds?
• Which statement describes when a business valuation is commonly performed?
• For a security with an average return of 14.2% and a standard deviation of 8.4%, which statement describes where 68% of returns are expected to fall?
• Second stage/Expansion capital in venture capital refers to which phase?
• Explain a Charitable Remainder Trust (CRT) and the benefits it provides to donors.
• Two assets with a correlation of -1.0 would result in what effect on portfolio risk?
• The retirement plan that would allow an older, high income, self-employed individual to maximize their retirement savings would be a
• Which of the following is a best practice for complying with Regulation Best Interest and the SEC guidance provided to investment advisers?
• Jensen's alpha is best described as which of the following?
• Which two factors were identified as significantly contributing to high net worth individuals' financial success?
• Which factor helps preserve liquidity when making charitable gifts?
• In a deferred compensation plan, which condition creates a substantial risk of forfeiture?
• Which events commonly trigger a wealth plan review?
• Which of the following strategies is NOT one of the four main hedge fund approaches according to CAIA?
• Which policy provides coverage overseas for assets, in addition to US coverage?
• What is a primary risk of not incorporating liquidity planning into a wealth plan?
• Which is NOT a typical key element that separates hedge funds from mutual funds?
• Which statement is correct regarding the investment interest expense deduction?
• In the wealth allocation framework, human capital is in which bucket?
• Which behavioral bias is illustrated when an investor treats an inheritance as separate from the rest of the portfolio?
• Rollovers in funded or unfunded plans: which statement is true?
• Tax-efficient withdrawal sequencing prioritizes withdrawals from which type of accounts first?
• Which correlation scenario would provide the greatest reduction in portfolio risk when adding a new investment?
• If a stock has an average return of 9.0% and a standard deviation of 7.0%, what is the range of expected returns that covers about 68% of outcomes?
• The tax benefits related to an ESOP include the following, except
• Which one of the following is a viable strategy for reducing or avoiding the alternative minimum tax (AMT)?
• Which condition triggers the use of the 110% of prior year's tax rule for estimated tax payments?
• Heirs receive a stepped-up basis to fair market value at death, reducing the capital gains when the asset is sold.
• Which of the following statements regarding the SECURE Act ten-year rule is correct?
• What does annual exclusion gifting enable in estate planning?
• Which statement regarding portability of the deceased spousal unused exclusion amount (DSUE) is correct?
• Which statement correctly contrasts CRT and CLT in terms of cash-flow timing?
• Which statement about systematic risk is true?
• Which statement is NOT correct regarding a preferred stock recapitalization freeze transaction?
• What is a step-up in basis and how does it affect capital gains taxes for heirs?
• What does standard deviation measure in the context of investment returns?
• Which statements explain why second-to-die policies are attractive for estate planning?
• Which of the following is not one of the fiduciary duties required under the Standards of Conduct now in place for CFP professionals?
• The impartial conduct standards enacted by the Department of Labor as part of the Best Interest Contract Exemption required all of the following except which?
• What is a fiduciary's duty in managing trusts or retirement accounts?
• For a high-net-worth client driving a luxury car, what poses the greatest potential for loss?
• A qualified domestic trust (QDOT)
• Which Big Five trait is least highlighted as a strength for successful financial advisers according to the College for Financial Planning study?
• What is a key limitation of portability of the estate tax exemption?
• All of the following are disadvantages of making a lifetime gift except
• Describe GRAT and QPRT strategies and how they might reduce gift and estate taxes.
• A client makes judgments based on stereotypes about an industry. This is an example of which behavioral bias?
• In the investment pyramid, which category offers the greatest potential for capital appreciation?
• From which accounts do Required Minimum Distributions typically come?
• Which statement best describes the difference between a revocable trust and an irrevocable trust?
• Which return measure is generally preferred for evaluating a portfolio manager's performance, and why?
• Which policy type provides coverage worldwide for assets, including overseas use, and is often used to protect personal property while abroad?
• How can trusts support multigenerational wealth transfer?
• Which statement about contrasting characteristics of qualified and nonqualified plans is not accurate?
• Which of the following would NOT be considered a risky asset in the wealth allocation framework?
• Under the prudent investor rule, which statement is true about delegation?
• What is the estimated annual cost of conflicted advice according to the 2015 White House report?
• Five years ago, Jason received a gift of 1,000 shares of stock. FMV on the gift date was $75 per share; donors had purchased four years earlier at $47 per share. He sold the stock this week for $110 per share. What was Jason's per-share basis in the stock when it was sold?
• What are the tax implications of non-qualified withdrawals from a 529 plan?
• How do we assess liquidity needs at the death of a spouse in a blended family?
• In the wealth allocation framework, the liquid asset allocation would most likely include which of the following assets?
• Which statement describes the tax/distribution effect of a QDRO in divorce?
• When evaluating euro-denominated corporate bonds, which risks are systematic (non-diversifiable) and should be discussed?
• Under the SECURE Act ten-year rule, which designation is exempt from the rule?
• Which withdrawal sequence is described for tax-efficient retirement income?
• Which statement about pour-over wills is correct?
• What is a Qualified Domestic Relations Order (QDRO) used for?
• What does portability of the estate tax exemption enable, and what is a key limitation?
• Which are common reasons to value a closely held business?
• Which statement does NOT correctly describe a concept related to nonqualified deferred compensation?
• In a nonqualified deferred compensation plan that segregates property for the benefit of the employee, how is this typically described?
• Which portfolio structure is recommended for a risk-averse high net worth investor under the wealth allocation framework?
• What does alpha quantify in performance assessment?
• Which statement is correct regarding the qualified charitable distribution (QCD) rules?