Accredited Wealth Management Advisor (AWMA) Exam 2 Practice Test

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• Which metric measures performance relative to a benchmark after adjusting for risk?
• For an investor who has purchased only publicly traded REITs in the past, which of the following risks should he or she be aware of regarding the market value of nontraded REITs on any given day?
• What is the role of life insurance in estate liquidity?
• What is an ILIT and why use it in estate planning?
• What is the typical impact of teamwork on wealth management outcomes?
• How do essential vs supplemental life insurance needs differ in a plan?
• How does Medicare enrollment timing affect premium costs and coverage?
• Why is documenting the financial planning process and client communications important for ethical practice?
• In retirement planning, which sequence minimizes taxes when drawing from different account types?
• REITs must distribute what percentage of taxable income to shareholders?
• When funding a CRT with appreciated assets, what tax benefit is typically realized?
• Which exchange is used to replace an existing life insurance policy or annuity with a more favorable contract on a tax-free basis?
• Which statement about qualified personal residence trusts (QPRTs) is NOT correct?
• Which scenario best illustrates the purpose of rebalancing a diversified portfolio?
• Which estate planning tool is designed to keep life insurance proceeds out of the taxable estate while providing liquidity?
• Compared to planners working alone, advisers working with a team generally have what?
• Nontraded REITs
• Unrecaptured Section 1250 income is taxed at what rate?
• How should asset allocation shift as retirement approaches?
• Which of the following real estate property expenses is NOT an operating expense?
• What was the most important area of concern addressed by the Dodd-Frank Act of 2010?
• In a grantor retained annuity trust (GRAT), the annuity payment is based on which option?
• Which statement about revocable living trusts is true?
• Which statement is most accurate about high net worth clients' discussions with their children about finances?
• In a GRAT, what does the grantor retain for a fixed term?
• In a grantor retained annuity trust (GRAT), the grantor retains the right to receive what type of income interest?
• Differentiate term life and permanent life insurance and their typical uses.
• Which statement about trust in the financial services industry is correct?
• What is a 1035 exchange and when might you use it?
• Which statement about SIMPLE plan eligibility and structure is true?
• Which of the following is a type of systematic risk?
• What is a GRAT and its use in gifting?
• Scenario: A taxpayer with MAGI above threshold 260,000 and net investment income 20,000; what is the 3.8% Medicare tax?
• What is the primary disadvantage when a life insurance policy is classified as a MEC?
• Which act initiated the SEC's study into harmonized fiduciary standards for investment advisers and broker-dealers?
• Differentiate long-term vs short-term capital gains rates.
• What is the market return if the risk-free rate is 6.5% and the market risk premium is 7%?
• An advantage to a third-party business sale is that
• The advent of advanced technology has had what effect on the management of brokerage firms?
• Your client purchased a stock two years ago at $45 per share, and it is currently trading at $25 per share. Even though the prospects for the company do not look good, your client does not want to sell the stock until he can at least break even. The behavioral bias closest to what your client may be exhibiting is
• Which statement best describes how charitable planning strategies affect estate taxes?
• Which description correctly defines a Qualified Charitable Distribution (QCD)?
• In CAPM, the required return is computed as risk-free rate plus beta times what?
• In a charitable remainder trust, who ultimately receives the remainder after the trust term ends?
• What is the impact of Roth conversions on MAGI and Medicare premiums?
• Which of the following best captures the goal of tax-aware investing?
• What is tax-loss harvesting and when is it advantageous?
• What is the overall weighted beta coefficient for Gary's portfolio?
• Which of the following combinations correctly states ESOP requirements?
• Goals that a business owner can reasonably expect to achieve in a preferred stock recapitalization include all of the following except?
• What is the purpose of the generation-skipping transfer tax and what assets does it apply to?
• Which type of stock option triggers ordinary income tax on exercise due to the bargain element?
• Investment interest carryforward: If only $3,600 deduction is used this year, how is the remainder treated?
• Explain step-up in basis and its impact on heirs.
• Which statement about the comparison between the suitability standard and the fiduciary standard is correct?
• The 'suitability rule' is a key rule of which regulatory framework?
• Five years after the ISO grant, Katie's AMT income adjustment from exercising is $74,000. What is the amount?
• Which statement about C corporations is true?
• Distributions from an ESOP that are in employer stock are not subject to which withholding requirement?
• How can key person life insurance benefit a small business?
• Intrinsic value of an apartment complex with gross rental receipts of $600,000, an average vacancy rate of 5% of PGI, expenses of $180,000, and mortgage payments of $120,000? Use a cap rate of 9%.
• Which statement best describes the efficient frontier concept?
• Which statement regarding buy-sell agreements is NOT correct?
• Regarding expatriation and the mark-to-market rules, which statement is true?
• With self-canceling installment notes (SCINs), the term of the note must not exceed the seller's actuarial lifetime.
• Collectibles gains are taxed at what rate?
• Which factor is most important in establishing trust with a client?
• What is asset location and why place assets accordingly?
• Which factor is least likely to influence the decision to delay retirement withdrawals?
• Buy-sell agreements ensure
• What are the implications of delaying Social Security for benefit amounts?
• Using CAPM, calculate the required rate of return for a stock with beta 1.3, market risk premium 7%, and risk-free rate 6.5%. Then determine if the stock meets the criterion of above-average-risk stocks only if rewarded.
• In the wealth management planning process, what is Step 2 primarily about?
• In the current year, Thaddeus has investment interest expense of 4,000; net investment income of 3,600; AGI 225,000. What amount of investment interest expense may be deducted in the current year?
• What is the primary purpose of a revocable living trust in estate planning?
• Dementia may be present during elder abuse without the client being a victim of fraud; what does this imply?
• When working in a team at a financial institution, which action would an adviser likely not perform?
• Define dollar-cost averaging and its typical use.
• Which type of life insurance policy is designed to provide pure protection for a set period, with no cash value?
• Explain the pro-rata rule in Roth conversions.
• In a wash sale scenario, what happens to the basis of the newly purchased replacement shares?
• In a charitable lead trust, who receives the trust term benefits and who receives the remainder?
• Several individual investments each have high standard deviations. Which statements are true about the standard deviation for a portfolio of these same investments?
• How does a charitable lead trust differ from a charitable remainder trust?
• At the end of 2018, which of the following was the approximate value of U.S. retirement assets held in IRA accounts?
• Under the constructive receipt doctrine, when is income taxable?
• In a qualified personal residence trust (QPRT), gift tax is due on which portion?
• Which statement best describes a donor-advised fund (DAF) in comparison to a private foundation?
• Which statement regarding self-canceling installment notes (SCINs) is NOT correct?
• A portfolio had a return of 10%, beta of 1.1, and the risk-free rate was 1.25%. What is the Treynor ratio for this portfolio?
• Which statement about nontraded REIT valuations is true?
• Which statement best describes asset location strategy?
• What is a QTIP trust and when is it used?
• What is tax-aware investing and why is it important in wealth management?
• In the dimensions of emotional intelligence, which statement is correct?
• What is long-term care insurance and what risk does it mitigate?
• Which of the following describes an advantage of using a foreign situs trust for asset protection?
• In a private annuity, if a survivor other than the original annuitant will receive payments after the annuitant's death, the gross estate of the original annuitant must include the present value of such payments.
• Money purchase plans characteristics include:
• If a client's personal circumstances change, to which wealth management step should the adviser return?
• Which statement about the fiduciary standard is correct?
• What does the unlimited marital deduction allow in federal estate tax terms?
• What is a buy-sell agreement and what form can it take (cross-purchase vs entity-purchase)?
• What is a charitable lead trust (CLT) and when would you use it?
• What is disability income insurance and what does it protect?
• Which of the following cap rates would result in the highest valuation for a property that has NOI of $1,250,000?
• Which of the following betas indicate a stock that is more volatile than the market?
• Which statement best describes Regulation Best Interest’s approach to standards for brokers and investment advisers?
• Which of the following types of risk can be reduced through diversification?
• Which of the following rates apply to qualified dividends that fall above the $496,600 taxable income breakpoint for a married couple filing jointly?
• Which is NOT a difference between the federal gift and estate tax?
• What is the fiduciary standard and why does it matter in wealth management?
• Portfolio X had a Sharpe ratio of 1.10, while Portfolio Y had a Sharpe ratio of 0.55. Which statement is correct?
• Siddiq has owned 1,000 shares of WordCo Publishing stock since September 15, 2016. His basis in the 1,000 shares is $150,000. He sold these shares on March 15, 2020, for $120,000. After hearing a positive earnings report for the WordCo stock, he purchases 1,000 more shares on April 11, 2020, for $130,000. What is the basis in the shares purchased on April 11, 2020?
• How does a pour-over will interact with a revocable trust?
• Which of the following statements is true regarding self-employment tax when a taxpayer has an S corporation flow-through?
• Which statement regarding private annuities is NOT correct?
• Technology Startup Inc. (TSI) grants a nonqualified stock option to Edward, one of its vice presidents, to purchase 1,000 shares after five years of employment. The option has an exercise price of $10 per share and the current fair market value is $30 per share. Edward exercises today. His marginal tax rate is 24%. What is the tax due upon exercise?
• What does the gross income multiplier equal?
• Which statement best describes timing differences between third-party sales and insider transfers?
• Beta is a relative measure of volatility. If a stock's beta is 1.2, how does its volatility compare to the market?
• Which of the following is an operating expense included in NOI?
• Which is NOT a tax preference or adjustment item for AMT purposes?
• Which question best initiates a conversation about family matters with a wealthy client?
• The portfolio performance calculation that investors prefer to see is the
• What is a Qualified Charitable Distribution (QCD) and who benefits?
• Five years ago, Katie was granted 2,000 incentive stock options (ISOs) with an exercise price of $30. The stock price was $30 at grant. On February 2 this year, she exercises all 2,000 options at $67. She plans to dispose of the stock early next year. What is the tax impact of this transaction?
• What is the primary rationale for tax-aware investing?
• Which policy type builds cash value and lasts a lifetime?
• First-to-die life insurance policies, as used in a business situation, are primarily structured to
• A SERP can be funded or unfunded.
• Which statement best describes a golden parachute plan?
• Under ERISA, which statement about prohibited transactions is correct?
• Your scenario: A property sells for $4,950,000 and has gross rents of $550,000. What is the gross income multiplier?
• Which statement about nonqualified stock options is true?
• Which trust provision would not help protect trust assets from the grantor's or a beneficiary's creditors?
• What are the two primary fiduciary duties required of both registered investment advisers and CFP professionals?
• What is the primary purpose of long-term care insurance in retirement planning?
• What is the key difference between a durable medical power of attorney and a healthcare directive (living will)?
• Second-to-die life insurance policy is primarily used to
• What was the purpose of the Dodd-Frank Act's provision regarding fiduciary standards?
• Which statement best describes the governance difference between donor-advised funds and private foundations?
• Which of the following types of private real estate funds would most likely invest in a strip mall that needs renovation?
• Which statement best describes a supplemental executive retirement plan (SERP)?
• Which statement about renouncing U.S. citizenship and the consequences of a successful renunciation is not correct?
• Explain alpha and beta in portfolio performance measurement.
• What is the efficient frontier concept and its implications for portfolio construction?
• Under the generation-skipping transfer tax, which individuals are considered skip persons?
• Which statement about SIMPLE plans is true?
• Theresa is a single taxpayer. In 2020, her AGI is 235,000, including a net long-term capital gain of 44,000. What is the amount, if any, of Medicare contribution tax that she must pay?
• What are Required Minimum Distributions (RMDs) and when do they begin?
• When does a durable power of attorney for finances typically take effect?
• What is a power of appointment in estate planning, and what potential effect does it have on distributions and taxes?
• One disadvantage to an insider sale is
• Which statement describes the purpose of a QTIP trust?
• Phillip's liquidity problem: Which is the best solution?
• Which of the following statements about nonqualified deferred compensation plans is true?
• If cap rate decreases while NOI is constant, what happens to the property value?
• Which statement about PPLI policies is true?
• For tax purposes, which form of business is not considered a pass-through entity?
• A rabbi trust is
• Which risk-adjusted performance measure uses the standard deviation in its denominator?
• Which regulation allows a adviser to place a temporary hold on disbursements from an elder account if financial abuse is suspected?
• Which practical dimension of emotional intelligence is the most complex to attain?
• How do fees and expenses impact long-term investment outcomes?
• What is a 1031 exchange and which asset class does it apply to?
• Which of the following best describes a charitable remainder trust (CRT) and its tax advantage?
• Which of the following is a requirement of IRC Section 409A?
• What is tax-efficient withdrawal sequencing in retirement planning?
• Which statement describes Regulation Best Interest's approach to standards for brokers and investment advisers?
• How does periodic rebalancing impact portfolio risk and return?
• Which document provided more guidance to investment advisers about fiduciary obligations when working with clients?
• Properties A, B, and C recently sold for $3,500,000, $4,050,000, and $5,000,000, respectively. The gross rents from each were $412,000 for Property A, $450,000 for Property B, and $526,000 from Property C. What is the gross income multiplier you would use based on these sales?
• What factors influence the decision to delay retirement asset withdrawals?
• How do Social Security claiming strategies affect lifetime benefits?
• Which ESOP rule is true regarding diversification options?
• Which method of valuing real estate is similar to the price-to-sales approach to valuing stocks?
• Which statement about the tax consequences of business succession planning is true?
• Which tool is designed to keep a client focused on long-term goals despite changing economic conditions?
• Which of the following statements about wash sale rules is correct?
• In real estate investing, what is the primary purpose of a 1031 exchange?
• This year, Irwin sold several securities that left him with the following types of gains and losses: Long-term gain—$58,000; Short-term gain—$41,000; Long-term loss—$32,000; Short-term loss—$52,000. What is the net capital gain or loss on Irwin's security sales?
• Which of the following is a warning sign of elder abuse for a client?
• Why are beneficiary designations on life insurance and retirement accounts important in estate planning?
• Which statement best describes the relationship between permanent life insurance and term life?
• Which source explicitly requires loyalty and care as fiduciary duties, aligning with SEC guidance and CFP Board Standards?
• If the assets in a portfolio have a high correlation of returns, what is the likely effect on the portfolio's standard deviation?
• Describe the optimal sequence of withdrawals for tax efficiency in retirement.
• Frank, a single taxpayer, has a flow-through of net income from a general partnership of 180,000 for 2020. He also has a flow-through of 12,000 of net income from an S corporation. What is the amount of self-employment tax that Frank must pay?
• Which of the following is NOT a typical purpose of charitable planning strategies?
• The higher the standard deviation of an investment relative to its rate of return, the
• What is the difference between asset allocation and diversification?
• Which one of the following is a significant concern when funding a PPLI policy?
• Some high net worth clients are very concerned about the economy; what should advisers recognize about these clients?
• Upon a distribution of employer securities from a qualified retirement plan, when is net unrealized appreciation taxed?