CFP Board Practice Exam Question 13

A CFP® professional has a client with a low tolerance for risk. The client likes to buy individual municipal bonds and hold them to maturity in her $500,000 portfolio because of the certainty of interest and principal payments. Yesterday, the trading desk that the CFP® professional uses issued a notice that trades for individual bond positions under $100,000 will be priced much higher than in the past because of difficulty in executing trades of smaller sizes. The client calls and asks to reinvest proceeds from a $25,000 bond that matured last week. What is the BEST approach to take when working with this client going forward?

A. Purchase a $25,000 bond below par to offset the change in bond pricing

B. Suggest that the client wait until she has $100,000 in the account to invest

C. Proceed with the client's request in a timely manner

D. Discuss the change in markup with the client and explore alternative structures

Key: D

Rationale:

A. Incorrect. Although an appropriate action, it is not the best answer as the client should be educated about the changes and offered alternatives.

B. Incorrect. Suggesting that the client wait until she has $100,000 in the account to invest would not be appropriate as the client should be educated about the changes and offered alternatives.

C. Incorrect. Although an appropriate action, it is not the best answer as the client should be educated about the changes and offered alternatives.

D. Correct. Educating the client about the changes and offering alternatives is the best course of action.