LEVEL III Question: Topic: Minutes: 1 Individual PM (IPS and Human Capital) 27

Reading References: Level III, Volume 2, Study Session 4, Reading 10 “Managing Individual Investor Portfolios,” Ch. 2, James W. Bronson, CFA, Matthew H. Scanlan, CFA, and Jan R. Squires, CFA, Managing Investment Portfolios: A Dynamic Process, Third Edition (CFA Institute, 2007). Level III, Volume 2, Study Session 4, Reading 14 “Lifetime Financial Advice: Human Capital, Asset Allocation, and Insurance,” Roger G. Ibbotson, Moshe A. Milevsky, Peng Chen, CFA, Kevin X. Zhu (The Research Foundation of CFA Institute, 2007). LOS: 2012-III-2-10-a, j, k, l “Managing Individual Investor Portfolios” The candidate should be able to: a) discuss how source of wealth, measure of wealth, and stage of life affect an individual investor’s risk tolerance; b) explain the role of situational and psychological profiling in understanding an individual investor; c) compare the traditional finance and behavioral finance models of investor decision making; d) explain the influence of investor psychology on risk tolerance and investment choices; e) explain the use of a personality typing questionnaire for identifying an investor’s personality type; f) compare risk attitudes and decision-making styles among distinct investor personality types, including cautious, methodical, spontaneous, and individualistic investors; g) explain the potential benefits, for both clients and investment advisers, of having a formal investment policy statement; h) explain the process involved in creating an investment policy statement; i) distinguish between required return and desired return and explain the impact these have on the individual investor’s investment policy; j) explain how to set risk and return objectives for individual investor portfolios and discuss the impact that ability and willingness to take risk have on risk