Free CFA Level III: Private Wealth Working With the Wealthy Practice Questions
Working with wealthy clients on CFA Level III tests client discovery processes, behavioral finance insights, communication strategies for complex financial situations, and managing multi-generational family dynamics.
Sample Questions
Question 1
Easy
Based on Exhibit 1, which goal is BEST suited to the MOST growth-oriented (risk-on) allocation?
Solution
B is correct. In a goals-based framework, aspirational capital is discretionary — loss of this capital does not impair lifestyle or legacy funding — and therefore supports the most risk-on allocation. The Dynasty / philanthropy goal has the longest horizon (50+ years) and is explicitly categorized as aspirational, so it has the greatest capacity and willingness to bear equity, private markets, and other growth risk.
Question 2
Medium
Based on Exhibit 3, which statement about the grantor trust holding the Dynasty bucket is MOST accurate?
Solution
B is correct. In a properly structured intentionally defective grantor trust (IDGT), trust assets are removed from the grantor's taxable estate (achieving the estate-tax-exclusion goal), but the grantor remains the income-tax owner under the grantor-trust rules. The grantor therefore pays income taxes on trust earnings out of personal assets, and those tax payments are not themselves treated as additional gifts to the beneficiaries. Functionally, the trust grows on a pre-tax basis while the grantor's estate is depleted by the tax payments — an IRS-sanctioned transfer-tax leverage technique that compounds across long horizons such as the Dynasty bucket's 40+ year planning window in Exhibit 1.
Question 3
Hard
Voss must respond to Klaus's 25% cash demand while still funding the family's stated goals. Which approach best integrates behavioral-finance, goals-based-investing, and advisor-relationship considerations?
Solution
A is correct. Goals-based investing lets Voss honor the emotional content of Klaus's demand — driven by availability bias around the 2008 liquidity crisis — while keeping the total allocation efficient relative to the family's goal structure. Funding Goal 1 (€45M lifestyle PV) with a dedicated safety bucket produces a cash and high-quality fixed-income allocation of roughly , which is large enough to be visibly 'safe money' for Klaus yet leaves ~€235M (~84%) for the market and aspirational buckets that fund Goals 2–5. This reframing respects the behavioral driver, preserves goal feasibility, and protects the advisor-client relationship.