Free CFA Level III: Private Wealth Advising the Wealthy Practice Questions
Advising the wealthy on CFA Level III tests practice management, client engagement models, team-based advisory approaches, and cross-border wealth management for internationally mobile clients.
Sample Questions
Question 1
Easy
FATCA (Foreign Account Tax Compliance Act) requires:
Solution
A is correct.
FATCA requires foreign financial institutions (FFIs) to identify and report account information (balances, interest, dividends, and other income) for accounts held by US persons (citizens, residents, and entities with US ownership) to the IRS. FFIs that do not comply face a 30% withholding tax on US-source payments made to them. FATCA was enacted to combat tax evasion by US persons hiding assets in offshore accounts.
FATCA requires foreign financial institutions (FFIs) to identify and report account information (balances, interest, dividends, and other income) for accounts held by US persons (citizens, residents, and entities with US ownership) to the IRS. FFIs that do not comply face a 30% withholding tax on US-source payments made to them. FATCA was enacted to combat tax evasion by US persons hiding assets in offshore accounts.
Question 2
Medium
Given the philanthropic objectives described in Exhibit 2, the MOST appropriate vehicle for the Whitfields' $15 million Philanthropy bucket is a:
Solution
B is correct. A donor-advised fund matches every stated objective in Exhibit 2: the Whitfields want flexibility over the timing and amounts of grants to multiple charities and explicitly do not want paid staff, family operations, or direct charitable activities. A DAF contribution delivers an immediate income-tax deduction (up to 60% of AGI for cash, 30% for appreciated securities), lets the Whitfields front-load the deduction in a high-income year if desired, and allows recommendations to recipient charities at their chosen pace — all without the administrative burden or 5% annual distribution requirement that a private foundation would impose.
Question 3
Hard
A business owner is preparing for a potential sale of her company in 2-3 years. Her wealth advisor recommends that she begin "pre-sale planning" immediately. Pre-sale planning most importantly includes:
Solution
C is correct.
Pre-sale planning is critical because many tax and estate planning strategies must be implemented before the sale (and before the value becomes "locked in" at the sale price). Key pre-sale activities include: (1) establishing irrevocable trusts (GRATs, IDGTs, SLATs) to transfer future appreciation to heirs at a lower gift tax cost; (2) analyzing whether an asset sale or stock sale structure produces better after-tax results; (3) exploring QSBS (Section 1202) eligibility for potential capital gains exclusion; (4) considering Opportunity Zone investments for gain deferral; and (5) developing a comprehensive post-sale wealth management plan including investment strategy, income planning, and charitable giving.
Pre-sale planning is critical because many tax and estate planning strategies must be implemented before the sale (and before the value becomes "locked in" at the sale price). Key pre-sale activities include: (1) establishing irrevocable trusts (GRATs, IDGTs, SLATs) to transfer future appreciation to heirs at a lower gift tax cost; (2) analyzing whether an asset sale or stock sale structure produces better after-tax results; (3) exploring QSBS (Section 1202) eligibility for potential capital gains exclusion; (4) considering Opportunity Zone investments for gain deferral; and (5) developing a comprehensive post-sale wealth management plan including investment strategy, income planning, and charitable giving.