Free CFA Level 3 Private Wealth practice questions
Try 10 CFA Level 3 Private Wealth prompts about goals, concentrated wealth, tax assumptions and transfers, with explanations and written-answer rubrics.
Connect the investment decision to the client. These cases ask you to distinguish willingness from capacity, plan liquidity, handle concentration and identify cross-border constraints. Tax rates and deadlines in the questions are hypothetical case assumptions, not personal tax advice.
Write the decision, then the reason
Start with the command in the question: identify, calculate, recommend or explain. For a recommendation, name the action and connect it to a supplied constraint. For a calculation, show the input, sign and unit so that a mistake can be traced. The checklist is a learning aid, not an official marking scheme.
Use the supplied case facts
Do not invent income, liquidity, tax treatment or a client objective that the case does not give. If a question uses a hypothetical tax rate, use that assumption only for the example. Keep the base currency, time horizon and asset-versus-equity distinction visible throughout your reasoning.
Separate machine scoring from self-review
Multiple-choice answers are checked against the displayed key. Written answers are not automatically graded: compare your response with the model and mark the rubric items you addressed. The completion counter records review activity, not a pass probability or a CFA exam score.
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Your 10-question sample
Ten pathway-focused prompts: five selected-response and five written. No country-specific tax treatment is assumed beyond each case.
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- Question 1 of 10Real and nominal goalsMultiple choice
Case facts
A client needs 2% annual real growth before spending. Inflation is forecast at 3%. Ignore taxes and fees.
What nominal return exactly preserves this real-growth target?
Answer and explanations
Compound real growth with inflation: (1.02 x 1.03) - 1 = 5.06%, rather than simply adding the rates.
- A: 5% is the additive approximation.
- B - correct: Compound real growth with inflation: (1.02 x 1.03) - 1 = 5.06%, rather than simply adding the rates.
- C: 6% is not supported by the supplied rates.
- Question 2 of 10Concentrated wealthWritten response
Case facts
A founder holds 80% of her wealth in listed employer shares. An immediate sale creates tax costs; she is also restricted from trading during certain periods.
Identify two constraints and propose a risk-management process.
Model answer and self-review rubric
Tax realization and legal/trading restrictions constrain diversification. Quantify concentration risk, coordinate with tax/legal advisers, and evaluate permissible staged sales or hedges during allowed windows. Do not assume derivatives bypass dealing restrictions.
Teaching checklist only. No official points or automated grade.
- Question 3 of 10Tax-aware returnMultiple choice
Case facts
A hypothetical jurisdiction taxes interest income at 30%. A deposit pays 5% interest, fully taxable at year end. Ignore other taxes and inflation.
What is the after-tax interest return?
Answer and explanations
Retain the portion of interest left after the hypothetical tax: 5% x (1 - 30%) = 3.5%.
- A - correct: Retain the portion of interest left after the hypothetical tax: 5% x (1 - 30%) = 3.5%.
- B: 5% is the before-tax return.
- C: 1.5% is the tax, not the retained return.
- Question 4 of 10Wealth transfer liquidityWritten response
Case facts
An estate holds $6m of property and $200,000 cash. A hypothetical tax bill of $800,000 is due in three months; no property sale is assured by then.
Calculate the cash shortfall and explain the planning priority.
Model answer and self-review rubric
The shortfall is $600,000. Arrange a reliable source of liquid funds or financing before the deadline, considering cost and legal availability; property value alone does not ensure cash can be raised on time.
Teaching checklist only. No official points or automated grade.
- Question 5 of 10Goals-based allocationMultiple choice
Case facts
A family must pay tuition in one year and also wants to fund a flexible legacy goal in 25 years.
Which approach best respects the different goals?
Answer and explanations
Separating horizons and required spending supports a suitable allocation.
- A: Illiquidity and price risk can jeopardize the fixed near-term payment.
- B - correct: Separating horizons and required spending supports a suitable allocation.
- C: An overall long horizon does not remove the tuition deadline.
- Question 6 of 10Willingness and ability to bear riskWritten response
Case facts
A recently retired client says she enjoys speculative investments. Most assets must fund essential living expenses and there is no other reliable income.
Explain the conflict and an appropriate response.
Model answer and self-review rubric
High stated willingness does not create financial capacity to absorb losses. Essential spending and lack of replacement income constrain risk ability. Establish a funded spending plan and discuss a risk level consistent with that capacity.
Teaching checklist only. No official points or automated grade.
- Question 7 of 10Tax deferralMultiple choice
Case facts
Two otherwise identical investments have the same pretax return and tax rate. One pays tax annually; the other legally defers tax on gains until sale. Ignore fees, losses and changing rates.
Why can deferral improve terminal wealth?
Answer and explanations
Keeping the amount that would otherwise be paid in interim tax invested allows additional compounding.
- A: Deferral changes timing, not necessarily the obligation.
- B: The assumption explicitly fixes pretax returns.
- C - correct: Keeping the amount that would otherwise be paid in interim tax invested allows additional compounding.
- Question 8 of 10Family governanceWritten response
Case facts
Two siblings jointly own a family business. One needs regular distributions, while the other wants to reinvest all profits. No distribution policy or dispute process exists.
Recommend two governance steps linked to this conflict.
Model answer and self-review rubric
Agree a distribution and reinvestment policy that addresses business funding and owner liquidity needs. Establish a decision-making and dispute-resolution process with responsibilities and escalation rules, supported by appropriate advisers.
Teaching checklist only. No official points or automated grade.
- Question 9 of 10Spending rateMultiple choice
Case facts
A client plans a $120,000 withdrawal at the start of the year from a $3m portfolio. Ignore tax, fees and market changes.
What is the planned initial withdrawal rate?
Answer and explanations
$120,000 / $3,000,000 = 4%; this arithmetic is not a sustainability guarantee.
- A - correct: $120,000 / $3,000,000 = 4%; this arithmetic is not a sustainability guarantee.
- B: 2% would fund only $60,000.
- C: 6% would fund $180,000.
- Question 10 of 10Cross-border planningWritten response
Case facts
A family will move countries next year and holds trusts, pensions and concentrated securities in the current country. The adviser does not know the destination tax treatment.
Identify two checks required before recommending transfers or sales.
Model answer and self-review rubric
Obtain jurisdiction-specific advice on residence, tax recognition and reporting of existing structures. Review transfer restrictions, pension/trust treatment and currency/liquidity needs before trading. Do not extrapolate the old country rules.
Teaching checklist only. No official points or automated grade.
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Apply the topic to a focused case
CFA Level 3 Private Wealth tax and estate overlays
Separate income, realized capital gains and unrealized appreciation before applying a tax rate. The applicable treatment depends on the stated jurisdiction, investor and account structure. A single assumed tax rate on all return is only a simplified case condition when the question says so. Label that assumption so it is not mistaken for a real-world legal rule.
- Case facts
- An illustrative asset costs 100 and is sold for 130. The case taxes the realized gain at 20% and specifies no other taxes or costs.
- Apply the method
- Taxable gain = 130 - 100 = 30. Tax = 30 × 20% = 6. Net sale proceeds = 130 - 6.
- Interpretation
- Net proceeds are 124 under the supplied rule. Taxing the entire 130 would ignore the stated cost basis and answer a different case.
Independent teaching cases under the stated assumptions, rather than official questions or scoring keys.
Sources
The questions and explanations are independently written; the sources below do not endorse these samples.
- CFA Institute Level III format and topic outlines (new tab)
- CFA Institute specialized pathways (new tab)
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