FINRA Series 6

Answer: B - Asset allocation involves determining the percentages that your client should be investing in various types of investments (e.g., stocks, bonds) based on his investment objectives. You should not necessarily select investments that are expected to offer the highest return for a risk-averse client because higher returns entail more risk exposure. Nor should you necessarily select investments that will expose your client to the least amount of risk. These may not offer the client the return he needs to achieve his investment goals. Asset allocation refers only to determining the types of investments, not the specific investments within each category. Specific investment selection is the next step after the asset allocation decision is made.