AIF Training

Who would normally be considered a fiduciary?

1. A professional providing comprehensive and continuous advice 2. Trustee of a private trust 3. Someone with discretion to buy and sell investable assets. Note: A stock broker/registered representative is not considered a fiduciary

With respect to separately managed accounts, a primary consideration with respect to the selection of the custodian is: Select one: 1. Custodial statement transaction detail 2. Portfolio assets 3. The experience level of their key personnel 4. Geographical location

1. In today's electronic environment, the geographical location of the custodian has become almost irrelevant. The experience level of the custodian's key personnel and whether they have sufficient insurance to cover portfolio assets are important considerations regardless of the type of investment. For separately managed accounts, however, custodial statement transaction detail is a primary consideration if the fiduciary is to determine whether the managers are seeking best price and execution with respect to the trades.

What are the benefits of a CEFEX assessment?

1. It provides a "checklist" approach, which imparts a discipline and rigor to an investment decision-making process 2. It may help to educate fiduciaries of their role and responsibilities 3. It leads to the recognition and correction of shortfalls to current investment practices, which may reduce liability. Note: it is not designed as a fault-finding exercise

In the event of litigation, factors a judge will consider when making a determination of fiduciary status include all the following:

1. Number of implementation options 2. Scope of services 3. Sophistication of client

What are the Center's suggested minimum Due Diligence?

1. Regulatory oversight 2. Track record 3. Stability of the organization 4. Assets in the investment 5. Composition consistent with asset class 6. Style consistency 7. Expense ratio/fees relative to peers 8. Risk-adjusted performance relative to peers 9. Performance relative to peers.

Which of the following is true of soft dollar arrangements: Select one: 1. The fiduciary must assure that they are reasonable in relation to the value they provide to fiduciaries 2. They generally improve the quality of trade execution 3. The SEC has determined that they cannot be used in retirement plans 4. They may be used to compensate distribution efforts

1. The fiduciary must assure that soft dollar arrangements are reasonable in relation to the value they provide to fiduciaries. Soft dollars may be used for research and certain brokerage services, but not to compensate distribution efforts. Soft dollar arrangements may be used in retirement plans but are subject to regulations governing what the soft dollars can be used to purchase. These arrangements are generally detrimental with respect to achieving best execution.

Regulatory Oversight is primarily provided by State Attorney General under which pieces of legislation

1. UPIA 2. UPMIFA 3. UMPERSA Note: Taft-Hartley plans are governed by ERISA, which falls under the oversight responsibility of the DOL, IRS and PBGC.

What are the reasons to revisit service agreements at least every 3 years?

1. Vendor's product offering may have expanded 2. Fees may be reduced 3. Scope of require services may have expanded The is best practice, not an ERISA (fiduciary) requirement

All of the following items are suggested minimum Due Diligence for Investment Options EXCEPT: Select one: 1.Stability of organization 2. Asset turnover 3. Style consistency 4. Performance relative to peers

2. The Center's suggested minimum due diligence process is: 1. Regulatory oversight. 2. Track record. 3. Stability of the organization. 4. Assets in the investment. 5. Composition consistent with asset class. 6. Style consistency. 7. Expense ratio/fees relative to peers. 8. Risk-adjusted performance relative to peers. 9. Performance relative to peers.

Chasing top quartile performance is a difficult game to win because: Select one: 1. Most clients don't understand what the top quartile is 2. Consistent, long-term, top quartile performance is virtually impossible to attain 3. Mutual fund data is not readily available 4. There is no consistency to how investment performance is measured

2. The inexperienced investment decision-maker often limits his or her due diligence to a review of recent investment performance, often citing "top-quartile" (top twenty-five percent) performance as a prerequisite. Sustained success using this search and monitoring criteria is unrealistic. Historical studies have shown that such consistently high performance has only been achieved by a small number of managers.

All of the following are decisive factors to consider when analyzing the number of asset classes to include in a portfolio EXCEPT: 1. Portfolio size 2. Investment expertise of decision-makers 3. Existing brokerage platform limitations 4. Ability of decision-makers to properly monitor investments

3. All else being equal: the larger the portfolio size, the more asset classes that should be available; the greater the investment expertise of the decision makers, the more asset classes that should be available; and lastly, the greater the ability to monitor the investments, the more assets classes that should be available. Brokerage platform should not be a deciding factor on the number of asset classes because if a particular platform cannot accommodate the required asset classes, it is likely that another platform could. The fiduciary should assure the platform meets the needs of the participants, rather than fail to meet the participants' investment needs because of platform limitations

The decision of whether to implement with mutual funds or separate account managers should be based on: 1. The dollar amount invested 2. Whether there is a requirement for audited financial information 3. Ease of conducting due diligence on the database 4. All of the above

4. All of the above

As an AIF designee, you may conduct which of the following types of assessments. Select one: 1. Level 1 - Self-assessment 2. Level 2 - Consultant's assessment 3. Level 3 - CEFEX Certification 4. Both A and B

4. As an AIF designee, you may conduct both a Level 1 Self-assessment of Fiduciary Excellence (SAFE) and a Level 2 Consultant's Review of Fiduciary Practices (CRFP). Only an AIFA designee is permitted to conduct a Level 3 CEFEX Assessment of Fiduciary Excellence (CAFE).

Reports on money managers should compare them against: Select one: 1. An appropriate index 2. Their peer group 3. Investment Policy Statement objectives and guidelines 4. All of the above

4. Practice 4.1 reads, "Periodic reports compare investment performance to appropriate index, peer group, and investment policy statement objectives." The ongoing review, analysis, and monitoring of the investment managers and/or funds is just as important as the due diligence implemented during Step Three of the Quality Management System. There is considerable substantiation for the fiduciary requirement to monitor all phases of the investment management program, particularly the monitoring of investment managers and/or funds that have been retained.

The Investment Steward's responsibilities with respect to proxy voting include all of the following EXCEPT: Select one: 1. Assure that Investment Managers who have been given the authority to vote proxies have a proxy voting policy that does not conflict with the Steward's fiduciary obligations. 2. Periodically monitor the votes cast by Investment Managers on behalf of the Steward. 3. Assure that proxies are voted in the best interest of the end investors 4. Withhold proxy votes when the Steward has limited ability to research the issues involved.

4. Proxy voting is an important fiduciary obligation. The Steward should delegate their responsibility to Investment Managers or a proxy voting service rather than simply withhold votes. Even when proxy voting responsibility is delegated, the Steward must review the voting policy and periodically monitor voting records to assure they were cast in the investors' interest.

When conducting an assessment of an investment policy statement to determine conformity to the Prudent Investment Practices, the AIF or AIFA designee would normally not record a non-conformity (NCR) if the IPS fails to address: Select one: 1. Due diligence procedures for selecting investment options 2. Duties and responsibilities of all fiduciaries 3. Procedures to control and account for expenses 4. Procedures for the selection of socially responsible investments

4. The Criteria of Practice 2.6 require an investment policy statement to address - Bodies of law governing the portfolio (2.6.1) - Duties and responsibilities of all parties involved (2.6.2) - Risk, return, and time horizon parameters (2.6.3) - Diversification and rebalancing guidelines (2.6.4) - Due diligence criteria for selecting investment options (2.6.5) - Procedures for controlling and accounting for investment expenses (2.6.6) and - Monitoring criteria for investment options and service vendors (2.6.7) Practice 2.7 specifies that when socially responsible investment strategies are elected, the strategies are structured appropriately. Fiduciaries may, but are not required to, include SRI strategies in their investment approach and IPS. Practice 2.7 is one of two optional Practices, the other being Practice 3.2, which addresses voluntary safe harbors.

From a best practice standpoint, it is recommended that performance reports be prepared and reviewed at least: Select one: 1. Annually 2. Monthly 3. Weekly 4. Quarterly

4. The fiduciary requirement is the "periodic" review of the investment strategy. Our advice is to set the frequency at least quarterly, and more frequent if the investment strategy has been implemented with volatile investments. Even if an investment committee or investor has indicated a desire for meetings less frequently than quarterly, the advisor should still produce a quarterly report for internal review and filing.

All of the following are true of the policy portfolio EXCEPT: 1. It relates to asset allocation based upon efficient markets 2. It should always be reflected in the Investment Policy Statement (IPS) 3. Ideally, it is used to model a portfolio that will allow portfolio principal and returns to meet projected liabilities. 4. It is focused on Alpha

4. The policy portfolio is contrasted with the pricing portfolio. The policy portfolio establishes the asset allocation that should be reflected in all Investment Policy Statements. Ideally, a well crafter policy portfolio is effective in meeting projected liabilities. The policy portfolio does not address the possibility that managers can outperform on risk adjusted return bases; therefore, Alpha is not considered in the policy portfolio. Risk, as measured by Beta, is a focal point of the policy portfolio. Alpha is the focus of the pricing portfolio.

Calculate the equilibrium spending rate (ESR) given a model portfolio return of 9%, a 2.5% inflation rate, and a total account expenses of 1% Select one: 1. 10.5% 2. 7.5% 3. 12.5% 4. 5.5%

5.5%

An eleemosynary is: Select one: 1. A specific type of beneficiary defined in trust law 2. A charitable entity or organization 3. A risk-adverse investor 4. Another name for a contrarian

A charitable entity or organization

Define Fiduciary

A fiduciary is someone who: manages property for the benefit of another; exercises discretionary authority or control over assets; and/or acts in a professional capacity of trust and renders comprehensive and continuous investment advice. FYI - A custodian does not perform any of these roles

What is fi360's simple definition of fiduciary? Select one: 1. A person responsible for managing a 401(k) plan 2. Any investment professional 3. A person responsible for managing assets 4. A person who manages someone else's money and who stands in a special relationship of trust and legal responsibility

A person who manages someone else's money and who stands in a special relationship of trust and legal responsibility

Which of the following safe harbor provisions are unique only to the Fiduciary Adviser Safe Harbor? Select one: 1. A required annual audit of an eligible investment advice arrangement 2. The plan fiduciary must monitor the activities of prudent experts to assure they are performing the roles for which they were selected 3. Prudent experts must acknowledge their fiduciary status in writing 4. Prudent experts must be selected by a prudent due diligence processg

A required annual audit of an eligible investment advice arrangement

Consider a defined contribution plan with five investment options. With typical plan participant behavior in mind, which of the following would almost certainly be appropriate: Select one: 1. Mid-Cap equity growth separately managed account 2. Real estate fund 3. Age-based or risk-based fund 4. Stable value fund

Age-based or risk-based fund Correct

If the investment strategy is too aggressive for a particular client, in a market where investment results are poor, the client may: Select one: 1. Abandon the strategy at the worst time for the wrong reasons. 2. Replace the investment advisor/consultant 3. Pursue relief through litigation 4. All of the above

All of the above

Reports on money managers should compare them against: Select one: 1. An appropriate index 2. Their peer group 3. Investment Policy Statement objectives and guidelines 4. All of the above

All of the above

Standard deviation is: Select one: 1. An indication of the security or portfolio volatility. 2. The average of the deviations, or spread, of sample observations about their mean 3. The most widely used estimate of risk 4. All of the above

All of the above

The Global Fiduciary Precepts state investment decisions are to be made by prudent experts. "Prudent experts" would include: Select one: 1. Registered investment advisors 2. Insurance companies 3. Banks 4. All of the above

All of the above

The Prudent Practices for Investment Stewards and Investment Advisors have been designed to be applicable to: Select one: 1. Private trusts 2. Foundations and endowments 3. Retirement plans 4. All of the above

All of the above

The Seven Global Fiduciary Precepts include: Select one: 1. Control and account for investment expenses 2. Avoid conflicts of interest and prohibited transactions 3. Prepare investment policy statement 4. All of the above

All of the above

The decision of whether to implement with mutual funds or separate account managers should include consideration of: Select one: 1. The dollar amount to be invested 2. Whether there is a requirement for audited financial information 3. The ease of conducting due diligence on the database 4. All of the above

All of the above

What is the purpose of the twenty-one Practices defined for Investment Stewards and Investment Advisors? Select one: 1. To help define a process for managing investment decisions 2. To assist fiduciaries in understanding their investment duties and responsibilities 3. To assist Investment Advisors in properly evaluating investment options 4. All of the above

All of the above

What is the purpose of the twenty-two Practices defined for Investment Stewards and Investment Advisors? Select one: 1. To assist fiduciaries in understanding their investment duties and responsibilities 2. To help define a process for managing investment decisions 3. To assist Investment Advisors in properly evaluating investment options 4. All of the above

All of the above

What legislation requires investments to be managed solely in the best interests of the participants/beneficiaries? Select one: 1. MPERS 2. UPIA 3. ERISA 4. All of the above

All of the above

Which of the following are responsibilities of the fiduciary even when certain duties have been delegated to "prudent experts"? Select one: 1. Approving an appropriate asset allocation strategy 2. Monitoring the activities of the overall investment program for compliance with the investment policy 3. Avoiding conflicts of interest 4. All of the above

All of the above

Which of the following is a reason to prepare an investment policy statement: Select one: 1. Supports the paper trail 2. Provides implementation guidance in estate planning 3. Arguably fulfills the most important function a fiduciary performs 4. All of the above

All of the above

The "Safe Harbor" provisions applicable to 404(c) include which of the following: Select one: 1. Education on how to prudently diversify between options 2. The opportunity to change the strategy/allocation with a frequency that is appropriate in light of market volatility 3. At least three different investment options 4. All of the above

All of the above Correct

The decision of whether to implement with mutual funds or separate account managers should be based on: Select one: 1. The dollar amount to be invested 2. Whether there is a requirement for audited financial information 3. The ease of conducting due diligence on the database 4. All of the above

All of the above: Normally, the greater the dollar value of the portfolio the more likely separate accounts will be a better investment vehicle choice. If audited financial information is needed, mutual funds are a better choice due to their regulatory requirements. Mutual funds also allow for easier and more thorough access to their information via database software.

Which of the following is a reason to prepare an investment policy statement: Select one: 1. Supports the paper trail 2. Provides implementation guidance in estate planning 3. Arguably fulfills the most important function a fiduciary performs 4. All of the above

All of the provided answers are valid reasons for having an Investment Policy Statement. The IPS supports the paper trail and will provide documentation for the investment decisions made inside the plan. The IPS will specify the implementation guidelines for any type of client, including estate planning. The creation of the IPS is probably the most critical function the fiduciary performs. Without it, the investment strategy could not be adequately defined and consistently implemented and monitored.

The Investment policy statement should be reviewed at least: Select one: 1. Semi- Annually 2. Every three years 3. Quarterly 4. Annually

Annually

All available safe harbors: Select one: 1. Require legal approval 2. Are voluntary 3. Protect the fiduciary from liability 4. Were enacted prior to 2006

Are voluntary All safe harbors are: 1) voluntary; 2) may insulate the fiduciary from liability; and 3) require the fiduciary to demonstrate compliance with defined requirements.

Ordinarily, any restriction on an investment program has the potential to reduce the portfolio's total return and could cause a breach of investment fiduciary responsibility. However, socially responsible investing screens are specifically permitted by UPIA when: Select one: The fiduciaries are in agreement that SRI considerations are their primary responsibility The investment is supporting a worthy cause The plan has included two investments that are not screened for SRI for each SRI option A donor specifically identifies social screens in their gift

As a rule, any restriction on an investment program that is expected to reduce the portfolio's total return is likely a breach of fiduciary responsibility. The UPIA specifically permits the following exceptions: the trust documents establishing the private trust, foundation, or endowment permit the use of SRI; a donor directs the use of an SRI strategy; and/or a reasonable person would deduce from the foundation's/endowment's mission that SRI would be adopted. SRI screens that are not expected to reduce the returns of a portfolio, or are likely to improve returns, would be permissible in any type of portfolio

In order to conform to an acceptable fiduciary standard of care, portfolio rebalancing must: Select one: 1. Be performed quarterly 2. Return the portfolio to the strategic allocation any time an asset class departs from the strategic allocation by more than 5% 3. Be conducted according to a sound process that is consistently applied 4. All of the above

Be conducted according to a sound process that is consistently applied

fi360 has established recommended minimum due diligence criteria for selecting investments, which includes all of the following EXCEPT: Select one: 1. Manager tenure 2. Regulatory oversight 3. One-, three, and five-year performance 4. Beta

Beta

Breach of fiduciary responsibility is: Select one: 1. The leading cause for arbitration against brokers 2. The leading cause for civil and regulatory complaints against RIAs 3. Both A and B 4. None of the above

Both A and B

The Uniform Fiduciary Standards of Care state investment decisions are to be made by prudent experts. "Prudent experts" would include all of the following EXCEPT: Select one: 1. Insurance companies 2. Registered investment advisors 3. Brokers 4. Bankers

Brokers

From a best practice standpoint, it is recommended that performance reports be prepared and reviewed at least: Select one: 1. Weekly 2. Annually 3. Monthly 4. Quarterly

Quarterly

Periodic reviews of the QUALITATIVE information on the money managers should include all of the following EXCEPT: Select one: 1. Continuity of management 2. Investment education 3. Organizational structure 4. Comparison of investment performance to a peer group

Comparison of investment performance to a peer group

Periodic reviews of the QUALITATIVE information on the money managers should include all of the following EXCEPT: Select one: 1. Investment education 2. Continuity of management 3. Organizational structure 4. Comparison of investment performance to a peer group

Comparison of investment performance to a peer group

The investment policy statement should be specific enough that a ______ could implement the plan. Select one: 1. Broker 2. Competent third party 3. Certified Public Accountant 4. Investment professional

Competent third party

The capital markets inputs, or optimizer variables, include: Select one: 1. Correlation coefficient 2. Manager tenure 3. The Sharpe ratio 4. All of the above

Correlation coefficient

With respect to separately managed accounts, a primary consideration with respect to the selection of the custodian is: Select one: 1. The experience level of their key personnel 2. Portfolio assets 3. Geographical location 4. Custodial statement transaction detail

Custodial statement transaction detail In today's electronic environment, the geographical location of the custodian has become almost irrelevant. The experience level of the custodian's key personnel and whether they have sufficient insurance to cover portfolio assets are important considerations regardless of the type of investment. For separately managed accounts, however, custodial statement transaction detail is a primary consideration if the fiduciary is to determine whether the managers are seeking best price and execution with respect to the trades.

Which of the following would not normally be held accountable to a fiduciary standard of care? Select one: 1. An investment manager with discretion to buy and sell investable assests 2. Custodian administering the books and records of the account 3. A trustee 4. A corporate officer who has named the company pension plan's Investment Committee members

Custodian administering the books and records of the account

A trustee might NOT be acting in a fiduciary capacity if that trustee is a: Select one: 1. Directed trustee 2. Court appointed trustee 3. Trustee of an institutional trust 4. Trustee of a personal Trust

Directed trustee

The correlation coefficient measures the: Select one: 1. Formal relationship between investment advisors and money managers. 2. Probability that one-year investment returns will accurately predict returns the following year 3. Degree to which two variables are associated 4. Accuracy of the security's Beta calculation

Degree to which two variables are associated

Which of the following is permitted to receive revenue sharing payments? Select one: 1. Investment Managers who have investment discretion 2. Plan Sponsor Investment Committee members 3. Investment Advisors 4. Directed non-fiduciary trustees

Directed non-fiduciary trustees

The Accumulated Benefit Obligation (ABO) pertains to: Select one: 1. Defined contribution plans 2. Defined benefit (DB) plans 3. How ERISA is specifically contradicted by UPIA 4. A person responsible for managing a 401k plan

Defined benefit (DB) plans

For an investment policy statement to be complete it should address: Select one: 1. The current hiring policy 2. The specific money managers being utilized 3. The client's organizational structure 4. Each of the fiduciary practice standards of care

Each of the fiduciary practice standards of care

By carefully monitoring custodial reports, a fiduciary may identify all of the following problems EXCEPT: Select one: 1. Errors in performance calculations 2. Excessive reliance upon principal versus agency trade 3. Errors in the account-level fees charged 4. Direct brokerage

Errors in performance calculations

All of following are decisive factors to consider when analyzing the number of asset classes to include in a portfolio EXCEPT: Select one: 1. Portfolio size 2. Investment expertise of decision-makers 3. Ability of decision-makers to properly monitor investments 4. Existing Brokerage platform limitations

Existing Brokerage platform limitations Correct

Alpha is a measure of the difference between a portfolio's actual returns and its ___________________, given its level of risk as defined by Beta (β). Select one: 1. Expected return 2. Prior-year return 3. Peer group returns 4. Worst-case scenario

Expected return

A fiduciary or co-fiduciary cannot be held responsible for a breach of their fiduciary responsibility if they can demonstrate they were not aware of a particular duty or requirement. T or F

F - Ignorance is not a viable defense.

All investment advisors are fiduciaries by virtue of having discretion T or F

False

Practice 2.4 (Selected asset classes are consistent with the client's time horizon and risk and return objectives) does not apply to participant-directed plans. T or F

False

The fiduciary responsibility of trusts and foundations are primarily framed by Federal legislation. Select one: True False

False

Bundled fees can be properly evaluated without actually separating them into money management, brokerage, custody and consulting/administrative categories. T or F

False The fiduciary has the responsibility to control and account for investment expenses. The most effective way to do this is to identify the fee paid for each particular service. For this to occur, bundled fees need to be broken down into their component parts to be accurately evaluated.

When the fiduciary provides at least three investment options in accordance with 404(c) Safe Harbor requirements, the fiduciary has complete discretion over all investment decisions. T OR F

False This statement is partially correct. If the fiduciary seeks to take advantage of the Safe Harbor protection afforded them through 404(c), he or she must provide at least three investment options, but they should not maintain complete discretion over all investment decisions. Another 404(c) requirement is that they give discretion to the investment managers.

When the fiduciary provides at least three investment options in accordance with 404(c) Safe Harbor requirements, the fiduciary has complete discretion over all investment decisions. T or F

False This statement is partially correct. If the fiduciary seeks to take advantage of the Safe Harbor protection afforded them through 404(c), he or she must provide at least three investment options, but they should not maintain complete discretion over all investment decisions. Another 404(c) requirement is that they give discretion to the investment managers.

Expected returns are uncertain. Under the normal distribution curve, approximately 95% of the expected returns fall within one standard deviation of the mean. T or F

False Under the normal distribution curve, one standard deviation encompasses 66% of the sample and two standard deviations encompass 95% of the sample. Thus, a portfolio with an expected return of 8% and a standard deviation of 17% could be expected to have a return of less than -9% or more than 25% in approximately 3 years out of 9.

In order for a fiduciary of a participant directed DC plan to meet the Safe Harbor requirements of the 2006 Pension Protection Act (Act), they must hire a fiduciary adviser with at least 10-years investment experience. T or F

False With respect to selecting a fiduciary adviser to provide investment advice to plan participants, the following Safe Harbor requirements pertain: 1. The plan sponsor must prudently select the fiduciary adviser. 2. The fiduciary adviser must acknowledge fiduciary status in writing. 3. The plan sponsor must determine that the fees of the fiduciary adviser are fair and reasonable for the level of services rendered. 4. The plan sponsor must prudently monitor the fiduciary adviser on an ongoing basis.

An investment advisor must take discretion of the investment assets in order to provide comprehensive and continuous investment advice. T or F

False - An investment advisor need not take discretion in order to provide comprehensive and continuous investment advice.

Expected returns are uncertain. Under the normal distribution curve, approximately 95% of the expected returns fall within one standard deviation of the mean. T or F.

False - Under the normal distribution curve, one standard deviation encompasses 66% of the sample and two standard deviations encompass 95% of the sample. Thus , a portfolio with an expected return of 8% and standard deviation of 17% could be expected to have a return of less than -9% or more than 25% in approximately 3 years out of 9.

Quarterly reports should compare the performance of money managers against all of the following EXCEPT: Select one: 1. Peer group 2. Appropriate index 3. Negatively correlated asset classes 4. IPS objectives

Negatively correlated asset classes

What agency reviewed the handbook for Investment Advisors?

Fiduciary Task Force of the AICPA's Personal Financial Planning Executive Committee. The Executive Committee has reviewed the work of the Task Force and approves their conclusions. Even with this level of review, this handbook is not authoritative literature for AICPA members or CPAs in practice. The AICPA's participation is solely in the capacity of technical editor.

During an investment committee meeting as part of the monitoring process, the most significant responsibility of the committee is to: Select one: 1. Review custodial statements 2. Verify performance reports 3. Ensure that the record keeper is paid 4. Formulate and address the call to action

Formulate and address the call to action

Most fiduciary shortfalls occur in Step ___ of the Fiduciary Quality Management System. Select one: 1. Four 2. Three 3. Two 4. One

Four

Another name for "exculpatory clauses" is: Select one: 1. Common trust clauses 2. Reduced liability clauses 3. Hold harmless clauses 4. Good Samaritan clauses

Hold harmless clauses

In the event of litigation, factors the judge will consider when making a determination of fiduciary status include all of the following EXCEPT: Select one: 1. Number of Implementation choices offered for selection 2. Sophistication of the client 3. Scope and duration of services 4. Investment Performance

Investment Performance

Assets are required to be within the jurisdiction of appropriate courts because: Select one: 1. It reduces the time spent during the discovery phase of litigation 2. Funds expended by regulatory agencies for travel have exceeded legal limits 3. It allows an investment fiduciary or a regulatory agency the opportunity to recover assets if the are lost due to illegal or improper conduct by a financial service provider 4. It reduces the time required to conduct investigations

It allows an investment fiduciary or a regulatory agency the opportunity to recover assets if the are lost due to illegal or improper conduct by a financial service provider

All of the following are benefits of a CEFEX assessment EXCEPT: Select one: 1. It may help educate fiduciaries of their roles and responsibilities 2. It helps to identify non-performers at the company 3. It provides a "checklist" approach, which imparts a discipline and rigor to an investment decision-making process 4. It leads to the recognition and correction of shortfalls to current investment practices, which may reduce liability

It helps to identify non-performers at the company A CEFEX assessment provides the process for examining and evaluating a fiduciary's decision-making process. There are many benefits to doing this, including: identification of shortfalls (often times the easiest things to overlook) that, when corrected, may reduce liability; trustee education may be improved; and it certainly brings the investment committee together as they have to discuss and address the findings. It is not designed as a fault-finding exercise, because that would increase the likelihood that already reluctant fiduciaries would never have it done.

When setting the upper and lower limits that would trigger a rebalancing decision, consideration should be given to: Select one: 1. How often periodic client/advisor meetings are held 2. What is the current interest rate 3. Whether the client is a foundation/endowment or a high net worth individual 4. Keeping the client aligned with their risk/return profile

Keeping the client aligned with their risk/return profile

Which of the following is NOT true of socially responsible investing (SRI)? Select one: 1. Should be aligned with the central purpose of the investment program 2. May not be used in trustee-directed accounts 3. May violate the ERISA Exclusive Benefit rule if it is detrimental to expected performance 4. Must be addressed that SRI criteria is a stated objective of the portfolio

May not be used in trustee-directed accounts

The following might be considered an insurance policy for trustees: Select one: 1. Meeting the "Safe Harbor" requirements outlined in ERISA 2. Transferring fiduciary responsibility to the money manager 3. Informed agreements with federal officials 4. All of the above

Meeting the "Safe Harbor" requirements outlined in ERISA

Which of the following is NOT a permissible default alternative under the QDIA "safe harbor"? Select one: 1. Age-based or risk-based managed account 2. Balanced Fund 3. Money market account 4. Life cycle or Target date fund

Money market account

Step Four of the Investment Management Process is to: Select one: 1. Analyze 2. Diversify 3. Monitor 4. Implement

Monitor

The most beneficial relationship between two asset classes, with respect to maximizing the benefits of diversification, is one where the asset classes are _____________________. Select one: 1. Not correlated 2. Negatively correlated 3. Risk-adjusted opposites 4. Positively correlated Incorrect

Negatively correlated

Periodic reviews should also include qualitative and/or organizational changes to the money manager. Factors to consider would NOT include: Select one: 1. New capital construction projects 2. Report quality 3. Staff turnover 4. Quality of responses to requests for information

New capital construction projects

Which of the following would not be considered an appropriate Watch list criterion that may lead to termination? Select one: 1. There is an indication of a change in the style or strategy 2. A manager's 3-year risk-adjusted return (Alpha and/or Sharpe Ratio) falls below the manager's peer group median 3. There is a change in the portfolio manager 4. None of the above

None of the above

The correct order of the Fiduciary Quality management System is: Select one: 1. Analyze, Implement, Diversify, Formalize 2. Organize, Formalize, Implement, Monitor 3. Formalize, Analyze, Implement, Monitor 4. Organize, Implement, Diversify, Monitor

Organize, Formalize, Implement, Monitor

The QDIA Safe Harbor provisions are voluntary and apply to: Select one: 1. Defined benefit plans 2. Participant-directed 401(k) plans 3. IRA rollovers 4. None of the above

Participant-directed 401(k) plans

All of the following are true of the ERISA §405(c) Safe Harbor EXCEPT: Select one: 1. A due diligence process is followed when selecting "prudent experts" 2. Investment decisions are delegated to "prudent experts" 3. "Prudent experts" have discretion over assets 4. Participants are provided information and education on different investment options

Participants are provided information and education on different investment options

Factors to consider when screening the mutual fund universe for funds to include in a retirement plan investment menu might reasonably include all of the following EXCEPT: Select one: 1. Fund Size 2. Load versus no-load 3. Funds Objective 4. Past performance over the last twenty years

Past performance over the last twenty years

One of the Uniform Fiduciary Standards of Care is to control and account for investment expenses. Investment expenses would NOT include: Select one: 1. Custodial charges 2. Payroll costs 3. Consulting fees 4. Money manager fees and annual mutual funds expenses

Payroll costs

Which of the following is NOT one of the seven Global Fiduciary Precepts? Select one: 1. Prepare investment policy statement 2. Prepare quarterly performance reports 3. Know standards, laws and trust provisions 4. Diversify assets to specific risk/return profile of client

Prepare quarterly performance reports

Rebalancing is intended to serve all of the following purposes EXCEPT: Select one: 1. Reduce exposure to market "bubbles" 2. Buy low and sell high in volatile markets 3. Maintain the risk/return portfolio specified in the IPS 4. Produce alpha

Produce alpha

The key factor to consider in determining the time horizon of a portfolio is: Select one: 1. Correlation 2. Projected cash flows 3. Expected return 4. Risk tolerance

Projected cash flows

All of the following are provisions of the core (or general) "safe harbor" that applies to ERISA retirement plans EXCEPT: Select one: 1. Prudent experts must acknowledge their fiduciary status in writing 2. The plan fiduciary must monitor the activities of prudent experts to assure they are performing the roles for which they were selected 3. Prudent experts must be selected by a prudent due diligence process 4. Prudent experts must not be given discretion over the management of the investments

Prudent experts must not be given discretion over the management of the investments

All of the following are provisions of the core (or general) "safe harbor" that applies to ERISA retirement plans EXCEPT: Select one: 1. Prudent experts must be selected by a prudent due diligence process 2. Prudent experts must acknowledge their fiduciary status in writing 3. The plan fiduciary must monitor the activities of prudent experts to assure they are performing the roles for which they were selected 4. Prudent experts must not be given discretion over the management of the investments

Prudent experts must not be given discretion over the management of the investments

All of the following are Principles of Assessment EXCEPT: Select one: 1. Quality Management System 2. Independence 3. Evidence-based Approach 4. Due Professional Care

Quality Management System The five Principles of Assessment are: - Ethical Conduct - Fair Presentation - Due Professional Care - Independence - Evidence-based Approach. The Prudent Practices are organized as a four step Quality Management System, which is not related to the five Principles of Assessment.

All of the following would normally be considered a fiduciary EXCEPT: Select one: 1. Registered Representatives 2. Trustees of a private trust 3. Someone with discretion to buy and sell investable assets 4. A professional providing comprehensive and continuous advice

Registered Representatives

The best way to rebalance a particular asset class is to:

Resampled efficiency optimization takes into account uncertainty regarding the accuracy of the input values to the optimizer: asset class expected returns, risks, and correlations. As a result, the resampled efficiency approach results in more conservative expected returns for the portfolio as evidenced by a lower efficient frontier line.

Which of the following does not automatically entail the assumption of fiduciary responsibility? Select one: 1. Provision of comprehensive and continuous investment advice 2. Exercise of discretionary trading authority 3. Serving as a third-party administrator for an ERISA plan 4. Delivery of ongoing comprehensive financial planning for direct or indirect compensation

Serving as a third-party administrator for an ERISA plan

Which of the following does not automatically entail the assumption of fiduciary responsibility? Select one: 1. Delivery of ongoing comprehensive financial planning for direct or indirect compensation 2. Exercise of discretionary trading authority 3. Provision of comprehensive and continuous investment advice 4. Serving as a third-party administrator for an ERISA plan

Serving as a third-party administrator for an ERISA plan Correct

An active approach to investing: Select one: 1. Should be based upon the conviction that any additional cost can reasonably be expected to be exceeded by higher returns 2. Is generally considered a breach of fiduciary prudence 3. Assumes markets are efficient and cost minimization is a crucial concern 4. Is recommended to help assure prudent expert responsibilities are met

Should be based upon the conviction that any additional cost can reasonably be expected to be exceeded by higher returns

All of the following are benefits of using the Practices EXCEPT: Select one: 1. May reduce fiduciary liability by uncovering risks and omissions 2. Should improve long-term performance 3. Enable fiduciaries to compare practices and procedures 4. Should eliminate the need for E&O on D&O insurances coverage

Should eliminate the need for E&O on D&O insurances coverage

All of the following are benefits of a Certification of Fiduciary Excellence EXCEPT: Select one: 1. Signifies endorsement by the International Organization of Standardization 2. Provides independent verification of conformity to all Practices and Criteria 3. Demonstrates effective management of fiduciary risks 4. Offers potential for national and worldwide recognition

Signifies endorsement by the International Organization of Standardization

The investment policy statement is needed for all of the following reasons EXCEPT: Select one: 1. Reassures donors of investment stewardship 2. Keeps the investment process intact during periods of market upheaval 3. Simplifies reconciliation of the custodial statements with the money manager reports 4. Supports the "paper trail"

Simplifies reconciliation of the custodial statements with the money manager reports

A due diligence philosophy for selecting investment options should incorporate all of the following EXCEPT: Select one: 1. The same process for mutual funds and separate account managers 2. Screens that have dual application for search and monitoring 3. A simple process that can be replicated in the field 4. Special consideration for mutual funds or separate account managers that have close ties to the federal government

Special consideration for mutual funds or separate account managers that have close ties to the federal government

All of the following are variables included in the Capital Asset Pricing Model EXCEPT: Select one: 1. An error term 2. Standard deviation 3. Risk-free return 4. Beta

Standard deviation

The most widely used estimate of absolute risk is?

Standard deviation - Alpha and the Sharpe Ratio are measures of risk-adjusted return. Beta is a measure of market risk. Standard deviation is the most widely accepted measure of absolute risk.

The applicable legislation for foundations and endowments is the Uniform Prudent Management of Institutional Funds Act (UPMIFA), and regulatory oversight is provided by the: Select one: 1. Pension Benefit Guarantee Company 2. Department of Labor 3. State Attorney General 4. Internal Revenue Service

State Attorney General

Safe Harbor" provisions, applicable to committee- and/or advisor-directed investment processes, include all of the following EXCEPT: Select one: 1. Terminate "prudent experts" that fail ongoing due diligence 2. Monitor the activities of the "prudent experts" 3. Use "prudent experts" 4. Follow a due diligence process when selecting "prudent experts"

Terminate "prudent experts" that fail ongoing due diligence

is the standards setting body for the fi360?

The Center for Fiduciary Studies. The Center develops and maintains the Prudent Practices defined in the handbook and awards the Accredited Investment Fiduciary (AIF) and Accredited Investment Fiduciary Analyst (AIFA)

When fiduciary status is in doubt, which of the following situations is likely to deem the individual a fiduciary? Select one: 1. The advisor has provided multiple investment options for the client. 2. The client is a sophisticated investor 3. The advisor is working on a full retainer for the client 4. None of the above

The advisor is working on a full retainer for the client

The capital markets inputs, or optimizer variables, include: Select one: 1. The Sharpe ratio 2. Manager tenure 3. Alpha 4. Correlation coefficient

The capital markets inputs, or optimizer variables, include expected return, standard deviation, and correlation coefficient.

The investment policy statement should specify all of the following EXCEPT: Select one: 1. The comprehensive list of stocks and other securities from which the portfolio should be selected 2. Due diligence criteria for selecting investment options 3. Duties and responsibilities of all parties involved, including the investment committee, investment consultant, and custodian 4. Due diligence criteria for monitoring the investment options

The comprehensive list of stocks and other securities from which the portfolio should be selected

To an investment fiduciary, a soft dollar is defined as: Select one: 1. One that's been in your wallet the longest 2. Corporate money contributed to political campaigns 3. The fluctuating value of the dollar as defined by foreign exchange rates 4. The excess commissions generated from trading an account

The excess commissions generated from trading an account

The seventh Global Fiduciary Precept requires the fiduciary to avoid prohibited transactions and conflicts of interest. An example of a prohibited transaction is: Select one: 1. Using retirement plan assets to purchase Real Estate Investment Trusts (REITs) 2. The fiduciary's consultant running a "pay-to-play" scheme 3. Investing in a speculative stock 4. Investing in art

The fiduciary's consultant running a "pay-to-play" scheme

What are the consequences to an investment option that fails to meet watch list criteria?

The fund shall be reviewed by the investment committee.

The investment policy statement should be specific enough that a ________ could implement the plan.

The investment policy statement should be specific enough that a competent third party could implement the plan. In the event the investment advisor is unable to perform his or her duties, the IPS must be used to replicate the process the investment manager was following. An investment professional, CPA, or Broker implies that a level of professional expertise is required, which is not the case.

The 1/n phenomenon refers to: Select one: 1. The likelihood that a significant number of defined contribution plan participants will equally allocate their investment assets equally among investment options given to them. 2. The premise that the Practices only apply to certain client types 3. The observation that bull market returns are often inversely proportional to the previous bear market returns 4. An inherent error in most standard deviation calculations

The likelihood that a significant number of defined contribution plan participants will equally allocate their investment assets equally among investment options given to them.

The Uniform Prudent Management of Institutional Funds Act creates a presumption of imprudence if: Select one: 1. The planned annual spending rate is greater than 7% 2. Any fiduciary is a direct trustee 3. Less than 5% is distributed annually 4. The Fiduciary Adviser is affiliated with the platform provider

The planned annual spending rate is greater than 7%

The Uniform Prudent Management of Institutional Funds Act creates a presumption of imprudence if: Select one: 1. The planned annual spending rate is greater than 7% 2. The Fiduciary Adviser is affiliated with the platform provider 3. Less than 5% is distributed annually 4. Any fiduciary is a direct trustee

The planned annual spending rate is greater than 7%

Periodic performance reports should compare the performance of money managers against all of the following EXCEPT: Select one: 1. Performance objectives established in the investment policy statement 2.. The previous manager 3. Peer groups 4. Indices

The previous manager

The "policy portfolio" is: Select one: 1. Closely associated with alpha 2. Found in the northwest quadrant of the efficient frontier 3. Less important than the "pricing portfolio" from a fiduciary perspective 4. The strategic asset allocation generally reflected in a sound IPS

The strategic asset allocation generally reflected in a sound IPS Correct

What is the most important decision in the Hierarchy of Decisions?

The time horizon of the investment strategy has to be determined first, making it the most important decision of the asset allocation decision-making process.

The most important decision in the Hierarchy of Decisions is:

The time horizon of the investment strategy has to be determined first, making it the most important decision of the asset allocation decision-making process. All other decisions within the Hierarchy of Decisions flow from this first one. Until you know how long you have to invest the assets, you cannot decide the appropriate level of risk/return, which asset classes are appropriate, what will be the mix among them, which sub-asset classes will be considered, and which managers/funds/ETFs will be used for implementation.

Which of the following is NOT true of "soft dollar" arrangements? Select one: 1. They may be properly applied to the purchase of research that directly supports the investment program 2. They represent the excess in commission costs incurred to pay for certain services 3. They must be authorized by the client 4. They may be properly applied to purchase computer equipment used in trade processing

They may be properly applied to purchase computer equipment used in trade processing Correct

All of the following are reasons to revisit service agreements at least every 3 years EXCEPT: Select one: 1. Scope of required services may have expanded 2. Fees may be reduced 3. Vendor's product offering may have expanded 4. This is an ERISA requirement

This is an ERISA requirement

Fiduciary responsibility requires one to avoid investments that are imprudent. Investments that are inherently imprudent include: Select one: 1. Collectibles 2. Those that are in conflict with the IPS 3. Commodities 4. All of the above

Those that are in conflict with the IPS

What is the purpose of a fiduciary assessment? Select one: 1. To prepare an organization for a DOL investigation. 2. To ensure that all applicable fiduciary responsibilities are being addressed on an ongoing basis. 3. To determine reasonable fees that can be charged for services. 4. To determine the scope of fiduciary liability for individuals.

To ensure that all applicable fiduciary responsibilities are being addressed on an ongoing basis. Correct

An advisor offering a retail version of an institutional separately managed account (e.g., a wrap account) should assure that the retail portfolios offered are comparable to the non-retail version. All of the following characteristics should be roughly equivalent for the retail and institutional accounts, EXCEPT: Select one: 1. Best execution policies 2. The team responsible for management of the portfolios 3. Total fees and expenses charged 4. Gross performance results

Total fees and expenses charged

The term "Investment Steward" is inclusive of the more than five million people who have the responsibility for managing someone else's money, including investment committees of retirement plans, foundations, and endowments; and trustees of private trusts. T or F

True

The monitoring phase is the most labor intensive and time consuming activity in the fiduciary quality management process. T or F

True For most fiduciaries, the monitoring phase is the most labor intensive and time-consuming activity of the investment process.

Legislation underlying the Practices indicates that U.S. Courts should have access to investment assets in the event there are egregious violations of fiduciary responsibility. T or F

True Practice 1.6 reads, "Client assets are protected from theft and embezzlement." Because all of the Practices are substantiated by legislation, you can infer that the statement is correct.

Generally, custodial statements provide sufficient information to determine whether an investment manager is seeking best execution when buying or selling securities, or if they may be engaged in directed brokerage. T or F

True The fiduciary has a responsibility to control and account for investment expenses and assure they are prudent and are applied in the best interests of the end investor. When separate account managers are used, the custodial statement provides one of the best tools for fiduciaries to assure that best execution practices are followed in securities transactions. If the custodial statement shows that a manager is executing all trades through only one or two broker-dealers, this suggests a directed brokerage arrangement is involved. The fiduciary must be satisfied that such an arrangement serves the best interest of the investors.

The law does NOT require fiduciaries to hire prudent experts to help manage the investment management process. T or F

True The fiduciary is required to act prudently in implementing the investment strategy and will be held to a "prudent expert" standard. However, the law does not mandate the use of professional money managers and to do otherwise would be foolhardy. The primary role of the fiduciary is to manage the investment process, rather than to make individual stock and bond picks. Fiduciaries are generally more effective and efficient when they are managing the managers.

Legislation underlying the Practices indicates that U.S. Courts should have access to investment assets in the event there are egregious violations of fiduciary responsibility. T or F

True - Practice 1.6 reads, "Clients assets are protected from theft and embezzlement." Because all of the Practices are substantiated by legislation, you can infer that the statement is correct.

The best way to rebalance a particular asset class is to: Select one: 1. Ignore tax implications, as over time they are insignificant 2. Time the transfer of assets to coincide with a recent downturn in the market 3. Scheduling a meeting of the investment committee 4. Utilize a known, upcoming disbursement or contribution

Utilize a known, upcoming disbursement or contribution

All of the following are qualitative and /or organizational characteristics of the money manager that should be included in periodic due diligence reviews EXCEPT: Select one: 1. Well-recognized organizations on the client list 2. Low staff turnover 3. Comprehensive disclosures of fees, affiliations, and potential conflicts 4. Well-developed investor support processes, such as client help desks and educational tools

Well-recognized organizations on the client list

The first and most important decision in the hierarchy of decisions related to asset allocation is: Select one: 1. What will be the mix among asset classes? 2. What is the time horizon of the investment strategy? 3. What sub-asset classes will be considered? 4. Which manager or fund will be selected?

What is the time horizon of the investment strategy?

Ordinarily a due diligence restriction placed upon an investment program that is likely to systematically reduce the total return of the portfolio would be a breach of fiduciary responsibility. However, with respect to SRI there are several exceptions. Which of the following is a permissible exception? Select one: 1. When the IPS specifies that SRI is to be the primary selection criterion 2. When the donor specifically identifies social screens in their gift 3. When the investment is supporting a very worthy cause 4. All of the above

When the donor specifically identifies social screens in their gift

Beta

is a focal point of the policy portfolio

Alpha

is the focus of the pricing portfolio

A due diligence philosophy for selecting investment options should incorporate all of the following EXCEPT: Select one: 1. Screens that have dual application for search and monitoring 2. Special consideration for mutual funds or separate account managers that have strong marketing departments 3. A simple process that can be replicated in the field 4. The same process for mutual funds and separate account managers

search.

Definition of Investment Advisors

those who provide personalized investment advice or exercise investment discretion - including financial advisors, broker - consultants, investment consultants, wealth managers, financial consultants, trust officers, financial planners and all other fiduciary advisors.