Chapter 23 Exam Questions With Verified
Answers
A client holds a passively managed ETF wrap account. Due to market declines, the account has
diverged from the set asset allocation. The manager anticipates market increases in the oil and
gas sector in the next three months. What action will be t...
A client holds a passively managed ETF wrap account. Due to market declines, the account has
diverged from the set asset allocation. The manager anticipates market increases in the oil and
gas sector in the next three months. What action will be taken in the wrap account?
A. None.
B. Rebalancing to the original asset allocation.
C. Actively overweighting in the oil and gas sector.
D. Increasing cash to take advantage of upcoming investment opportunities. - answer✔b)With
the passive approach to an ETF wrap account, a client's risk tolerance is derived, and the
portfolio manager sets the optimal asset allocation, establishing the portfolio with ongoing
rebalancing back to the set asset mix. It is only with the active approach that the portfolio
manager can apply a short-term tactical approach by actively overweighting or underweighting a
sector and altering the client's asset allocation in the short term to take advantage of market
conditions.
In a mutual fund wrap, who directs the composition and weighting of individual funds within the
account?
A. Client.
B. Sub-advisor.
C. Overlay manager.
D. Investment advisor. - answer✔c)In a mutual fund wrap, the composition and weighting of
individual funds within the account are directed by the overlay manager while the investment
management of the underlying funds is conducted by the sub-Advisors. The overlay manager
will take an active role by rebalancing the client's holdings back to their target asset mix or by
adding and removing funds to the quality of the investment management.
What is the primary disadvantage of single-manager program managed accounts?
A. Increased trading costs.
B. Lack of regulatory oversight.
C. Minimal range of available securities.
D. Lack of independent professional approach to evaluating portfolio performance. -
answer✔d)The primary disadvantage with single manager programs is that there is no
independent professional approach to evaluating the ongoing performance and risk of the
respective portfolios. This is as opposed to, for example, ETF wraps and multi-manager
programs which have an additional layer of oversight.
Select a key advantage of a separately managed account.
A. Uniform investment policy for all clients.
B. Ability to time tax-loss selling.
C. Low minimum account size.
D. A single manager responsible for the entire account and investment policy. - answer✔d)A
separately managed account (SMA) is a multi-manager arrangement for individuals with
accounts above the $150,000 to $500,000 level. Each individual account may have its own
specific investment policy, which allows for individualized transaction decisions, including the
ability to time dispositions to take advantage of tax-loss opportunities.
An individual with a net worth of $75 million wishes to minimize her travel time and time spent
coordinating the activities of the various individuals who work with her financial affairs.
Recommend a type of managed account arrangement.
A. Private family office.
B. Unified managed household.
C. Multi disciplinary account.
D. Separately managed account. - answer✔a)A family office is an extension of the client
servicing approach of advisors. In this approach, instead of one advisor there is a team of
professionals within one central location that handles all of an affluent client's financial affairs;
including: investments, trust and estates, philanthropy, corporate planning, tax planning and
filing, legal work, account servicing including bill paying, etc.
Select the type of managed account that would provide a client with access to elite portfolio
managers overseen by another expert portfolio manager of record responsible for monitoring
performance and setting investment mix.
A. Manager of managers.
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