AIF Training UPDATED Actual Exam
Questions and CORRECT Answers
In the event of litigation, factors a judge will consider when making a determination of
fiduciary status include all the following: - CORRECT ANSWER✔✔- 1. Number of
implementation options
2. Scope of services
3. Sophistication of client
Define Fiduciary - CORRECT ANSWER✔✔- 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 are the reasons to revisit service agreements at least every 3 years? - CORRECT
ANSWER✔✔- 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
What are the benefits of a CEFEX assessment? - CORRECT ANSWER✔✔- 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
An investment advisor must take discretion of the investment assets in order to provide
comprehensive and continuous investment advice. T or F - CORRECT ANSWER✔✔- False
- An investment advisor need not take discretion in order to provide comprehensive and
continuous investment advice.
,Who would normally be considered a fiduciary? - CORRECT ANSWER✔✔- 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
Regulatory Oversight is primarily provided by State Attorney General under which pieces of
legislation - CORRECT ANSWER✔✔- 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.
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
- CORRECT ANSWER✔✔- 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.
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 - CORRECT ANSWER✔✔- F - Ignorance is not a viable defense.
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. - CORRECT
ANSWER✔✔- 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.
The most widely used estimate of absolute risk is? - CORRECT ANSWER✔✔- 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.
,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 - CORRECT ANSWER✔✔- 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.
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 - CORRECT ANSWER✔✔-
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 investment policy statement should be specific enough that a ________ could implement
the plan. - CORRECT ANSWER✔✔- 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 best way to rebalance a particular asset class is to: - CORRECT ANSWER✔✔-
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 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 - CORRECT ANSWER✔✔- 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.
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 - CORRECT
ANSWER✔✔- False
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 - CORRECT ANSWER✔✔- 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
Questions and CORRECT Answers
In the event of litigation, factors a judge will consider when making a determination of
fiduciary status include all the following: - CORRECT ANSWER✔✔- 1. Number of
implementation options
2. Scope of services
3. Sophistication of client
Define Fiduciary - CORRECT ANSWER✔✔- 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 are the reasons to revisit service agreements at least every 3 years? - CORRECT
ANSWER✔✔- 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
What are the benefits of a CEFEX assessment? - CORRECT ANSWER✔✔- 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
An investment advisor must take discretion of the investment assets in order to provide
comprehensive and continuous investment advice. T or F - CORRECT ANSWER✔✔- False
- An investment advisor need not take discretion in order to provide comprehensive and
continuous investment advice.
,Who would normally be considered a fiduciary? - CORRECT ANSWER✔✔- 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
Regulatory Oversight is primarily provided by State Attorney General under which pieces of
legislation - CORRECT ANSWER✔✔- 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.
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
- CORRECT ANSWER✔✔- 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.
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 - CORRECT ANSWER✔✔- F - Ignorance is not a viable defense.
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. - CORRECT
ANSWER✔✔- 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.
The most widely used estimate of absolute risk is? - CORRECT ANSWER✔✔- 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.
,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 - CORRECT ANSWER✔✔- 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.
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 - CORRECT ANSWER✔✔-
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 investment policy statement should be specific enough that a ________ could implement
the plan. - CORRECT ANSWER✔✔- 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 best way to rebalance a particular asset class is to: - CORRECT ANSWER✔✔-
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 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 - CORRECT ANSWER✔✔- 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.
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 - CORRECT
ANSWER✔✔- False
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 - CORRECT ANSWER✔✔- 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
