Asset Management Process Flashcards
7 cards from real AAMS practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Asset Management Process flashcards as text
Which asset management concept refers to setting a long-term target mix of asset classes aligned with a client's risk/return profile?
Answer: Strategic asset allocation
Strategic asset allocation establishes the long-term target weights for each asset class based on the client's risk tolerance and goals.
An advisor identifies that a client's marginal tax rate is 37%. How should this most likely influence the asset management process?
Answer: Favor tax-efficient investments such as municipal bonds or tax-managed funds
High tax rates make tax-efficient vehicles like municipal bonds attractive because their after-tax returns are more favorable.
In managing a portfolio, the difference between the portfolio return and the benchmark return is called:
Answer: Active return (alpha)
Active return, or alpha, measures the excess return generated by the portfolio relative to its benchmark.
Which of the following constraints in the IPS would most directly restrict a portfolio manager from investing in foreign equities?
Answer: Legal and regulatory constraint
Legal and regulatory constraints may prohibit certain investments such as foreign securities, especially for institutional investors.
A client tells her manager, 'I cannot afford to lose more than 10% of my portfolio in any single year.' This statement most directly relates to:
Answer: Risk tolerance / downside constraint
The client is expressing a maximum acceptable loss, which defines a downside constraint within the risk tolerance framework.
Which of the following is an example of a unique circumstance that might be documented in an IPS?
Answer: A client's restriction on investing in tobacco companies
Unique circumstances like ESG restrictions or socially responsible investing (SRI) preferences are documented in the IPS as special constraints.
After implementing a portfolio, the advisor schedules annual reviews and monitors for major life events. This reflects which principle of the asset management process?
Answer: Continuous and iterative process
The asset management process is iterative, requiring ongoing monitoring and adjustment as client circumstances and markets evolve.