CIC Investment Policy & Planning 2

Question 1

An IPS typically specifies a 'rebalancing trigger' which activates when:

Accepted Answer

An asset class drifts outside its target allocation band

Answer

Rebalancing triggers are defined as percentage bands around target allocations; once breached, rebalancing is required.

Question 2

Which client circumstance would most likely lead to a LOWER risk tolerance in an IPS?

Accepted Answer

Imminent large liquidity need within 12 months

Answer

An upcoming large liquidity need forces conservative positioning to ensure capital is available when required.

Question 3

A 'benchmark' specified in an IPS serves primarily to:

Accepted Answer

Provide a standard against which portfolio performance is measured

Answer

Benchmarks are performance measurement standards that allow objective evaluation of manager results relative to a stated objective.

Question 4

When establishing an IPS for a defined benefit pension plan, the primary liability-driven objective is to:

Accepted Answer

Match or exceed the growth of plan liabilities to fund future benefit payments

Answer

Defined benefit plans are liability-driven; the portfolio must generate sufficient assets to meet future benefit obligations.

Question 5

Which of the following is an example of a LEGAL constraint that would be documented in an IPS?

Accepted Answer

ERISA fiduciary requirements for a corporate pension plan

Answer

ERISA (Employee Retirement Income Security Act) imposes legally binding fiduciary duties on pension plan managers that must be reflected in the IPS.

(CIC) Certified Investment Counselor Practice Test