CIC Investment Policy & Planning 5

Question 1

Which of the following scenarios would trigger a mandatory review and potential revision of an existing IPS?

Accepted Answer

The client inherits a significant estate, substantially increasing net worth

Answer

A material change in the client's financial circumstances, such as a large inheritance, fundamentally alters risk capacity and objectives, requiring IPS revision.

Question 2

The 'investment philosophy' section of an IPS most likely describes:

Accepted Answer

The manager's beliefs about market efficiency and how alpha is generated

Answer

The investment philosophy articulates beliefs about market behavior and the approach the manager will use to construct and manage the portfolio.

Question 3

For a client with both taxable and tax-advantaged accounts, the IPS concept of 'asset location' refers to:

Accepted Answer

Placing asset classes in the account type where their tax treatment is most favorable

Answer

Asset location is the strategy of holding tax-inefficient assets (e.g., bonds, REITs) in tax-deferred accounts and tax-efficient assets (e.g., index funds) in taxable accounts.

Question 4

A client's IPS specifies a nominal return objective of 7% but inflation averages 3%. What is the real return objective?

Accepted Answer

3.88%

Answer

Real return = (1 + nominal) / (1 + inflation) - 1 = (1.07 / 1.03) - 1 ≈ 3.88%.

Question 5

Which of the following IPS elements is unique to endowments and foundations compared to individual investor policies?

Accepted Answer

A perpetual time horizon with an intergenerational equity mandate

Answer

Endowments and foundations operate in perpetuity, balancing current spending needs with preserving real purchasing power for future generations—a concept absent in finite individual portfolios.

(CIC) Certified Investment Counselor Practice Test

(CIC) Certified Investment Counselor Practice Test

CIC Investment Policy & Planning 5