Ethics & Investment Consulting Process Flashcards
7 cards from real CIMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Ethics & Investment Consulting Process flashcards as text
A client's IPS states a 7% nominal return objective and a 60/40 equity/fixed income allocation. After five years, equities have grown to 75% of the portfolio. The consultant should:
Answer: Rebalance the portfolio back toward the target 60/40 allocation
Rebalancing restores the portfolio to the client's IPS-mandated risk profile, which is a core responsibility of the consulting process.
Under the CIMA code of ethics, 'objectivity' requires that a consultant:
Answer: Provide recommendations free from personal bias and conflicts of interest
Objectivity means providing advice based on factual analysis and professional judgment without personal bias or undisclosed conflicts.
Which of the following best describes the purpose of an Investment Policy Statement's 'constraints' section?
Answer: To document client-specific limitations such as liquidity needs, time horizon, taxes, and legal restrictions
The constraints section captures TTLLU factors—time horizon, taxes, liquidity, legal, and unique needs—that restrict investment choices.
A pension fund consultant recommends an asset allocation that maximizes expected return without regard to the fund's liability structure. This approach most likely violates:
Answer: The liability-relative investing principle and duty of care
Institutional consultants must align asset allocation with liability structure; ignoring liabilities violates the duty of care owed to beneficiaries.
In the manager selection process, a 'style box' analysis primarily helps consultants evaluate:
Answer: Whether a manager's investment style aligns with the portfolio's objectives
Style box analysis categorizes managers by market cap and value/growth orientation to ensure style fit with portfolio goals.
Soft-dollar arrangements raise ethical concerns primarily because they may:
Answer: Create conflicts of interest by directing client brokerage to pay for services that benefit the manager
Soft dollars can benefit managers at clients' expense by using client brokerage commissions to pay for goods and services that favor the manager.
When comparing manager performance, a CIMA professional should PRIMARILY use:
Answer: Risk-adjusted returns relative to an appropriate peer group and benchmark
Risk-adjusted returns measured against a relevant benchmark and peer group provide the most meaningful performance comparison.