CISI IAD Private Client Investment Advice

Question 1

When constructing an investment portfolio for a private client, what is the primary purpose of 'asset allocation'?

Accepted Answer

To determine the proportion of a portfolio invested across different asset classes to optimise the risk-return trade-off based on the client's objectives and risk profile

Answer

To select individual stocks that will outperform the market

Answer

To minimise all investment charges

Answer

To ensure all assets are held in a single tax wrapper

Question 2

A client aged 40 with a high risk tolerance and a 25-year investment horizon is saving for retirement. Which asset allocation is MOST appropriate?

Accepted Answer

70-80% equities (globally diversified), 15-20% bonds, 5-10% alternatives

Answer

100% cash deposits

Answer

80% UK Government gilts, 20% equities

Answer

50% structured products, 50% commodities

Question 3

What is the purpose of 'rebalancing' a client's investment portfolio?

Accepted Answer

To restore the portfolio to its target asset allocation after market movements have caused drift, maintaining the intended risk level

Answer

To maximise short-term trading profits

Answer

To move all assets into the best-performing fund

Answer

To reduce the number of holdings to simplify administration

Question 4

A client receives a £500,000 inheritance and wants to invest it all immediately. What should the adviser consider recommending regarding the timing of investment?

Accepted Answer

Consider phasing the investment over several months to reduce the risk of investing at a market peak

Answer

Invest the entire amount into equities immediately

Answer

Hold everything in cash indefinitely while monitoring the market

Answer

Invest only in structured products with capital guarantees

Question 5

What is the primary purpose of a 'suitability report' in the context of investment advice?

Accepted Answer

To document why the personal recommendation is suitable for the client, demonstrating that their circumstances, objectives, and risk profile have been considered

Answer

To advertise the adviser's services

Answer

To provide a general market outlook

Answer

To disclose the adviser's commission arrangements only

Question 6

When advising a client who is approaching retirement, why might an adviser recommend a gradual shift from equities to bonds and cash?

Accepted Answer

To reduce portfolio volatility and sequencing risk as the client's time horizon shortens and they approach the point of drawing income

Answer

Because bonds always outperform equities near retirement

Answer

Because the FCA mandates this shift at age 55

Answer

To avoid paying Capital Gains Tax