5 free questions on Portfolio reviews, part of learning outcome 9 (Investment performance). Pick an answer to check it, or open the answer to see why each option is right or wrong.
Question 1 of 5
What does an investment policy statement set out?
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The answer is D: The client's objectives and the constraints on managing the portfolio
The FCA requires firms to agree investment objectives with clients. The statement records these and constraints such as legal limits and tax, agreed in writing until amended.
Why the other options are wrong
A
It records the client's agreed objectives.
B
It can't guarantee returns.
C
It's specific to the client.
Question 2 of 5
A trust deed in England has no specific investment powers. What does the Trustee Act 2000 allow the trustees to do?
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The answer is D: Invest as if it were their own, subject to the standard criteria
Legal constraints mostly arise for trustees. Where a deed is silent, the Trustee Act 2000 lets trustees invest as if the money were their own, having regard to the standard investment criteria.
Why the other options are wrong
A
They must have regard to suitability and diversification.
B
The Act gives powers without needing a court.
C
The Act gives wide powers, subject to the standard criteria.
Question 3 of 5
Which of the following may require an investment policy statement to be revised?
1. Changes in the client's circumstances
2. Changes in taxation
3. Longer-term changes in the market environment
4. A single day's fall in the stock market
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The answer is C: 1, 2 and 3 only
The statement may need revising for changes in client circumstances, regulation, taxation and the market environment. Long-term strategies shouldn't change in response to short-term moves.
Why the other options are wrong
A
Longer-term market changes may also need reassessment.
B
Strategy shouldn't change for short-term market moves.
D
Client circumstances are a key trigger; a single day's fall isn't.
Question 4 of 5
Which of the following would usually appear on a contract note?
1. The transaction date
2. The number of shares and the price
3. Charges, including stamp duty or SDRT
4. The client's attitude to risk
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The answer is C: 1, 2 and 3 only
Contract notes, sent immediately after each deal, show the date, the client, the number of shares and price, the full stock name, charges including stamp duty or SDRT, and the settlement date.
Why the other options are wrong
A
The date appears; attitude to risk doesn't.
B
Attitude to risk isn't on a contract note.
D
Charges, including stamp duty, are also shown.
Question 5 of 5
A higher-rate taxpayer wants to switch out of a unit trust with a large gain. Her husband pays basic rate and hasn't used his exempt amount. How could CGT be reduced?
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The answer is C: Transfer some units to him before the sale
Transfers between spouses or civil partners are free of CGT, so both annual exempt amounts can be used and gains taxed at the lower rate. Gains can also be offset against losses.
Why the other options are wrong
A
That's a disposal by her for CGT.
B
The 30-day rule means this doesn't work.
D
That would increase the tax.
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