AIF ACTUAL EXAM PAPER 2026
QUESTIONS WITH ANSWERS GRADED
A+
◍ In the event of litigation, factors a judge will consider when making a
determination of fiduciary status include all the following:.
Answer: 1. Number of implementation options2. Scope of services3.
Sophistication of client
◍ True or False: Underperforming a market index would always necessitate
changes to the portfolio strategy?.
Answer: False
◍ True or False: Investment performance review should include re-evaulating
an investment using the same or similar criteria as were used to select the
investment?.
Answer: True
◍ Define Fiduciary.
Answer: A fiduciary is someone who: manages property for the benefit of
another; exercises discretionary authority or control over assets; and/or acts
in a professional capacity of trust and renders comprehensive and
continuous investment advice. FYI - A custodian does not perform any of
these roles
◍ What are the reasons to revisit service agreements at least every 3 years?.
Answer: 1. Vendor's product offering may have expanded2. Fees may be
reduced3. Scope of require services may have expandedThe is best practice,
not an ERISA (fiduciary) requirement
◍ What are the benefits of a CEFEX assessment?.
Answer: 1. It provides a "checklist" approach, which imparts a discipline
, and rigor to an investment decision-making process2. It may help to educate
fiduciaries of their role and responsibilities3. It leads to the recognition and
correction of shortfalls to current investment practices, which may reduce
liability.Note: it is not designed as a fault-finding exercise
◍ An investment advisor must take discretion of the investment assets in order
to provide comprehensive and continuous investment advice. T or F.
Answer: False - An investment advisor need not take discretion in order to
provide comprehensive and continuous investment advice.
◍ Who would normally be considered a fiduciary?.
Answer: 1. A professional providing comprehensive and continuous
advice2. Trustee of a private trust3. Someone with discretion to buy and sell
investable assets.Note: A stock broker/registered representative is not
considered a fiduciary
◍ Regulatory Oversight is primarily provided by State Attorney General under
which pieces of legislation.
Answer: 1. UPIA2. UPMIFA3. UMPERSANote: Taft-Hartley plans are
governed by ERISA, which falls under the oversight responsibility of the
DOL, IRS and PBGC.
◍ Legislation underlying the Practices indicates that
U. S. Courts should have access to investment assets in the event there are
egregious violations of fiduciary responsibility. T or F.
Answer: True - Practice 1.6 reads, "Clients assets are protected from theft
and embezzlement." Because all of the Practices are substantiated by
legislation, you can infer that the statement is correct.
◍ When is the appropriate time to replace an investment manager?.
Answer: When the advisor loses confidence in the manager's ability to
perform in the future.
◍ A fiduciary or co-fiduciary cannot be held responsible for a breach of their
fiduciary responsibility if they can demonstrate they were not aware of a
particular duty or requirement. T or F.
, Answer: F - Ignorance is not a viable defense.
◍ Expected returns are uncertain. Under the normal distribution curve,
approximately 95% of the expected returns fall within one standard
deviation of the mean. T or
F. .
Answer: False - Under the normal distribution curve, one standard deviation
encompasses 66% of the sample and two standard deviations encompass
95% of the sample. Thus , a portfolio with an expected return of 8% and
standard deviation of 17% could be expected to have a return of less than
-9% or more than 25% in approximately 3 years out of 9.
◍ Which is the most cost-efficient method of rebalancing?.
Answer: Using upcoming contributions to purchase asset classes that have
fallen below stratecis allocation.
◍ The most widely used estimate of absolute risk is?.
Answer: Standard deviation - Alpha and the Sharpe Ratio are measures of
risk-adjusted return. Beta is a measure of market risk. Standard deviation is
the most widely accepted measure of absolute risk.
◍ All of the following are true of the policy portfolio EXCEPT:1. It relates to
asset allocation based upon efficient markets2. It should always be reflected
in the Investment Policy Statement (IPS)3. Ideally, it is used to model a
portfolio that will allow portfolio principal and returns to meet projected
liabilities.4. It is focused on Alpha.
Answer: 4. The policy portfolio is contrasted with the pricing portfolio. The
policy portfolio establishes the asset allocation that should be reflected in all
Investment Policy Statements. Ideally, a well crafter policy portfolio is
effective in meeting projected liabilities. The policy portfolio does not
address the possibility that managers can outperform on risk adjusted return
bases; therefore, Alpha is not considered in the policy portfolio. Risk, as
measured by Beta, is a focal point of the policy portfolio. Alpha is the focus
of the pricing portfolio.
◍ What is the minimum recommended frequency for preparing and reporting
, the performance report to the client?.
Answer: Quarterly evaluations, reported annually
◍ What are examples of qualitative factors for an investment manager that an
advisor should monitor?.
Answer: Staff turnover, organizational structures, level of service provided,
quality of reports, quality of responses to requests for information,
investment education
◍ When potentially damaging information about an investment manager
comes to light, how should an investment fiduciary react?.
Answer: Evaluate the potential impact and decide in a timely fashion what
action is necessary, if any
◍ All of the following are decisive factors to consider when analyzing the
number of asset classes to include in a portfolio EXCEPT:1. Portfolio size2.
Investment expertise of decision-makers3. Existing brokerage platform
limitations4. Ability of decision-makers to properly monitor investments.
Answer: 3. All else being equal: the larger the portfolio size, the more asset
classes that should be available; the greater the investment expertise of the
decision makers, the more asset classes that should be available; and lastly,
the greater the ability to monitor the investments, the more assets classes
that should be available. Brokerage platform should not be a deciding factor
on the number of asset classes because if a particular platform cannot
accommodate the required asset classes, it is likely that another platform
could. The fiduciary should assure the platform meets the needs of the
participants, rather than fail to meet the participants' investment needs
because of platform limitations
◍ True or False: When deciding to retain or replace an investment manager,
precedent is important..
Answer: True
◍ A service agreement is up for regular review. Since the agreement was
signed, the portfolio has experienced significant growth. How would that
impact the decision to retain or replace that service provider?.
QUESTIONS WITH ANSWERS GRADED
A+
◍ In the event of litigation, factors a judge will consider when making a
determination of fiduciary status include all the following:.
Answer: 1. Number of implementation options2. Scope of services3.
Sophistication of client
◍ True or False: Underperforming a market index would always necessitate
changes to the portfolio strategy?.
Answer: False
◍ True or False: Investment performance review should include re-evaulating
an investment using the same or similar criteria as were used to select the
investment?.
Answer: True
◍ Define Fiduciary.
Answer: A fiduciary is someone who: manages property for the benefit of
another; exercises discretionary authority or control over assets; and/or acts
in a professional capacity of trust and renders comprehensive and
continuous investment advice. FYI - A custodian does not perform any of
these roles
◍ What are the reasons to revisit service agreements at least every 3 years?.
Answer: 1. Vendor's product offering may have expanded2. Fees may be
reduced3. Scope of require services may have expandedThe is best practice,
not an ERISA (fiduciary) requirement
◍ What are the benefits of a CEFEX assessment?.
Answer: 1. It provides a "checklist" approach, which imparts a discipline
, and rigor to an investment decision-making process2. It may help to educate
fiduciaries of their role and responsibilities3. It leads to the recognition and
correction of shortfalls to current investment practices, which may reduce
liability.Note: it is not designed as a fault-finding exercise
◍ An investment advisor must take discretion of the investment assets in order
to provide comprehensive and continuous investment advice. T or F.
Answer: False - An investment advisor need not take discretion in order to
provide comprehensive and continuous investment advice.
◍ Who would normally be considered a fiduciary?.
Answer: 1. A professional providing comprehensive and continuous
advice2. Trustee of a private trust3. Someone with discretion to buy and sell
investable assets.Note: A stock broker/registered representative is not
considered a fiduciary
◍ Regulatory Oversight is primarily provided by State Attorney General under
which pieces of legislation.
Answer: 1. UPIA2. UPMIFA3. UMPERSANote: Taft-Hartley plans are
governed by ERISA, which falls under the oversight responsibility of the
DOL, IRS and PBGC.
◍ Legislation underlying the Practices indicates that
U. S. Courts should have access to investment assets in the event there are
egregious violations of fiduciary responsibility. T or F.
Answer: True - Practice 1.6 reads, "Clients assets are protected from theft
and embezzlement." Because all of the Practices are substantiated by
legislation, you can infer that the statement is correct.
◍ When is the appropriate time to replace an investment manager?.
Answer: When the advisor loses confidence in the manager's ability to
perform in the future.
◍ A fiduciary or co-fiduciary cannot be held responsible for a breach of their
fiduciary responsibility if they can demonstrate they were not aware of a
particular duty or requirement. T or F.
, Answer: F - Ignorance is not a viable defense.
◍ Expected returns are uncertain. Under the normal distribution curve,
approximately 95% of the expected returns fall within one standard
deviation of the mean. T or
F. .
Answer: False - Under the normal distribution curve, one standard deviation
encompasses 66% of the sample and two standard deviations encompass
95% of the sample. Thus , a portfolio with an expected return of 8% and
standard deviation of 17% could be expected to have a return of less than
-9% or more than 25% in approximately 3 years out of 9.
◍ Which is the most cost-efficient method of rebalancing?.
Answer: Using upcoming contributions to purchase asset classes that have
fallen below stratecis allocation.
◍ The most widely used estimate of absolute risk is?.
Answer: Standard deviation - Alpha and the Sharpe Ratio are measures of
risk-adjusted return. Beta is a measure of market risk. Standard deviation is
the most widely accepted measure of absolute risk.
◍ All of the following are true of the policy portfolio EXCEPT:1. It relates to
asset allocation based upon efficient markets2. It should always be reflected
in the Investment Policy Statement (IPS)3. Ideally, it is used to model a
portfolio that will allow portfolio principal and returns to meet projected
liabilities.4. It is focused on Alpha.
Answer: 4. The policy portfolio is contrasted with the pricing portfolio. The
policy portfolio establishes the asset allocation that should be reflected in all
Investment Policy Statements. Ideally, a well crafter policy portfolio is
effective in meeting projected liabilities. The policy portfolio does not
address the possibility that managers can outperform on risk adjusted return
bases; therefore, Alpha is not considered in the policy portfolio. Risk, as
measured by Beta, is a focal point of the policy portfolio. Alpha is the focus
of the pricing portfolio.
◍ What is the minimum recommended frequency for preparing and reporting
, the performance report to the client?.
Answer: Quarterly evaluations, reported annually
◍ What are examples of qualitative factors for an investment manager that an
advisor should monitor?.
Answer: Staff turnover, organizational structures, level of service provided,
quality of reports, quality of responses to requests for information,
investment education
◍ When potentially damaging information about an investment manager
comes to light, how should an investment fiduciary react?.
Answer: Evaluate the potential impact and decide in a timely fashion what
action is necessary, if any
◍ All of the following are decisive factors to consider when analyzing the
number of asset classes to include in a portfolio EXCEPT:1. Portfolio size2.
Investment expertise of decision-makers3. Existing brokerage platform
limitations4. Ability of decision-makers to properly monitor investments.
Answer: 3. All else being equal: the larger the portfolio size, the more asset
classes that should be available; the greater the investment expertise of the
decision makers, the more asset classes that should be available; and lastly,
the greater the ability to monitor the investments, the more assets classes
that should be available. Brokerage platform should not be a deciding factor
on the number of asset classes because if a particular platform cannot
accommodate the required asset classes, it is likely that another platform
could. The fiduciary should assure the platform meets the needs of the
participants, rather than fail to meet the participants' investment needs
because of platform limitations
◍ True or False: When deciding to retain or replace an investment manager,
precedent is important..
Answer: True
◍ A service agreement is up for regular review. Since the agreement was
signed, the portfolio has experienced significant growth. How would that
impact the decision to retain or replace that service provider?.
