AIF PRACTICE EXAMINATION 2026
QUESTIONS WITH ANSWERS GRADED
A+
◍ Necessary Risk.
Answer: the amount of risk taken that wil allow for enough returns to meet
objectives
◍ All of following are decisive factors to consider when analyzing the number
of asset classes to include in a portfolio EXCEPT: Investment expertise of
decision-makers Existing Brokerage platform limitationsPortfolio size
Ability of decision-makers to properly monitor investments.
Answer: Existing Brokerage platform limitations
◍ Broker/Dealer exemption.
Answer: Struck down 4/2007Now all fee based accounts deemed to involve
comprehensive and continuous advice require the adviser to register with the
SEC
◍ Breach of fiduciary responsibility is:The leading cause for arbitration
against brokers The leading cause for civil and regulatory complaints
against RIAs Both A and B None of the above.
Answer: Both A and B
◍ UPMIFA.
Answer: For foundations and endowmentsRegulated by State Attorney
General
◍ Tolerable risk.
Answer: The amount of risk that can be endured during periods of market
volatility
,◍ Service Agreements.
Answer: Fully disclose in writing all compensation arrangements and
fiduciary statusDisclosure of oversight for other providersComparative
reviews of service agreements Every 3 years
◍ Policy Portfolio vs Pricing portfolio.
Answer: Policy portfolio does not address beating the market (driven by
beta)Pricing portfolio is the pursuit of alpha (positive error term in CAPM
equation)
◍ commission recapture.
Answer: an agreement where a retirement plan fiduciary earns credits based
upon the amount of brokerage commission paid. these credits can be used
for services that will benefit the plan like consulting services, custodian fees,
or hardware and software.
◍ UPIA.
Answer: For private trustsRegulated by State Attorney General
◍ DUE DILIGENCE.
Answer: SCREENS 9 FIELDS OF DATA: 1. regulatory oversight(inw/ inv.
options managed by bank, ins co, ria. 2. track record(fi360 sets 3 years), 3.
stability- manager tenure-min 2 years,4.assets in product-min 75 million, 5.
composition consistent w/asset class- min 80% of underlying secs consistent
w/ broad asset class,6. style consistency with peer group, 7. expense ratio
evaluation, 8. performace relative to risk(s/b <highest 25% of fees, 3 year
performance against peers, 9. rolling performance 1-3-5 year.
◍ SYSTEMATIC RISK.
Answer: Tied to economic conditions and cannot be avoided
◍ The correlation coefficient measures the: Probability that one-year
investment returns will accurately predict returns the following year
Accuracy of the security's Beta calculationFormal relationship between
investment advisors and money managers.Degree to which two variables are
associated.
, Answer: Degree to which two variables are associated
◍ erisa 405 c safe harbor.
Answer: protects the fiduciary who is delegating from liability from actions
of the party who is delated to.
◍ The best way to rebalance a particular asset class is to: Ignore tax
implications, as over time they are insignificant Time the transfer of assets
to coincide with a recent downturn in the market Scheduling a meeting of
the investment committee Utilize a known, upcoming disbursement or
contribution.
Answer: Utilize a known, upcoming disbursement or contribution
◍ Which of the following would not normally be held accountable to a
fiduciary standard of care?Custodian administering the books and records of
the account A corporate office who has named the company pension plan's
investment committee members An Investment manager with discretion to
buy and sell investable assets. A Trustee.
Answer: Custodian administering the books and records of the account.
◍ Taft-Hartley plans are governed by.
Answer: ERISA, which falls under the oversight responsibility of the DOL,
IRS, and PBGC.
◍ Diversification to Portfolio considerations (asset allocation).
Answer: Time HorizonRisk Level Expected ReturnAsset classTax Status
◍ Ordinarily, any restriction on an investment program has the potential to
reduce the portfolio's total return and could cause a breach of investment
fiduciary responsibility. However, socially responsible investing screens are
specifically permitted by the UPIA when:The portfolio has included two
investments that are not screened for SRI for each SRI optionThe
investment is supporting a worthy causeA donor specifically identifies
social screens in their gift The fiduciaries are in agreement that SRI
considerations are their primary responsibility.
Answer: A donor specifically identifies social screens in their gift
QUESTIONS WITH ANSWERS GRADED
A+
◍ Necessary Risk.
Answer: the amount of risk taken that wil allow for enough returns to meet
objectives
◍ All of following are decisive factors to consider when analyzing the number
of asset classes to include in a portfolio EXCEPT: Investment expertise of
decision-makers Existing Brokerage platform limitationsPortfolio size
Ability of decision-makers to properly monitor investments.
Answer: Existing Brokerage platform limitations
◍ Broker/Dealer exemption.
Answer: Struck down 4/2007Now all fee based accounts deemed to involve
comprehensive and continuous advice require the adviser to register with the
SEC
◍ Breach of fiduciary responsibility is:The leading cause for arbitration
against brokers The leading cause for civil and regulatory complaints
against RIAs Both A and B None of the above.
Answer: Both A and B
◍ UPMIFA.
Answer: For foundations and endowmentsRegulated by State Attorney
General
◍ Tolerable risk.
Answer: The amount of risk that can be endured during periods of market
volatility
,◍ Service Agreements.
Answer: Fully disclose in writing all compensation arrangements and
fiduciary statusDisclosure of oversight for other providersComparative
reviews of service agreements Every 3 years
◍ Policy Portfolio vs Pricing portfolio.
Answer: Policy portfolio does not address beating the market (driven by
beta)Pricing portfolio is the pursuit of alpha (positive error term in CAPM
equation)
◍ commission recapture.
Answer: an agreement where a retirement plan fiduciary earns credits based
upon the amount of brokerage commission paid. these credits can be used
for services that will benefit the plan like consulting services, custodian fees,
or hardware and software.
◍ UPIA.
Answer: For private trustsRegulated by State Attorney General
◍ DUE DILIGENCE.
Answer: SCREENS 9 FIELDS OF DATA: 1. regulatory oversight(inw/ inv.
options managed by bank, ins co, ria. 2. track record(fi360 sets 3 years), 3.
stability- manager tenure-min 2 years,4.assets in product-min 75 million, 5.
composition consistent w/asset class- min 80% of underlying secs consistent
w/ broad asset class,6. style consistency with peer group, 7. expense ratio
evaluation, 8. performace relative to risk(s/b <highest 25% of fees, 3 year
performance against peers, 9. rolling performance 1-3-5 year.
◍ SYSTEMATIC RISK.
Answer: Tied to economic conditions and cannot be avoided
◍ The correlation coefficient measures the: Probability that one-year
investment returns will accurately predict returns the following year
Accuracy of the security's Beta calculationFormal relationship between
investment advisors and money managers.Degree to which two variables are
associated.
, Answer: Degree to which two variables are associated
◍ erisa 405 c safe harbor.
Answer: protects the fiduciary who is delegating from liability from actions
of the party who is delated to.
◍ The best way to rebalance a particular asset class is to: Ignore tax
implications, as over time they are insignificant Time the transfer of assets
to coincide with a recent downturn in the market Scheduling a meeting of
the investment committee Utilize a known, upcoming disbursement or
contribution.
Answer: Utilize a known, upcoming disbursement or contribution
◍ Which of the following would not normally be held accountable to a
fiduciary standard of care?Custodian administering the books and records of
the account A corporate office who has named the company pension plan's
investment committee members An Investment manager with discretion to
buy and sell investable assets. A Trustee.
Answer: Custodian administering the books and records of the account.
◍ Taft-Hartley plans are governed by.
Answer: ERISA, which falls under the oversight responsibility of the DOL,
IRS, and PBGC.
◍ Diversification to Portfolio considerations (asset allocation).
Answer: Time HorizonRisk Level Expected ReturnAsset classTax Status
◍ Ordinarily, any restriction on an investment program has the potential to
reduce the portfolio's total return and could cause a breach of investment
fiduciary responsibility. However, socially responsible investing screens are
specifically permitted by the UPIA when:The portfolio has included two
investments that are not screened for SRI for each SRI optionThe
investment is supporting a worthy causeA donor specifically identifies
social screens in their gift The fiduciaries are in agreement that SRI
considerations are their primary responsibility.
Answer: A donor specifically identifies social screens in their gift
