AIF CERTIFICATION EVALUATION TEST
2026 PRACTICE SOLUTION QUESTIONS
AND ANSWERS
●● 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 expanded
2. Fees may be reduced
3. Scope of require services may have expanded
The 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 process
2. It may help to educate fiduciaries of their role and responsibilities
,3. 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
advice
2. Trustee of a private trust
3. 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. UPIA
2. UPMIFA
3. UMPERSA
,Note: 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.
●● 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.
●● 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 markets
2. 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.
●● All of the following are decisive factors to consider when analyzing
the number of asset classes to include in a portfolio EXCEPT:
1. Portfolio size
2. Investment expertise of decision-makers
3. Existing brokerage platform limitations
4. Ability of decision-makers to properly monitor investments
2026 PRACTICE SOLUTION QUESTIONS
AND ANSWERS
●● 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 expanded
2. Fees may be reduced
3. Scope of require services may have expanded
The 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 process
2. It may help to educate fiduciaries of their role and responsibilities
,3. 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
advice
2. Trustee of a private trust
3. 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. UPIA
2. UPMIFA
3. UMPERSA
,Note: 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.
●● 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.
●● 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 markets
2. 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.
●● All of the following are decisive factors to consider when analyzing
the number of asset classes to include in a portfolio EXCEPT:
1. Portfolio size
2. Investment expertise of decision-makers
3. Existing brokerage platform limitations
4. Ability of decision-makers to properly monitor investments
