AIF Training Exam Test Questions And
Answers Verified 100% Correct
A donor specifically identifies social screens in their gift - ANSWER -As a rule,
any restriction on an investment program that is expected to reduce the portfolio's
total return is likely a breach of fiduciary responsibility. The UPIA specifically
permits the following exceptions: the trust documents establishing the private trust,
foundation, or endowment permit the use of SRI; a donor directs the use of an SRI
strategy; and/or a reasonable person would deduce from the
foundation's/endowment's mission that SRI would be adopted. SRI screens that are
not expected to reduce the returns of a portfolio, or are likely to improve returns,
would be permissible in any type of portfolio
The most important decision in the Hierarchy of Decisions is: - ANSWER -The
time horizon of the investment strategy has to be determined first, making it the
most important decision of the asset allocation decision-making process. All other
decisions within the Hierarchy of Decisions flow from this first one. Until you
know how long you have to invest the assets, you cannot decide the appropriate
level of risk/return, which asset classes are appropriate, what will be the mix
among them, which sub-asset classes will be considered, and which
managers/funds/ETFs will be used for implementation.
What are the consequences to an investment option that fails to meet watch list
criteria? - ANSWER -The fund shall be reviewed by the investment committee.
In order for a fiduciary of a participant directed DC plan to meet the Safe Harbor
requirements of the 2006 Pension Protection Act (Act), they must hire a fiduciary
adviser with at least 10-years investment experience. T or F - ANSWER -False
With respect to selecting a fiduciary adviser to provide investment advice to plan
participants, the following Safe Harbor requirements pertain:
1. The plan sponsor must prudently select the fiduciary adviser.
2. The fiduciary adviser must acknowledge fiduciary status in writing.
3. The plan sponsor must determine that the fees of the fiduciary adviser are fair
and reasonable for the level of services rendered.
,4. The plan sponsor must prudently monitor the fiduciary adviser on an ongoing
basis.
All of the following items are suggested minimum Due Diligence for Investment
Options EXCEPT:
Select one:
1.Stability of organization
2. Asset turnover
3. Style consistency
4. Performance relative to peers - ANSWER -2. The Center's suggested minimum
due diligence process is: 1. Regulatory oversight. 2. Track record. 3. Stability of
the organization. 4. Assets in the investment. 5. Composition consistent with asset
class. 6. Style consistency. 7. Expense ratio/fees relative to peers. 8. Risk-adjusted
performance relative to peers. 9. Performance relative to peers.
The capital markets inputs, or optimizer variables, include:
Select one:
1. The Sharpe ratio
2. Manager tenure
3. Alpha
4. Correlation coefficient - ANSWER -The capital markets inputs, or optimizer
variables, include expected return, standard deviation, and correlation coefficient.
With respect to separately managed accounts, a primary consideration with respect
to the selection of the custodian is:
Select one:
1. Custodial statement transaction detail
2. Portfolio assets
3. The experience level of their key personnel
4. Geographical location - ANSWER -1. In today's electronic environment, the
geographical location of the custodian has become almost irrelevant. The
experience level of the custodian's key personnel and whether they have sufficient
insurance to cover portfolio assets are important considerations regardless of the
type of investment. For separately managed accounts, however, custodial statement
,transaction detail is a primary consideration if the fiduciary is to determine whether
the managers are seeking best price and execution with respect to the trades.
The decision of whether to implement with mutual funds or separate account
managers should be based on:
Select one:
1. The dollar amount to be invested
2. Whether there is a requirement for audited financial information
3. The ease of conducting due diligence on the database
4. All of the above - ANSWER -All of the above:
Normally, the greater the dollar value of the portfolio the more likely separate
accounts will be a better investment vehicle choice. If audited financial
information is needed, mutual funds are a better choice due to their regulatory
requirements. Mutual funds also allow for easier and more thorough access to their
information via database software.
When the fiduciary provides at least three investment options in accordance with
404(c) Safe Harbor requirements, the fiduciary has complete discretion over all
investment decisions. T OR F - ANSWER -False
This statement is partially correct. If the fiduciary seeks to take advantage of the
Safe Harbor protection afforded them through 404(c), he or she must provide at
least three investment options, but they should not maintain complete discretion
over all investment decisions. Another 404(c) requirement is that they give
discretion to the investment managers.
A due diligence philosophy for selecting investment options should incorporate all
of the following EXCEPT:
Select one:
1. Screens that have dual application for search and monitoring
2. Special consideration for mutual funds or separate account managers that have
strong marketing departments
3. A simple process that can be replicated in the field
4. The same process for mutual funds and separate account managers - ANSWER
-search.
, All available safe harbors:
Select one:
1. Require legal approval
2. Are voluntary
3. Protect the fiduciary from liability
4. Were enacted prior to 2006 - ANSWER -Are voluntary
All safe harbors are: 1) voluntary; 2) may insulate the fiduciary from liability; and
3) require the fiduciary to demonstrate compliance with defined requirements.
The law does NOT require fiduciaries to hire prudent experts to help manage the
investment management process. T or F - ANSWER -True
The fiduciary is required to act prudently in implementing the investment strategy
and will be held to a "prudent expert" standard. However, the law does not
mandate the use of professional money managers and to do otherwise would be
foolhardy. The primary role of the fiduciary is to manage the investment process,
rather than to make individual stock and bond picks. Fiduciaries are generally more
effective and efficient when they are managing the managers.
Chasing top quartile performance is a difficult game to win because:
Select one:
1. Most clients don't understand what the top quartile is
2. Consistent, long-term, top quartile performance is virtually impossible to attain
3. Mutual fund data is not readily available
4. There is no consistency to how investment performance is measured -
ANSWER -2. The inexperienced investment decision-maker often limits his or her
due diligence to a review of recent investment performance, often citing "top-
quartile" (top twenty-five percent) performance as a prerequisite. Sustained success
using this search and monitoring criteria is unrealistic. Historical studies have
shown that such consistently high performance has only been achieved by a small
number of managers.
The Investment Steward's responsibilities with respect to proxy voting include all
of the following EXCEPT:
Select one:
Answers Verified 100% Correct
A donor specifically identifies social screens in their gift - ANSWER -As a rule,
any restriction on an investment program that is expected to reduce the portfolio's
total return is likely a breach of fiduciary responsibility. The UPIA specifically
permits the following exceptions: the trust documents establishing the private trust,
foundation, or endowment permit the use of SRI; a donor directs the use of an SRI
strategy; and/or a reasonable person would deduce from the
foundation's/endowment's mission that SRI would be adopted. SRI screens that are
not expected to reduce the returns of a portfolio, or are likely to improve returns,
would be permissible in any type of portfolio
The most important decision in the Hierarchy of Decisions is: - ANSWER -The
time horizon of the investment strategy has to be determined first, making it the
most important decision of the asset allocation decision-making process. All other
decisions within the Hierarchy of Decisions flow from this first one. Until you
know how long you have to invest the assets, you cannot decide the appropriate
level of risk/return, which asset classes are appropriate, what will be the mix
among them, which sub-asset classes will be considered, and which
managers/funds/ETFs will be used for implementation.
What are the consequences to an investment option that fails to meet watch list
criteria? - ANSWER -The fund shall be reviewed by the investment committee.
In order for a fiduciary of a participant directed DC plan to meet the Safe Harbor
requirements of the 2006 Pension Protection Act (Act), they must hire a fiduciary
adviser with at least 10-years investment experience. T or F - ANSWER -False
With respect to selecting a fiduciary adviser to provide investment advice to plan
participants, the following Safe Harbor requirements pertain:
1. The plan sponsor must prudently select the fiduciary adviser.
2. The fiduciary adviser must acknowledge fiduciary status in writing.
3. The plan sponsor must determine that the fees of the fiduciary adviser are fair
and reasonable for the level of services rendered.
,4. The plan sponsor must prudently monitor the fiduciary adviser on an ongoing
basis.
All of the following items are suggested minimum Due Diligence for Investment
Options EXCEPT:
Select one:
1.Stability of organization
2. Asset turnover
3. Style consistency
4. Performance relative to peers - ANSWER -2. The Center's suggested minimum
due diligence process is: 1. Regulatory oversight. 2. Track record. 3. Stability of
the organization. 4. Assets in the investment. 5. Composition consistent with asset
class. 6. Style consistency. 7. Expense ratio/fees relative to peers. 8. Risk-adjusted
performance relative to peers. 9. Performance relative to peers.
The capital markets inputs, or optimizer variables, include:
Select one:
1. The Sharpe ratio
2. Manager tenure
3. Alpha
4. Correlation coefficient - ANSWER -The capital markets inputs, or optimizer
variables, include expected return, standard deviation, and correlation coefficient.
With respect to separately managed accounts, a primary consideration with respect
to the selection of the custodian is:
Select one:
1. Custodial statement transaction detail
2. Portfolio assets
3. The experience level of their key personnel
4. Geographical location - ANSWER -1. In today's electronic environment, the
geographical location of the custodian has become almost irrelevant. The
experience level of the custodian's key personnel and whether they have sufficient
insurance to cover portfolio assets are important considerations regardless of the
type of investment. For separately managed accounts, however, custodial statement
,transaction detail is a primary consideration if the fiduciary is to determine whether
the managers are seeking best price and execution with respect to the trades.
The decision of whether to implement with mutual funds or separate account
managers should be based on:
Select one:
1. The dollar amount to be invested
2. Whether there is a requirement for audited financial information
3. The ease of conducting due diligence on the database
4. All of the above - ANSWER -All of the above:
Normally, the greater the dollar value of the portfolio the more likely separate
accounts will be a better investment vehicle choice. If audited financial
information is needed, mutual funds are a better choice due to their regulatory
requirements. Mutual funds also allow for easier and more thorough access to their
information via database software.
When the fiduciary provides at least three investment options in accordance with
404(c) Safe Harbor requirements, the fiduciary has complete discretion over all
investment decisions. T OR F - ANSWER -False
This statement is partially correct. If the fiduciary seeks to take advantage of the
Safe Harbor protection afforded them through 404(c), he or she must provide at
least three investment options, but they should not maintain complete discretion
over all investment decisions. Another 404(c) requirement is that they give
discretion to the investment managers.
A due diligence philosophy for selecting investment options should incorporate all
of the following EXCEPT:
Select one:
1. Screens that have dual application for search and monitoring
2. Special consideration for mutual funds or separate account managers that have
strong marketing departments
3. A simple process that can be replicated in the field
4. The same process for mutual funds and separate account managers - ANSWER
-search.
, All available safe harbors:
Select one:
1. Require legal approval
2. Are voluntary
3. Protect the fiduciary from liability
4. Were enacted prior to 2006 - ANSWER -Are voluntary
All safe harbors are: 1) voluntary; 2) may insulate the fiduciary from liability; and
3) require the fiduciary to demonstrate compliance with defined requirements.
The law does NOT require fiduciaries to hire prudent experts to help manage the
investment management process. T or F - ANSWER -True
The fiduciary is required to act prudently in implementing the investment strategy
and will be held to a "prudent expert" standard. However, the law does not
mandate the use of professional money managers and to do otherwise would be
foolhardy. The primary role of the fiduciary is to manage the investment process,
rather than to make individual stock and bond picks. Fiduciaries are generally more
effective and efficient when they are managing the managers.
Chasing top quartile performance is a difficult game to win because:
Select one:
1. Most clients don't understand what the top quartile is
2. Consistent, long-term, top quartile performance is virtually impossible to attain
3. Mutual fund data is not readily available
4. There is no consistency to how investment performance is measured -
ANSWER -2. The inexperienced investment decision-maker often limits his or her
due diligence to a review of recent investment performance, often citing "top-
quartile" (top twenty-five percent) performance as a prerequisite. Sustained success
using this search and monitoring criteria is unrealistic. Historical studies have
shown that such consistently high performance has only been achieved by a small
number of managers.
The Investment Steward's responsibilities with respect to proxy voting include all
of the following EXCEPT:
Select one:
