af5 (a)

Question 1

benefits and drawbacks of paying adviser fees hourly

Answer 1

benefit

• easy to understand
• based on actual work done
• fee cap can added
• cheaper if larger amount

drawbacks

• adviser could stretch things out
• paid out of own pocket personal funds
• dont know total cost

Question 2

benefits and drawbacks paying adviser from fund

Answer 2

benefit

• payment is not from personal funds own pocket
• incentive for adviser to grow funds
• lower fees if lower funds

drawbacks

• reduces growth
• dont know how much your paying each year
• could charge you if want other services
• may be paying more than time spent

Question 3

benefits and drawbacks paying adviser fixed fee basis

Answer 3

benefits

• known cost
• similar to accountants
• amount invested irrelevant
• easy to understand

drawbacks

• could be over charged for work done
• paid out own pocket personal funds
• may put client off of getting in touch

Question 4

4 performance measures that canbe analysed from a co accounts

Answer 4

profits,
liquidity,
operating efficiency,
volatility.

Question 5

covariance of returns

Answer 5

how far returns on one security vary with those of another.

Question 6

3 stages of top down portfolio management

Answer 6

asset allocation,
sector selection,
stock selection.

Question 7

economic aims of GOVT

Answer 7

2% inflation,
6% unemployment,
3% economic growth,
cleaner environment.

Question 8

how is RPI calculated

Answer 8

700 goods & services,
consumed by typical family,
weighted by importance,
monthly prices from 180,000 retail outlets.
CPI doesnt include housing costs.

Question 9

platform

Answer 9

are admin platforms,
bring together,
valuation of savings/investments,
belonging a person.

Question 10

advantage of platform

Answer 10

easier to see asset allocation,
admin costs & charges lower,
easier tax reporting,
must have explicit charge,
reduced paperwork.

Question 11

sharpe ratio

Answer 11

adjusts rates of return,
to take account,
of risk taken,
measures excess return achieved,
for every unit of risk,
taken to achieve it.

Question 12

advantages VCT

Answer 12

30% tax relief,
up to £200,000,
free of CGT if keep 5 year,
income tax free,
potential for growth.

Question 13

disadvantages VCT

Answer 13

complex,
high risk,
if dont hold 5 year lose tax relief.

Question 14

advantages gold

Answer 14

high growth,

liquid market.

Question 15

disadvantage gold

Answer 15

has to be stored/insured,
volatility in short term,
no income.

Question 16

advantages ETF

Answer 16

tax efficient,
passive investment,
low charges.

Question 17

disadvantages ETF

Answer 17

complex,
hard to understand,
tracking error.