J10 revision

Question 1

Where will the difference between ‘A’ and ‘B’ shares be confirmed?

Answer 1

Company’s memorandum & articles of association

Question 2

Where should the basis and frequency of client reporting regarding the management of a portfolio be specified?

Answer 2

Client Agreement

Question 3

Typically, what options do clients have for the frequency of reporting on a bespoke portfolio?

Answer 3

Half-yearly, quarterly or monthly

Question 4

Typically, what is the frequency of reporting on a managed portfolio?

Answer 4

Half-yearly

Question 5

When should a DFM issue contract notes?

Answer 5

Immediately after all purchases

Question 6

What reporting is typically provided by the DFM concerning the dividends of a portfolio and their taxation?

Answer 6

A dividend and tax credit summary together with a consolidated tax certificate both issued
annually.

Question 7

Long term debt is £2.4m, preference shares are £3.3m and ordinary shareholder funds are £13.6m. What is the gearing ratio?

Answer 7

(2.4+3.3)/13.6 = 41.91%

Question 8

True or false? The Regulatory News Service only transmits regulatory data.

Answer 8

False. The RNS transmits both regulatory and non-regulatory data.

Question 9

Portfolio return: 8.6%
Risk-free return: 4.5%
Beta: 0.85
Market return: 7%

Calculate alpha.

Answer 9

8.6-[4.5+0.85(7-4.5)]
8.6-6.625=1.975

Question 10

State the main features of an MPS.

Answer 10

• Collectives based
• Low minimum investment
• Asset allocation
• Portfolio changes can result in CGT liability
• Range of risk-adjusted portfolios
• Not bespoke to client
• Low cost

Question 11

What factors would be taken into account when considering a DFM?

Answer 11

• Charges
• Overlap with non-DFM assets
• Financial strength
• Past performance
• Investment style
• ATR
• Conflict of interest
• Basis of agreement
• Ownership of client

Question 12

What are the benefits of using a DFM?

Answer 12

• Alpha
• Wider range of funds
• Time markets
• Bespoke
• Influence asset allocation
• Tax planning service

Question 13

What are the differences between discretionary and advisory portfolio management?

Answer 13

• Advisory more expensive
• Advisory may result in portfolio drift
• Client has to agree to any changes for advisory
• Transactions for advisory may experience delays
• Harder to assess portfolio performance for advisory