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CFA L3 Matheus > Section 4 - R21 - Overview of PWM (Individuals, Size of Clients PB) > Flashcards

Section 4 - R21 - Overview of PWM (Individuals, Size of Clients PB) Flashcards

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CFA flashcards
1
Q

Private Wealth Investment Objectives (List)

A
  1. Financial security during retirement
  2. Financial support to family
  3. Philantropic goals

Difference v. Institutional: Institutional are more defined and unlikely to materially change over time

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2
Q

PB Client Constraints (List)

A
  1. ↓ Time Horizon: ↓ Lower Risk Tolerance, ↑ Liquidity Requirements
  2. Scale: Portfolios are smaller
  3. Taxes: Individuals are usually taxable
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3
Q

PB Distinctions (List)

A
  1. Investment Governance: no formal structure
  2. Investment Sophistication: more vulnerable to emotional or biased decisions
  3. Regulation: different to institutional
  4. Uniqueness and Complexity: similar clients totally different needs or portfolio
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4
Q

PB Personal Information (List)

A
  1. Family (marital, children, proof of id)
  2. Employment / Career (future, retirement)
  3. Source of Wealth
  4. Explicit Return Objectives
  5. Investment Preferences (ESG, art, liquidity)
  6. Financial Objectives and Risk Tolerance
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5
Q

PB Financial Info (List)

A
  1. Assets
  2. Liabilities
  3. Cashflows
  4. Future expenses projections
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6
Q

Other PB Relevant Info (List)

A
  • Wills
  • Trust Documents
  • Life and Disability Insurance
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7
Q

PB Tax Strategies (List)

A
  1. Tax avoid (use tax free accounts, free gifts)
  2. Tax Reduction (tax-exempt assets, low turnover funds)
  3. Tax Deferral (defer gains, anticipate losses, retirement accounts PGBL)
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8
Q

PB Planned and Unplanned Goals (List)

A
  1. Planned: Retirement, Education, Family Events, Wealth Transfer, Philantropy
  2. Unplanned: Unforesen. Property repairs, medical expenses, others
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9
Q

Wealth Manager Role (List)

A
  1. Goal quantificate
  2. Goal prioritize
  3. Goal changes
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10
Q

Risk Tolerance (Definition)

A

Level of risk an individual is willing and able to bear (opposite of risk aversion)

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11
Q

Risk Capacity (Definition)

A

Ability to accept financial risk, determined by wealth, income, investment time and liquidity

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12
Q

Risk Perception (Definition)

A

Subjective assessment of the risk involved in a situation. It may be informed by personal experience and past situations.

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13
Q

Wealth Manager Technical Skills (List)

A
  • Capital Markets Proficiency (general understanding)
  • Portfolio Construction ability (build)
  • Financial Planning (estate law, tax, insurance)
  • Quantitative Skills
  • Technology Skills (software, simulation)
  • Language Fluency
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14
Q

Wealth Manager Soft Skills (List)

A
  • Communication Skills (verbal, written)
  • Social Skills (ability to understand and relate to others)
  • Education
  • Business, Sales
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15
Q

Capital Sufficiency Analysis (Definition)

A

Process to detemrine if a client has or is likely to accumulate sufficient financial resources to meet objectives

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16
Q

Capital Sufficiency Analysis Methods (List)

A
  1. Deterministic Forecast: straight-line valuation given discount rate and FV input
  2. Monte Carlo: Input Asset Class assumptions + Taxes, Inflation, Management Fees
17
Q

Turnaround strategies when capital is not sufficient (List)

A
  1. Increase contributions
  2. Goals more modest
  3. Goals must be delayed
  4. Have higher expected returns
18
Q

Stages of Life (List)

A
  1. Education
  2. Early Career
  3. Career Development
  4. Peak Accumulation
  5. Pre-Retirement
  6. Early Retirement
  7. Late Retirement
19
Q

Retirement Planning Methods (List)

A
  1. Mortality Tables: Sum up (Survival Probability * Spending in Year). Discount everything to PV.
  2. Annuities: Give a lump sum and exchanges that for a series of PMTs (fiex payments). Immediate or Deferred.
  3. Monte Carlo Simulation: Produces probability of reaching a goal but NOT A SHORTFALL measure.
20
Q

Behavioral Considerations in Retirement (List)

A
  1. Heightened Loss Aversion: ↑ Age = ↑ Loss Aversion
  2. Consumption Gap: ↑ Age = ↓ Consumption
  3. Annuity Puzzle: Individuals do not like annuities
  4. Preference for Investment Income over Capital Appreciation (Aluguel > CDB)
21
Q

Part of the IPS (List)

A
  1. Background and Investment Objective
  2. Investment Parameters
  3. Portfolio Asset Allocation
  4. Portfolio Management
  5. Duties and Responsibilities

BIPAPD

22
Q

IPS Background and Investment Objective (Characteristics)

A
  • State objectives
  • If there are many, state which are primary
  • Include MVportfolio and relevant accounts
  • External cashflows and sources
23
Q

IPS Investment Parameters Section (Characteristics)

A

a. Risk Tolerance (ability, willingness)
b. Time Horizon (range)
c. Asset Classes
d. Other (ESG, Legacy, Non-Advised)
e. Liquidity Preferences
f. Constraints (restrictions)

24
Q

IPS Portfolio Asset Allocation Section (Characteristics)

A
  • Choose target allocation per asset class
    SAA: Target + Upper / Lower Bounds (for rebalancing)
    TAA: Asset Class Target Ranges
25
Q

IPS Portfolio Management Section ( Characteristics)

A

a. Discretionary Authority (ability to act without clients’ approval)
b. Rebalancing: methodology and frequency
c. Tactical Changes: if allowed when and to what degree
d. Implementation: MFs, ETFs, Proprietary

26
Q

IPS Duties and Responsibilities Section (Characteristics)

A
  • Manager Responsibilities: Develop SAA, Recommend investments, monitor, rebalance, cost management, use of derivatives
  • IPS review: how frequent
27
Q

IPS Appendix (List Attachments)

A
  • Modelled Portfolio Behavior
  • Capital Markets Expectations
28
Q

Portfolio Construction Approaches (List)

A
  1. Traditional Approach
  2. Goals-Based Investing Approach
29
Q

Portfolio Construction: Traditional Approach

A
  • Identify asset class
  • Develop CME (Return, Risk, Correl)
  • Asset Constraints (Passive, Active, Mgr Selection, Security Type)
  • Determine asset allocation
30
Q

Portfolio Construction: Goals Based Investing Approach

A
  • Same process of traditional but align investments with goals
  • Perform MVO for each subportfolio
  • Goals: max vol or min probability of success
31
Q

Portfolio Reporting (List of Items)

A
  • Asset Allocation Report
  • Report Summary
  • Detailed Performance
  • Historical Performance
  • Contributions / Withdrawals
  • Purchases / Sales
  • Currency Exposure
  • Market Commentaries
32
Q

Portfolio Review (Describe Process)

A
  • Actual meet with client to review investment plan
  • Ask changes in investment objectives, risk tolerance, time horizon, circumstances
  • Discuss asset allocation v. targets
33
Q

Success Evaluation of Portfolio Management (Description of Criteria)

A
  1. Goal Achievement: Is it likely to succeed withouth meaningful adjustments
  2. Process Consistency: Followed the plan? 3rd parties, rebalancing, tax considerations, circumstances, tactical allocations
  3. Portfolio Performance: absolute, relative
  4. Definitions of success: must be aligned between client and manager
34
Q

Ethical Considerations in PWM (List)

A
  1. Fiduciary Duty and Responsibility
  2. KYC
  3. Confidentiality
  4. Conflicts of Interest
  5. Compliance (varies)
35
Q

PWM Client Segments (List)

A
  1. Mass affluent (financial planning, risk mgmt, retirement planning)
  2. High Net Worth Segment: customized investment management, tax planning, wealth transfer issues
  3. Ultra High Net Worth: Multigenerational, Complex Tax, Estate Planning, Other (Travel, Art, Wine, Bill Payment)
  4. Robo-advisors: cost effective, digital, use MVO, monitor and rebalance

CFA L3 Matheus (18 decks)

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