ICWIM Exam Dumps - CISI level 3 Certificate in Wealth & Investment Management Questions and Answers

Equity funds allow portfolio managers to efficiently access a specific market or sector that may otherwise require significant resources and expertise to invest in directly. For instance, a fund specializing in renewable energy provides exposure to that sector without the need for individual stock selection.

Avoiding capital gains tax (A): This is not applicable because funds do not inherently avoid tax obligations.

Reducing ongoing charges (C): Funds typically have higher fees than directly holding equities.

Changes in volatility (D): While funds manage diversification, they do not specifically capitalize on volatility.

References:

International Certificate in Wealth & Investment Management: Section on mutual funds and specialized investment funds.

Use of funds for sectoral or thematic investment strategies.

Purpose of Client Meetings: A face-to-face meeting allows the adviser to personally communicate complex financial recommendations.

Importance of Clarity: Clients may misunderstand written reports due to technical jargon or unfamiliarity with financial terms. This meeting provides an opportunity to ensure clarity and build trust.

Elimination of Other Options:

A: Collecting fees can be done online or through invoices; this is not the primary purpose of a meeting.

B: Tax position assessment is typically done before preparing recommendations.

C: Reviewing adviser qualifications is rare in meetings; trust is built through prior interactions.

References:

ICWIM Module 2: Focus on professional adviser-client relationships and clear communication.

Suitability of Advice

The first step in providing suitable advice is understanding the client’s financial situation, goals, and risk tolerance.

This is achieved bygathering sufficient informationthrough a fact-find process.

Why the Answer is C

Without detailed client information, advice cannot be tailored to individual circumstances, leading to regulatory non-compliance and potential mis-selling.

Why Other Options are Incorrect

A. Offer options: Comes later after understanding the client’s needs.

B. Cancellation period: A compliance requirement but irrelevant to suitability.

D. Third-party confirmation: Not a standard part of the advice process.

ICWIM Study Guide, Chapter on Client Engagement: Emphasizes information gathering as the first step.

FCA Suitability Guidelines: Highlights the importance of a thorough fact-find.

References

Why High Coupon Short-Dated Gilts?

Gilts are UK government bonds and are considered low-risk investments.

High couponprovides a steady income stream, ideal for income-seeking investors.

Short-datedgilts reduce interest rate risk, suitable for risk-averse clients.

Why the Other Options are Incorrect

A. Low coupon long-dated gilts: Offer lower income and are more sensitive to interest rate changes, increasing risk.

C. Deferred shares: Generally high-risk and designed for capital growth, not immediate income.

D. Convertible preference shares: More volatile and often tied to company performance, unsuitable for risk-averse clients.

ICWIM Study Guide, Chapter on Fixed-Income Securities: Highlights the suitability of gilts for income-seeking, risk-averse investors.

UK Bond Market Analysis: Confirms the low-risk nature of short-dated gilts.

ReferencesThus, the correct answer isB. High coupon short-dated gilts.

Understanding Negative Interest Rates:

Negative interest rate policies (NIRP) are used by central banks to stimulate the economy by discouraging banks from hoarding excess reserves.

Under NIRP, banks are charged interest for holding deposits with the central bank, incentivizing lending to businesses and consumers instead.

Elimination of Other Options:

A & B: Interest is still charged on loans, and consumers are not directly "paid" to borrow.

C: Discounting loan interest rates is a potential consequence but not the direct mechanism of NIRP.

References:

ICWIM Module 1: Economic Policy: Coverage of unconventional monetary policies like NIRP.

Understanding Modal Rate of Return:

The mode is the most frequently occurring value in a dataset.

Portfolio A’s monthly returns:7%, 5%, -3%, 5%, 9%, 0%, 3%, 6%, -7%, -8%, 5%, 1%.

5%appearsthree times, more than any other value.

Elimination of Other Options:

No other return appears more than once.

References:

ICWIM Module 3: Statistical measures in portfolio performance.

Execution-only refers to situations where clients make investment decisions without receiving advice from the firm. The firm’s role is limited to executing the client’s instructions, without providing recommendations or assessing suitability.

Key features:

The firm does not offer advice.

The client takes full responsibility for their investment decisions.

Financial advisers are required to explain the additional obligations associated with derivatives, such as margin requirements, leverage risks, and potential for substantial losses. This is because derivatives are complex financial instruments with high risk.

GDP Formula

GDP=C+I+G+(X−M)\text{GDP} = C + I + G + (X - M)GDP=C+I+G+(X−M)

Where:

CCC: Consumption

III: Investment

GGG: Government spending

XXX: Exports

MMM: Imports

Why Imports Are Subtracted and Exports Are Added

Exports represent goods produced domestically and sold abroad, contributing to domestic production (added to GDP).

Imports are goods produced abroad and consumed domestically, reducing domestic production (subtracted from GDP).

Why the Answer is C

The formula directly supports adding exports and subtracting imports.

ICWIM Study Guide, Chapter on Economic Indicators: Explains the GDP formula and its components.

Macroeconomics Textbooks: Confirms the impact of imports and exports on GDP.

References

Definition of Recession:

A recession is defined as two consecutive quarters of negative GDP growth, indicating a sustained economic downturn.

It reflects reduced consumer spending, higher unemployment, and lower production.

Elimination of Other Options:

B (Slump): A slump is a more general term and not a specific phase.

C (Depression): Refers to prolonged and severe economic downturns.

D (Inflationary): Opposite of the scenario described.

References:

ICWIM Module 1: Explanation of economic cycles and recession indicators.