Free Practice Questions for CISI ICWIM Exam

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.

Offshore Foundations

These legal entities are typically used for wealth preservation, estate planning, or philanthropic purposes.

Foundations are managed by a council, which is responsible for operational decisions and ensuring the foundation’s goals are met.

Why the Answer is C

The council acts similarly to a board of directors but focuses specifically on the foundation’s assets and objectives.

Why Other Options are Incorrect

A. Board of directors: Applies to companies, not foundations.

B. Trustees: Apply to trusts, not foundations.

D. Beneficiaries: Beneficiaries do not have decision-making authority.

ICWIM Study Guide, Chapter on Trusts and Foundations: Discusses the governance of offshore foundations.

Legal Principles of Foundations: Confirms the role of the council.

ReferencesThus, the correct answer is C. The council.

What is a Benchmark?

A benchmark is a standard against which the performance of a portfolio is measured.

Common benchmarks include stock indices like the S&P 500 or FTSE 100.

Why a Custom Benchmark is Required

When a portfolio spans several different asset classes, such as equities, fixed income, and alternative investments, a single pre-defined benchmark may not be sufficient.

A custom benchmark aligns with the specific composition and strategy of the portfolio, ensuring that performance is evaluated accurately.

Key Reason for Custom Benchmark

It reflects the diversity and allocation of the portfolio across asset classes.

Example: If a portfolio is 50% equity, 30% fixed income, and 20% real estate, the benchmark must reflect this mix, combining indices like MSCI World, Bloomberg Barclays Bond Index, and a real estate index.

ICWIM Study Material, Chapter on Performance Measurement: Highlights the necessity for custom benchmarks in multi-asset portfolios.

CFA Institute Standards: Custom benchmarks are required for complex portfolios spanning various classes.

ReferencesThus, the answer is D. The portfolio spans several different asset classes.

Conflict of Interest Definition:

A fiduciary position requires prioritizing the client's best interest. When personal or professional interests compete with this duty, it constitutes a conflict of interest.

Such conflicts can undermine the trust and integrity of the fiduciary relationship.

Elimination of Other Options:

A: Discretionary management is unrelated to fiduciary conflicts.

B: A regulatory breach may occur if the conflict is not disclosed but is not inherently the conflict itself.

C: Full disclosure is a way to manage conflicts, not the conflict itself.

References:

ICWIM Module 5: Coverage of fiduciary responsibilities and managing conflicts of interest.