CFP 4 Investment Strategies

CFP 4 Investment Strategies
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Question 1 (8 marks)
Kate and Paul (aged in their late 40s) have come to see you for an initial meeting. Theyhave a current financial planner, but they are questioning his ability to manage their
growing investment portfolio as well as his ability to communicate with them about hisfirm’s investment philosophy and explain the reasoning behind changes he recommends to
their portfolio.
They have been saving some money to give to their only child (in two or three years time)to put towards a house deposit, and they are putting money away for a two-month aroundthe-
world trip when they turn 60 years of age.
(a) Explain to Kate and Paul in language they will understand how your firm ascertains aclient’s risk profile and how regularly this is reviewed. Applying what you have learned
in this course, are there any changes you would like to make to your firm’s process?(2 marks)
(b) In your own words, explain to Kate and Paul what asset allocation is, why it isimportant and how you determine a client’s asset allocation.
(2 marks)
(c) Explain to Kate and Paul about the enhancements to the traditional portfolioconstruction process and how these enhancements will benefit them.
(2 marks)
(d) Kate and Paul ask you whether a client’s asset allocation will ever change.List two (2) changes in Kate and Paul’s circumstances that would cause you to
re‑evaluate their asset allocation.(2 marks)
Question 2 (16 marks)
(a) A set-and-forget investment strategy was criticised during the global financialcrisis (GFC) when traditional investment principles broke down. As a result, some
investment professionals now argue for a more active approach to managingclient portfolios to reduce the impact of drawdowns from similar events in future.
Explain in your own words the differences between the two active methods of assetallocatio—dynamic asset allocation (DAA) and tactical asset allocation (TAA)—and
any limitations they may provide. In your response, justify if you prefer either methodand why.
(3 marks)
(b) When investing offshore, currency fluctuations can have a positive or negative impacton an investor’s returns. Assume AUD 400,000 was invested equally across four
countries/regions. Using the information below, calculate the value of the portfolio inthree years time in Australian dollars and provide the overall currency impact for the
three-year period. Show all calculations.