I was doing a Kaplan mock earlier and I came across a IPS question where it listed a 401k portfolio in with investable assets?
I doubt that CFAI would do that on a test but my answer was wrong against the grading sheet because I excluded the 401k from the asset base. From the perspective of the financial advisor I cant see how this would be factored into a required return, when the financial advisor would not have discretion over the 401k.
Unique situation just had not seen it in a question set before. Anything official from CFAI on this?
You are confusing GIPS I think with IPS. in GIPS if an advisor doesn’t have discretion it wouldn’t be included in composites etc. That is never discussed in the portfolio wealth management sections
No not mixing it with GIPS but I can see how it sounds that way. I suppose the 401k could be managed by the advisor but that is a big assumption in my view.
I feel like this falls into the same bucket with a home, concentrated position in a private company, or gold, all of which I have see in IPS questions omitted from investable assets.
The other consideration in this example is that a large portion of the investable assets was comprised from the 401k. If you need the portfolio to generate returns to provide for living expense shortfalls this is not logical as you can not draw funds from the 401k without penalty until 59 1/2 years old.
First off I don’t see the value in your comment, the forum is about making sure on small details.
Second if you need your portfolio to cover you living expense / spending shortfalls before you are able to legally access it how does that work, explain that to me?
I think the thing we have to consider is if current income is sufficient to support all living expenses before retirement, and if the goal is earn a return to support retirement? If those two calculations are met, then yes we can include the retirement account given it does not have to be accessed.
Again this is just a poorly structure question in my opinion.
If you need the portfolio to generate living expense shortfalls aka liquidity requiremens before retirement how can a 401k be considered in the investable assets?
I am content to let you keep thinking this way, you have been instructed by multiple people (and Schweser) that your assertion is invalid. Good luck on the test
acoxen, building IPS is not about discretion. It is even possible that individual will invest himself based on what you put together in IPS or will use other manager.
You can always tell when the exam is near: people start getting more and more anxious, and more and more testy. They start questioning things that they previously knew to be true, and that leads to more anxiety and more testiness.
Fortunately, this one’s easy.
If you have assets that you can invest to earn a return that can be used to meet your needs, then those are investable assets.
Excellent definition. And Magic you’re subject of discussion among candidates on coffee break before exam even if those candidates are not AFs. I forgot to tell you. You’re are planetary popular.
