Could someone explain why A also isn’t a right answer?
It clearly states in the IPS that she plans to retire in 4 years and expected to live till 85 (22 years).
So just wondering why A isn’t a right answer?
Based on Exhibit 1, which of the statements in the Gardiner-Parkway IPS prepared for Marjorie is most appropriate? The statement regarding:
A Her time horizon.
B the Westmeyer investment.
C the planned donation.
B is correct. The Westmeyer shares provide tax deferral benefits, as no taxes are to be paid until disposal; in addition, there are tax reduction benefits: no dividends are paid, and taxes on dividends are higher than that of capital gains
No idea, I answered the same way. The only thing i can think of is that it maybe failed to mention her educational support for Anna in the time line (which doesnt make sense either because will be fully funded in four years, which is the same time as when she will retire)
The time horizon statement fails to account for the education funding period or support for the granddaughter through age 35. Both would be important stages to mention in the time horizon portion of the IPS.
Yeah, I didn’t pick B because I didn’t think she had tax reduction benefits. Turns out she did.
Also, from another AM exam, if you have a tax exempt account and a 100% taxable account but you can use loses to offset gains, and last year you had a lot of losses in both accounts. The 100% taxable account would have the same or higher AT return compared to the tax exempt.
IMHO, with respect to her 2nd stage you can only say that it will last from her retirement until her death. The 22 years are an estimate , and if its wrong she is exposed to longevity risk/may die with too much property, so it is not an appropriate thing to write in an IPS.
Haha yeah jeff I was wringing my hands on this one. I knew time horizon was out, but the tax benefits part kept me from choosing B, even though C questioned everything I know about liquidity. I chose C and failed lol.
I’m convinced the entire vignette and questions were composed while under the influence, and given the stature/status of said individual, it was included due to social proof.
I’ve got a lot of material to send angry emails to CFAI about this one. Agreed, it never mentioned a single thing about dividends for Westmeyer, just for the private company she founded. Another issue is with the salary = living expenses…that was designed entirely to trick the reader into thinking the salary figure provided was post-tax. Really sh*tty question.
This one got me too. My initial thought was that you don’t tell someone they’ll live for 22 years which is why she wasn’t happy maybe? Horrible question.
I think I chose B simply because I recognized A and C as wrong.
-C was obvious as she didnt have the cash on hand at that point.
-A is wrong because it didnt list anything beyond her expected death (22 years.) You could make two arguments here- one is that you wouldn’t manage it as a concrete number, therefor it doesn’t make sense to portray the time horizon in that manner. It might be more appropriate to simply say “Long time horizon, at least 22 years” or something along those lines. The second, and more obvious IMO, is that she stated she wanted to provide for Anna until she was 35, so the time horizon should have reflected her wishes (even those beyond her expected lifetime.) This would be critical for any PM to know if they were to manage the portfolio appropriately- the assets need to last beyond her own lifespan and this would definitely affect the strategy.
Pretty lousy question overall… seems to be a common theme in this exam based on feedback here.