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AM rule of thumb

So I’m under the assumption that in the AM part, you shouldn’t make any assumptions/ own interpretations about the case facts. 

I’ve noticed that in the answers, there are several cases which are regularly interpreted in a way that goes against what is said in the vignette. For example:

1) A ”home” that is excluded from portfolio can be used for leverage and cash needs.

2) Dude retiring in 5 years can re-enter the work force if need be.

Very frustrating! 

If you're the first out the door, that's not called panicking

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You are correct but one should be careful with going against the vignette. If you can first make strong argumentation with what is stated in the vignette use that option first. If nothing pops up in your mind, then go against the vignette.

I was pissed with that PWM case in which it was stated that the 35 old person (former tennis player from 2017 AM) does not want to work anymore (which I have decided to put in Unique) only to read the answer that she could come back to workforce if she wanted to. I was like “yeah I got it but she said she is not going to work anymore, this is something completely unique”.

Torsten55 wrote:

You are correct but one should be careful with going against the vignette. If you can first make strong argumentation with what is stated in the vignette use that option first. If nothing pops up in your mind, then go against the vignette.

I was pissed with that PWM case in which it was stated that the 35 old person (former tennis player from 2017 AM) does not want to work anymore (which I have decided to put in Unique) only to read the answer that she could come back to workforce if she wanted to. I was like “yeah I got it but she said she is not going to work anymore, this is something completely unique”.

Yeah I agree. In that same vignette, the person’s real-estate investment is to be left out of the portfolio. However, in the unique circumstances portion of the IPS, it says that the RE investment should be considered when doing the asset allocation decision for the portfolio. What are we supposed to make of that? The real-estate is not a part of the portfolio but it still affects the asset allocation decision? 

If you're the first out the door, that's not called panicking

Same vignette: there is no mention of debt…yet ability to take is increased because she has no debt. How do we know that she hasn’t any debt if it is not mentioned?

It ain't what you don't know that gets you in trouble. It's what you know for sure that just ain't so.

Eliminating the real estate or house from investable asset to calculate the required return doesn’t mean it cannot be considered in other situations. It’s still your asset and the fact that u can take a loan against it is an ability u have and it can be considered in your overall ability to take risk.

Likewise if u decided to retire at age 35, u can decide to go back to work again.

Guys should not overthink IPS questions.

Same vignette: there is no mention of debt…yet ability to take is increased because she has no debt. How do we know that she hasn’t any debt if it is not mentioned?

Might as well write down that she is going to find a sugar daddy and inherit billions once he kicks it.

It ain't what you don't know that gets you in trouble. It's what you know for sure that just ain't so.

zigogh wrote:

Eliminating the real estate or house from investable asset to calculate the required return doesn’t mean it cannot be considered in other situations. It’s still your asset and the fact that u can take a loan against it is an ability u have and it can be considered in your overall ability to take risk.

Likewise if u decided to retire at age 35, u can decide to go back to work again.

Guys should not overthink IPS questions.

You can sell your home and live in a tent!

zigogh wrote:

Eliminating the real estate or house from investable asset to calculate the required return doesn’t mean it cannot be considered in other situations. It’s still your asset and the fact that u can take a loan against it is an ability u have and it can be considered in your overall ability to take risk.

Likewise if u decided to retire at age 35, u can decide to go back to work again.

Guys should not overthink IPS questions.

Yeah, I understand what you’re saying. But we’re not talking about risk taking abilities. Were talking about portfolio construction. The vignette says : ”the real estate holding will be excluded from her advisor-managed investment portfolio” but in unique circumstances it says that the advisor will take the real estate holding into account when making asset allocation decisions, which contradicts the vignette. If you allocate assets based on the existence of the real estate asset, you’re implicitly including it in the portfolio. 

If you're the first out the door, that's not called panicking

(edited due to double post, see post below)

Assume you advise someone who gives you $1 million to handle. You know all the rest of his money is tied up in rental appartments (say another $1 million), but is not part of the portfolio you manage. Would you take the $1 million RE exposure into account when considering real estate exposure in the $1 million you have to manage?

Nukular wrote:

Assume you advise someone who gives you $1 million to handle. You know all the rest of his money is tied up in rental appartments (say another $1 million), but is not part of the portfolio you manage. Would you take the $1 million RE exposure into account when considering real estate exposure in the $1 million you have to manage?

If I’m told not to consider the RE portfolio, then I will respect the client’s wishes to not to consider it in portfolio SAA. 

It ain't what you don't know that gets you in trouble. It's what you know for sure that just ain't so.

TrackSuitInvestor wrote:

Nukular wrote:

Assume you advise someone who gives you $1 million to handle. You know all the rest of his money is tied up in rental appartments (say another $1 million), but is not part of the portfolio you manage. Would you take the $1 million RE exposure into account when considering real estate exposure in the $1 million you have to manage?

If I’m told not to consider the RE portfolio, then I will respect the client’s wishes to not to consider it in portfolio SAA. 

That is true if the client asks explicitly to treat it as if that exposure did not exist at all. If he just tells you its not part of the portfolio you manage, then you should still consider this exposure in managing the portfolio (at least in my opinion).

Has there ever been a problem where you did include the house value into the portfolio?

I can’t recall in the past 8 years am exams.

I don’t mean that they planned to sell it when they retire, or sell it in 5 years. But actually including the value in the portfolio without an explicit description that they were planning to sell.

i have done all 4 schwesers and every single CFAI from 2010 to 2018 and i have indeed never seen the value of the house included

For the whole client can return to the workforce thing, I would assume the client can do so unless it explicitly says the guy is actually unable to (say disabled as one of the past exams did). This concept is definitely not covered in the curriculum and was only taught as a trick during the IPS workshop I took with Kaplan last year.

As for the unique circumstances, sigh it’s a toss up, it really depends on what crossed your mind that moment. The good news though is that it’s probably only worth a couple points, so just let them have it?

Yes - all you’re doing in IPS return objective is calculating a required return. If the case says don’t include residence, don’t include it for return objective purposes. However, it is recommended to note the residence under unique. For SAA, the residence would be factored into allocation decisions. Two separate topics, and the guideline answers were pretty clear.