Regarding the 6 high net worth clients who want to put 100% of their assets into some SRI securities, what’s the best practice with these accounts? I said they put them in non-discretionary account. Anyone?
Make a distinct composite
make a SRI composite, since it still has some discretionary power over it, I guess
i put that too, did anyone look this up after and find it? I couldnt
Ya, start a new SRI composite for me
you can’t look it up one logic says: you can’t include non-discretionary accounts in any composite another logic says: make a composite that holds similar investment philosophy/objectives
i picked new composite
actually yeah thats true process of elim.
Non discretionary accounts are NOT allowed to be reported in GIPS. Gips allows discretionary, NON FEE paying accounts to be enclosed in composite with appropriate disclosures but not non discretionary. the best would have been to put them in a separate SRI composite BECAUSE FROM WHAT I CAN REMEMBER THE QUESTION/VIGNETTE STATED THAT THIS WOULD NOT IMPACT THE ABILITY OF THE INVESTMENT MANAGER’S ABILITIES CORRECT? The question had to have that info, because if it said that it would impact the managers ability to manage the account than for sure it would be non-discretionary but I know gips off the top of my head so I would have picked up on that. Does anyopne rememebr a statement that said it would not hurt the managers ability to manage the account? Because i remember in study notes claerly a line tht says " just because there is a constraint does not automatically construe the portfolio to be unmanageable but it determines the severity of the restriction i.e hold 50% of my company stock would be non-discretionary" therefore there had to be a statement given on the managers ability
Are they not considered to be non-discretionary? I can’t remember the actual restrictions of their investment they would want to put onto investment managers.
No, at my work we have special SRI Screens?Models we place these clients in, but they are still discretionary IPS and the whole 9
no the question did say that it would impact the managers within the US equity accounts but if you put them in a composite where the strategy would be to follow SRI, then i figured it wouldn’t be non-discretionary anymore this one you could go either way on, with the 2 logics i had above
but , it all depends on the restriction so this had to be given in the question. We could simply not assume that it hampers managements abiltity or doesnt hamper their ability without direct information from CFAI So i wonder if anyone remembers this. I’m pretty sure its Separate SRI composite because I remeber the question MOST GIPS COMPLIANT, and GIPS specifically states that composites should be created similar to the investment style of the portfolio, therefore by NOT including them in the US portfolio and have thier own composite seems like the logical answer… UNLESS you were one of few people who picked up a hidden sentence a the end or the beginning that said ( This SRI screen would impinge on the managers ability to invest the portfolio" than you would be right. I hope that line wasnt there
new composite
this is what i am saying, it said it WOULD hamper their ability - in the US equity but if you make a distinct SRI composite, then i’m saying it doesn’t hamper their ability
itstoohot Wrote: ------------------------------------------------------- > new composite only logical option.
i wouldn’t say only logical opinion, i could see how it could go the other way but obviously i think the one i chose was best answer
this is what i am saying, it said it WOULD hamper their ability - in the US equity but if you make a distinct SRI composite, then i’m saying it doesn’t hamper their ability ___________________________________________________________________ New professional, just because a firm makes a composite of portfolos doesnt mean that they are all discretionary. If the question said that the SRI portfolios hampered the ability of the managers to exercise discretionary control, than it wouldnt matter if they had their own composite. Its like saying you will amke a composite for your non-discretionary accounts and tht is gips compliant since they have their own composite but that is incorrect. For this EXAM question, I strongly believe the answer is separate SRI composite, and that is what I selected. But now im worried if there was a line I missed in the vignette that staed if there were restrictions on the SRI portfolios themselves where the managers could not exercise discretionary control. Like I said I consider myself a gips expert and spent alot of time on it, so If I did see that in the vignette i would have not picked that answer, but i am pretty sure we are in the clear unless someone here remembers something. wait a sec, did the answer say " non-discretionary" or “non-discretionary composite” since there is no such thing under gips as a non discretionary composite
the question said the accounts wanted to put restrictions in place that would in effect make the accounts non-disretionary so you could 1) choose to put them in no accounts b/c non-discretionary means not in GIPS or 2) put them in a SRI composite where they would in fact be discretionary but within the stated limits of the objectives of the fund so i chose 2
I specifically remember reading the statement several times and I could have sworn it said the restriction WOULD NOT hinder their investment ability.