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CFA Level I · CFA Level I Exam · Portfolio Management: An Overview

A client's investment policy statement is most likely to need review during the monitoring step if the client:

A large inheritance that raises wealth and reduces the need to take return risk most likely requires a policy statement review, because it changes the client's risk capacity and objectives. Minor benchmark lag or small weight drift is addressed by routine monitoring and rebalancing.

  1. Aexperiences a quarter in which the portfolio slightly trails its benchmark
  2. Breceives an inheritance that greatly increases wealth and lowers the need to take return riskCorrect
  3. Csees the equity weight drift one percentage point from its target

Explanation

A major change in client circumstances such as wealth or risk capacity affects the objectives and constraints in the policy statement. A small short-term benchmark shortfall or a minor drift is handled through normal monitoring and rebalancing.

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