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NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Construction Process

In the portfolio construction process, which document is prepared first so that an investment adviser can later decide the asset allocation for a client?

The Investment Policy Statement is prepared first. It records the client's objectives (return and risk) and constraints such as liquidity, horizon, taxes, legal factors and unique needs, and it guides asset allocation, implementation, rebalancing and performance evaluation later.

  1. AInvestment Policy Statement capturing objectives and constraintsCorrect
  2. BQuarterly performance attribution report
  3. CRebalancing trade list
  4. DBrokerage contract note summary

Explanation

The Investment Policy Statement records the client's return objectives, risk tolerance and constraints such as liquidity, time horizon, tax, legal and unique needs. Asset allocation, implementation and monitoring all flow from it. The other items are outputs of later stages or administrative records.

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