Pass the CISI CISI level 3 Certificate in Wealth & Investment Management ICWIM Questions and answers with CertsForce

Bullet Bond Portfolio

Invests in bonds with maturities focused on a single date or time period (a "bullet").

This structure eliminates the need for frequent adjustments as maturities naturally align with portfolio objectives.

Barbell Bond Portfolio

Invests in bonds with very short and very long maturities.

Requires regular rebalancing to maintain the intended allocation, increasing transaction costs.

Why the Answer is D

A bullet portfolio simplifies management by focusing on a single maturity period, avoiding the complexity of rebalancing inherent in barbell strategies.

ICWIM Study Guide, Chapter on Fixed-Income Strategies: Compares bullet and barbell portfolios.

Bond Portfolio Management Principles: Highlights the operational advantages of bullet structures.

References

An execution-only sale occurs when a broker executes a trade without providing financial advice.

Key Features of Execution-Only Trading:

The client chooses the investment without guidance.

The broker only executes the trade (no suitability checks).

Typically used by experienced investors.

Regulatory Implications:

Under FCA rules, execution-only firms are not responsible for investment suitability.

Clients must confirm they are not receiving advice before execution.

???? Reference: FCA Handbook (COBS 10 - Execution-Only Transactions), CISI Wealth & Investment Management.

Impact of Technological Change and Globalisation:

Both trends encourage economic expansion and diversification.

Bond issuance rises as companies and governments seek capital to invest in infrastructure, technology, and globalization-driven initiatives.

Elimination of Other Options:

A: Urbanization has increased due to globalization, making this incorrect.

B: Equity issuance has not significantly decreased; bonds have grown alongside equities.

C: Technological change often reduces inflationary pressure through efficiency.

References:

ICWIM Module 1: Globalization and Financial Markets: Examines the role of debt markets in global finance.

A Defined Contribution (DC) pension scheme is a retirement savings plan where contributions are invested, and the final pension depends on investment performance.

Why is Option A Correct?

The final retirement income is uncertain because it depends on investment returns, contribution levels, and annuity rates at retirement.

Unlike Defined Benefit (DB) schemes, where retirees receive a fixed pension, DC schemes do not guarantee a set payout.

How Defined Contribution (DC) Schemes Work:

Contributions are made by employees (and often by employers).

Funds are invested in stocks, bonds, or mixed assets.

Upon retirement, the individual may withdraw lump sums, purchase an annuity, or opt for pension drawdown.

Why Not Other Options?

B (Employers never contribute) → Incorrect. Many employers do contribute, particularly in workplace pensions (e.g., auto-enrolment in the UK).

C (Capital gains tax applies) → Incorrect. Pension funds grow tax-free (no CGT on gains).

D (Employees always contribute more) → Incorrect. Employer contributions vary by scheme—some match employee contributions, others contribute less.

???? Reference: UK Pensions Act 2008 (Auto-Enrolment), FCA Pension Regulations, CISI Wealth & Investment Management.

The Producer Price Index (PPI) measures inflation from the perspective of businesses (producers), reflecting the cost of goods before they reach consumers.

Why PPI?

It tracks wholesale prices and raw material costs.

Helps predict future consumer price inflation (CPI).

Difference Between PPI & CPI:

CPI measures inflation from the consumer’s perspective (retail prices).

PPI measures inflation from the producer’s perspective (wholesale prices).

???? Reference: UK Office for National Statistics (ONS), CFA Institute (Inflation Indicators).

A Rules-Based model provides strict, prescriptive compliance requirements to ensure regulatory adherence.

Why is Option C Correct?

It removes ambiguity by outlining clear-cut rules that financial firms must follow.

Example: The FCA’s Conduct of Business Sourcebook (COBS) provides detailed guidelines on investment advice and suitability.

Why Not Other Options?

A (Evolves quickly) → Rules-based systems are rigid and slow to adapt.

B (Guidance) → A Principles-Based system (not Rules-Based) provides general guidance.

D (Combination of interests) → This relates more to self-regulation models.

???? Reference: FCA Regulatory Framework, CISI Wealth & Investment Management.

Relief at source allows for a reduction in withholding tax on overseas dividend income, typically under Double Taxation Agreements (DTAs).

Why is Option A Correct?

Many countries reduce withholding tax rates on dividends for international investors under tax treaties.

Instead of reclaiming tax later, the lower rate is applied immediately.

Example:

A UK investor receives dividends from US stocks. Under the UK-US tax treaty, withholding tax is reduced from 30% to 15% at source.

Why Not Other Options?

B (Tax rebate in cash) → Relief is provided via lower withholding tax, not a rebate.

C (Credit against separate tax liability) → This applies to tax credits, not relief at source.

D (Staggering of tax levy) → Withholding tax is deducted at source, not staggered.

???? Reference: HMRC Double Taxation Agreements, CISI Wealth & Investment Management.

Execution-only trading refers to transactions where the firm executes trades without providing financial advice.

Why is Option B Correct?

The client makes all investment decisions independently.

The financial firm does not assess suitability or risk tolerance.

Common in DIY investing platforms (e.g., stockbrokers, online trading apps).

Why Not Other Options?

A (Discretionary) → The firm manages investments without client approval for each trade.

C (Non-discretionary) → The firm provides advice, but the client makes the final decision.

D (Robo-advice) → Automated investment platforms provide algorithm-based recommendations.

???? Reference: FCA Conduct of Business Rules (COBS 10), CISI Wealth & Investment Management.

A rightward shift in the supply curve means an increase in supply at the same price level.

Why is Option A Correct?

Improved harvesting methods lead to higher productivity, reducing production costs and increasing supply.

Why Not Other Options?

B (Reduced crop yield) → This would decrease supply (leftward shift).

C (Consumers switching drinks) → Affects demand, not supply.

D (Reduction in competition) → Fewer producers might reduce supply.

???? Reference: Microeconomics - Supply & Demand, CISI Wealth & Investment Management.

Earnings per share (EPS) measures profitability per share. A higher EPS means a company has more earnings available for dividends or reinvestment.

Why is Option B Correct?

An increase in EPS improves the company’s ability to pay dividends, as there are more profits available per share.

Why Not Other Options?

A (Share base widened) → EPS is based on net income, not share count.

C (Market share risen) → Higher EPS does not mean higher revenue or market share.

D (P/E ratio increased) → The P/E ratio depends on share price movements, not just EPS.

???? Reference: CFA Institute (Earnings Analysis), CISI Wealth & Investment Management.