CMFAS M8 Risks of Collective Investment Schemes question: Applying the risk-return tradeoff to advice

CMFAS M8Risks of Collective Investment Schemes

Applying the risk-return tradeoff to advice, a fund is suitable for a client only when:

A Its risk level matches the client's risk tolerance, horizon and objectives
B It offers the highest headline yield available for the client's money
C It had the strongest past performance in its sector over the last year
D Its fees are the lowest among the funds the adviser's firm can recommend

Show the answer and explanation

Answer: A. Its risk level matches the client's risk tolerance, horizon and objectives

Suitability follows from the risk-return tradeoff: a fund is appropriate only when its risk level matches the investor's risk tolerance, time horizon and objectives; past performance is not a guide to the future.

Common mistake

Selecting on headline yield or past performance instead of matching risk to the client.

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CMFAS M8 Risks of Collective Investment Schemes question: Applying the risk-return tradeoff to advice

Answer: A. Its risk level matches the client's risk tolerance, horizon and objectives

Common mistake

Related CMFAS M8 questions

CMFAS M8 Risks of Collective Investment Schemes question: Applying the risk-return tradeoff to advice

Answer: A. Its risk level matches the client's risk tolerance, horizon and objectives

Common mistake

Related CMFAS M8 questions