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Financial advisory
RES5Financial Advisory Services✓A representative at a CMS licence holder proposes a strategy for a retail client that (a) states the client's objective is to hedge equity market risk, (b) sets a performance target compared on a risk-adjusted basis against an index, (c) plans a rebalancing trigger if energy prices spike, and (d) describes the portfolio's risk using a metric chosen because it shows the lowest possible risk figure. Which elements are consistent with the trading strategy formulation process in RES 2B 6.3?
Stating the objective (6.3.1), a risk-adjusted benchmarked target (6.3.2.1) and a planned rebalancing process (6.3.4.2) are all correct. Choosing a metric because it flatters the risk profile breaches 6.3.4.1, which requires consistent metrics and forbids using metrics to disguise risk. Takeaway: consistent metrics, never cosmetic ones.
Element (d) is the impostor: metrics must be consistent, not chosen to hide risk.
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