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CFA Level III Updated
How should a Mid-career (Accumulation) client structure their plan?
The Accumulation phase (35-55) is peak earnings + complex multiple goals. Example: Harrison Okafor-Thiele, 46, $700K household income. Priorities: cash flow mapping, tax-optimization stack (401k/backdoor Roth/mega Roth/HSA/529), equity compensation strategy, 70-75% equity allocation, goal-based bucketing, insurance review, estate basics...
What are the GIPS real estate provisions?
Real estate GIPS provisions require annual external and quarterly internal valuations, separate income/capital returns, and IRR for closed-end funds.
What counts as supplementary information under GIPS?
Supplementary information includes carve-outs, after-tax returns, peer comparisons, and attribution. Must be labeled, accurate, and non-misleading.
What is GIPS verification and what is its scope?
Verification is firm-wide review of GIPS policies and composite construction. Performance examination is composite-specific return verification.
What is Bayesian asset allocation and how does it differ from mean-variance?
Bayesian allocation (Black-Litterman) blends equilibrium prior with investor views using Bayes' theorem, producing stable diversified weights that classical MVO cannot achieve.
What diagnostic tools help identify client biases, and how reliable are they?
The Pompian BIT grid, risk-tolerance questionnaires, and decision journals each capture different bias signals. Combining them across the first year of engagement gives the sharpest client profile.
What is the mega backdoor Roth and when does it apply?
The mega backdoor Roth exploits after-tax 401(k) contributions and in-plan Roth conversion, allowing up to $36,500/year additional Roth contribution...
What rebalancing approach should the IPS specify?
Four rebalancing approaches: calendar, threshold, calendar+threshold (most common), tactical. Bands typically 25% of target. Use cash flows first, harvest losses, avoid short-term gains.
When should a client use a revocable trust instead of just a will?
Revocable trusts avoid probate costs, handle incapacity, preserve privacy, and enable complex distributions - but cost more upfront...
How do I build an emerging market debt portfolio across hard and local currency?
Blend hard/local sovereign, hard corporate, frontier. Target 50/30/15/5. Currency and liquidity are main risks; active adds 100-250 bps.
How do portfolio managers integrate ESG factors into equity investment decisions?
ESG integration encompasses a spectrum from negative screening to full valuation integration. Portfolio managers incorporate environmental, social, and governance factors into fundamental analysis by adjusting cash flow projections, discount rates, and risk assessments.
How does the Harvard endowment strategy differ from Yale's, and what lessons emerged?
Harvard historically ran a hybrid internal/external model with heavy natural resources and leverage before shifting to a Yale-like external approach.
What is the Yale endowment model and why did it revolutionize institutional investing?
The Yale endowment model emphasizes equity ownership, alternatives diversification, illiquidity premium harvesting, and active manager selection.
What are the main active yield curve strategies?
Five active curve strategies: ride-the-curve, bullet, barbell, butterfly, and slope trades. Each targets specific curve movements — level, slope, curvature, or roll-down income.
How should strategic geographic equity allocation be determined?
Four frameworks: market-cap (efficient but US-heavy), GDP weights (macro-relevant), regional targets (judgment-based), risk parity (diversification-max). Most institutions use market-cap-tilted with modest regional overweights.
What is the 'economic balance sheet' and how does human capital factor into asset allocation?
The economic balance sheet extends beyond traditional financial assets and liabilities to include human capital, pension values, and future consumption needs. Your financial portfolio should complement your human capital — a government employee with bond-like income should tilt toward equities, while a startup founder should tilt toward bonds.
What are the main PE exit strategies and when is each preferred?
Strategic sale, secondary buyout, IPO, and dividend recap each offer different value/liquidity/certainty tradeoffs.
How does a reverse mortgage (HECM) fit into a retirement plan?
A Home Equity Conversion Mortgage (HECM) is the U.S. government-insured reverse mortgage available to homeowners aged 62+.
How do I quantify credit migration risk in a portfolio?
Use a rating transition matrix, spread curves by rating, and probability-weighted revaluation to quantify migration P&L. The fallen angel transition is the most painful.
What is a rebate in barrier options and how does it affect pricing?
Rebate is fixed cash paid when a knock-out barrier kills the option, cushioning the loss. It raises knock-out premiums and breaks simple parity relationships.
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