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waha
05-12-2008, 04:54 PM
I am simply very curious about how people responded on the IPS question.
I can't relate that with any readings so I simply put out a bunch of BS based on my common sense knowledge such as objectives, constraints, time horizon, matching liabilities when it is known (LTC cost) ect. How many points would I get? I remember it was a 6 pointer with 3 parts.

What was it about anyways?

FrankieY18
05-12-2008, 04:58 PM
I think part a was to ask what should be included in the IPS

part b was asking to give them a revised IPS if her mother a dependent of his, she is ill and needs money to cover her unpredictable medical cost

part c was asking to give them a revised IPS if her mother is institutionalized and the cost is more stable

hamstrman
05-12-2008, 05:01 PM
I am simply very curious about how people responded on the IPS question.
I can't relate that with any readings so I simply put out a bunch of BS based on my common sense knowledge such as objectives, constraints, time horizon, matching liabilities when it is known (LTC cost) ect. How many points would I get? I remember it was a 6 pointer with 3 parts.

What was it about anyways?

I started spouting off the list of things an investment policy should contain. Then I wrote a quick sentence about how each item on the list should apply to his situation...

e.g., Risk Aversion - he should be moderately risk-averse because he has no other sources of income, but the money should be sufficient in most cases.

When he could incur a large, unexpected bill, I said he had to be much less risk averse to have a high enough return to account for the possibility of a large cost.

Mr. BoH
05-12-2008, 05:06 PM
Glad you asked about this; I was wondering about this one also. This question had a very different feel to it than the rest of the exam.

I talked a lot about what his strategy should be in general terms - start with some balanced portfolio, then gradually shift it more conservative as he nears retirement. 100% stocks is almost certainly too risky, especially when you consider he was a business owner (basically an additional concentrated equity investment).

Then, with the sick mother, I said he should move a sizable chunk of the portfolio (enough to cover the medical bills) to cash to improve liquidity.

Last, with the mother in LTC, I recommended (1) buying an immediate annuity to cover her fixed costs for the risk averse scenario, and (2) investing heavily in high quality bonds with income sufficient to meet LTC costs for the moderate risk scenario.

In hindsight, I wish I'd more explicitly laid out risk/return/taxes/time/legal/liquidity/other at each step since I suspect that is what the grading outline will look like. In other words, I answered it too much like a financial advice columnist and not enough like an actuary. Probably will hurt me in grading, although I hope to get a good chunk of partial credit since I hit on many of the IPS topics tangentially.

The Smokin' Cracktuary
05-12-2008, 05:36 PM
I am simply very curious about how people responded on the IPS question.
I can't relate that with any readings so I simply put out a bunch of BS based on my common sense knowledge such as objectives, constraints, time horizon, matching liabilities when it is known (LTC cost) ect. How many points would I get? I remember it was a 6 pointer with 3 parts.

What was it about anyways?

That's what I did.

I thought later about putting the contents of an IPS, but most of them didn't apply to the situation, so I didn't put the whole list. I made sure to include the ones that did.

I do regret not putting what must be monitored in an IPS, but I am hoping I still got a decent amount of credit.

It seemed though that after you listed what was included and should be monitored in part A and/or B, the rest was just making up an investment stragtegy and justifying it based on his situation.

In response to someone saying stocks were too risky, it specifically stated that he didn't need the money for current income, retirement, or any dependants. If you can think of a better situation to invest risky, I'd like to hear it.

Laurelinda
05-12-2008, 05:56 PM
In other words, I answered it too much like a financial advice columnist and not enough like an actuary.

Me too. At that point I was running out of time, too, so I'm afraid my answer will come across as just air. I'd be lucky to get one point for understanding the basic liquidity / risk appetite differences between the different situations, which is probably all my answer came down to. ;)

The Smokin' Cracktuary
05-12-2008, 06:00 PM
Me too. At that point I was running out of time, too, so I'm afraid my answer will come across as just air. I'd be lucky to get one point for understanding the basic liquidity / risk appetite differences between the different situations, which is probably all my answer came down to. ;)

I honestly am not sure what else you could have put, really.

Car'a'carn
05-12-2008, 06:09 PM
:iatp:

Mr. BoH
05-12-2008, 06:12 PM
In response to someone saying stocks were too risky, it specifically stated that he didn't need the money for current income, retirement, or any dependants. If you can think of a better situation to invest risky, I'd like to hear it.

Well, given that both his current income and his retirement were funded by the business he owned (and that small businesses fail not infrequently), I think it would be prudent to take at least some risk off the table. I think I recommended something like 70% stock / 30% bond, which is still fairly aggressive.

My point was that the risk for being 100% in stocks might not justify the reward unless you have an extremely long time horizon (if he were 20, I may have come to a different conclusion). Especially since he had a pretty good nestegg put together ($1m at age 45? Most of us should be so lucky), I just didn't see any need to go overboard on taking more risk.

sundwarf
05-12-2008, 06:12 PM
:iatp:

:iatp:

TiderInsider
05-12-2008, 07:16 PM
The dude had most of his eggs in one basket...if his business is at all correlated with the market (and his $1M portfolio) he's in trouble if there is a crash.

I felt terrible for the guy and wasn't able answer...the stuff about his mom getting sick and needing to be institutionalized really ruined my afternoon...but then I thought that maybe her husband went to visit her often and told her stories about how they fell in love and about there lives together...until after a while she started to remember who he was and who she was....then I started to feel better.

waha
05-12-2008, 07:27 PM
The dude had most of his eggs in one basket...if his business is at all correlated with the market (and his $1M portfolio) he's in trouble if there is a crash.

I felt terrible for the guy and wasn't able answer...the stuff about his mom getting sick and needing to be institutionalized really ruined my afternoon...but then I thought that maybe her husband went to visit her often and told her stories about how they fell in love and about there lives together...until after a while she started to remember who he was and who she was....then I started to feel better.

Dude, I hope this is what you put down on the real exam :)

Caramel
05-13-2008, 06:56 PM
The dude had most of his eggs in one basket...if his business is at all correlated with the market (and his $1M portfolio) he's in trouble if there is a crash.

I felt terrible for the guy and wasn't able answer...the stuff about his mom getting sick and needing to be institutionalized really ruined my afternoon...but then I thought that maybe her husband went to visit her often and told her stories about how they fell in love and about there lives together...until after a while she started to remember who he was and who she was....then I started to feel better.

Is this from the movie "The Note Book"? :P

TiderInsider
05-13-2008, 11:41 PM
Is this from the movie "The Note Book"? :PIndeed...I did express my feelings, but I made sure to put them in bullet format to save time.