APT·INVESTMENT · Module 3: Investment for DB and DC Schemes·UnitINVESTMENT · Unit 05Access: Premium
Unit 3.5: The Statement of Investment Principles
Unit 3.5 covers the Statement of Investment Principles in detail. It sets out who is responsible for the decisions that go into preparing a SIP, what the statement has to contain, the investment objectives of a fund and the asset allocation strategy that follows from them, and the requirement to monitor the statement and update it, including the review cycle and the duties to take written advice and consult the sponsoring employer. The SIP is the document that ties the rest of Module 3 together, because a strategy decision should be traceable back to it.
What’s in it.
5 topics- Topic 01
Responsibilities for Decisions in Preparing a Statement of Investment Principles
42 questions - Topic 02
The Contents of a Statement of Investment Principles
44 questions - Topic 03
The Investment Objectives of a Fund
45 questions - Topic 04
The Asset Allocation Strategy of a Fund
45 questions - Topic 05
The Requirement to Monitor and Update a Statement of Investment Principles
43 questions
Sample questions
3 of manyA few questions from this unit, with the answer and a full explanation. The complete bank is available when you start practising.
Are 'financially material considerations' and 'non-financial matters' the same thing under the SIP content rules?
- No, because only one of the two is a legal requirement
- No, they are separate, distinct policy categoriesCorrect answer
- Yes, since both concern member and beneficiary views
- No, but they overlap completely in practice
ExplanationRegulation 2 treats financially material considerations, factors affecting risk and return, and non-financial matters, the extent to which member views are taken into account, as two conceptually separate required policy areas. Key takeaway: the two terms describe different, non-interchangeable content categories.
A trustee is comparing how DB and DC schemes typically express investment objectives. Which statement about DB objectives is accurate?
- DB objectives are typically framed solely around equity market benchmarks
- DB objectives are typically framed relative to the scheme's liabilitiesCorrect answer
- DB objectives are typically framed without reference to funding position
- DB objectives are typically framed to match DC member-outcome language
ExplanationDB objectives are typically expressed relative to the scheme's liabilities, whether by matching their duration and inflation sensitivity or by targeting a funding-level trajectory, reflecting the scheme's purpose of providing promised benefits. Key takeaway: liability-relative framing distinguishes DB objectives from the member-outcome framing typical of DC schemes.
A scheme's trustees justify a highly illiquid, single-asset-class portfolio by pointing to the strong historical returns of that asset class alone, without addressing security, quality or liquidity considerations. Does this satisfy the prudent-person principle?
- Yes, strong historical returns alone are sufficient to satisfy the prudent-person principle
- No, but only because a single asset class always breaches diversification, regardless of the other factors
- Yes, since liquidity is only relevant for schemes approaching wind-up
- No, the principle requires security, quality, liquidity and profitability togetherCorrect answer
ExplanationThe prudent-person principle requires trustees to have regard to the security, quality, liquidity and profitability of the portfolio as a whole; focusing solely on historical returns while disregarding liquidity and the other qualitative factors does not meet the standard, independent of whether diversification is separately breached. Key takeaway: profitability alone does not satisfy the prudent-person principle if security, quality and liquidity are ignored.