Practice Test Geeks(CES) Certified Estate and Trust Specialist Practice Test
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Portfolio Management & Strategy Flashcards

7 cards from real CES practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.

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  1. What is the primary purpose of an Investment Policy Statement (IPS) in a trust portfolio?

    Answer: To document investment objectives, constraints, and guidelines for managing trust assets

    An IPS codifies the trust's return objectives, risk tolerance, time horizon, liquidity needs, tax situation, and constraints, serving as the governing framework for investment decisions.

  2. Which alternative investment is most commonly used in trust portfolios to provide inflation protection and low correlation to stocks and bonds?

    Answer: Real estate investment trusts (REITs)

    REITs provide real estate exposure with inflation-linked income, liquidity advantages over direct property ownership, and low correlation to traditional asset classes.

  3. A trustee is evaluating whether to use separately managed accounts (SMAs) or mutual funds for a $2 million trust. What is the key advantage of SMAs?

    Answer: Direct ownership of securities enabling tax-loss harvesting and customization

    SMAs give the trust direct security ownership, allowing tax-loss harvesting, legacy holding management, and portfolio customization unavailable in pooled vehicles.

  4. In the context of trust investing, what is 'delegation' under the Uniform Prudent Investor Act?

    Answer: Engaging an agent to perform investment functions while retaining oversight duties

    UPIA allows trustees to delegate investment functions to qualified agents but requires prudent selection, scope definition, and ongoing monitoring of the agent's performance.

  5. A trust portfolio holds a bond with a 5-year duration when interest rates are expected to rise significantly. What adjustment would reduce interest rate risk?

    Answer: Shorten portfolio duration by shifting to shorter-maturity bonds

    Reducing portfolio duration by selling long-maturity bonds and buying short-maturity bonds decreases price sensitivity to rising interest rates.

  6. Which risk metric measures the potential loss in a portfolio under adverse market conditions, typically expressed as a dollar amount or percentage?

    Answer: Value at Risk (VaR)

    Value at Risk quantifies the maximum expected loss over a given time period at a specified confidence level, helping trustees understand downside exposure.

  7. An estate planning client wants to minimize portfolio volatility while maintaining equity exposure. Which strategy is most appropriate?

    Answer: Use low-correlation asset classes to diversify systematic risk

    Combining asset classes with low or negative correlations reduces overall portfolio volatility through diversification without eliminating equity participation.