Portfolio Solutions Fundamentals — Vocabulary Flashcards

Vocabulary flashcards covering key terms from the Portfolio Solutions Fundamentals chapter.

Portfolio solutions

A program that combines asset allocation, rebalancing decisions, and security selection into one integrated offering for client portfolios.

Balanced funds

A fund designed to meet a group of investors with a similar profile by holding a mix of equities and fixed income, typically around 60/40, managed by a single firm.

Fund wraps

A wrap program offering pre-selected asset allocation models; management and security selection are outsourced to multiple managers; wrap fee applies.

Managed accounts

A portfolio solution tailored to an individual; client owns the underlying securities and decisions may be discretionary or non-discretionary.

Overlay management

A service that overlays and coordinates multiple managed products into a single account for easier rebalancing and customization.

Funds of funds

Mutual or segregated funds that invest in units of other funds to create predetermined asset allocations.

Portfolio allocation services

A service providing predetermined model portfolios; investor owns units of underlying funds.

Target date portfolios

Portfolios with a target date that automatically shifts asset mix toward lower risk as the date approaches.

Unified Managed Accounts (UMAs)

Accounts that consolidate multiple managed accounts into one framework with unified reporting and guidelines.

Unified Managed Household Accounts (UMHAs)

UMAs applied to an entire household, integrating all family accounts and considerations.

Separately managed accounts (SMAs)

Accounts where the client owns the individual securities; typically discretionary and fee-based.

Non-discretionary managed accounts

Full-service programs where the advisor must obtain client consent to trade each underlying component.

Discretionary managed accounts

Accounts where the broker/manager makes investment decisions; includes types like managed wrap, advisor-managed, and SMAs.

Managed wrap accounts

Discretionary accounts with wrap-fee structures where underlying securities are held directly and minimums are higher.

Advisor-managed accounts

Discretionary accounts where the advisor acts as portfolio manager or uses broker-provided model portfolios.

Embedded fees

Fees included in the portfolio solution’s MER; simple but may offer less transparency.

Unbundled fees

Asset allocation fees charged separately from brokerage/trading fees; greater transparency and potential tax clarity.

MER (Management Expense Ratio)

Ongoing management and operating expense of a fund or wrap product.

Absolute returns

Total change in wealth, calculated as Rp = (Ve − Vb) / Vb.

Daily time-weighted rate of return

A return calculation using daily sub-period returns, linked to form a monthly or longer-period return.

Efficient frontier

The set of portfolios that offer the highest expected return for a given level of risk.

Tactical asset allocation

Temporarily overweighting/underweighting asset classes to exploit short-term opportunities; may incur costs.

Strategic asset allocation

Long-term target asset mix aligned with client objectives, with periodic rebalancing.

Asset allocation

Apportionment of investment funds among asset classes such as cash, fixed income, and equity.

Peer group comparisons

Benchmarking a portfolio’s performance against a group of similar portfolios; quartile rankings used.

Blended benchmarks

A weighted combination of indexes representing multiple asset classes used to evaluate a portfolio.

Performance attribution analysis

Decomposing a portfolio’s return into components attributable to asset allocation and manager decisions.

Embedded vs unbundled pricing effects on performance

Embedded pricing reports net-of-fees returns; unbundled pricing reports gross-of-fees returns for comparison.

Tax considerations for portfolio solutions

Tax efficiency and deductibility considerations; consulting a tax accountant is advised.

Tax-loss harvesting

Realizing losses to offset gains for tax efficiency; more feasible with individual securities than pooled funds.

Due diligence requirements

Assessing program sponsors on factors like years in existence, assets under management, and client base.

Third-party consulting

Independent design and monitoring of asset mixes and managers to avoid conflicts of interest.

Know Your Client (KYC)

Process to understand a client’s needs, objectives, and constraints to ensure appropriate portfolio solutions.

Investment Policy Statement (IPS)

Document outlining investment goals, constraints, and guidelines to govern portfolio management.