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Kaplan FFP - SOA Asset Allocation - help pls!!

Discussion in 'Financial Planning Study Group' started by llanfachreth, 11th Apr, 2010.

  1. llanfachreth

    llanfachreth Member

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    11th Apr, 2010
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    Location:
    Manchester, UK
    Hi guys,

    I'm doing question 5 of FFP - the SOA.
    I'm at the 'Recommended asset allocation' stage and am a bit stuck. I've looked at the CS example and am trying to work out how they've managed to work out the weightings? Can anybody help?

    Cheers
     
  2. serge g

    serge g Active Member

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    16th Oct, 2009
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    Location:
    VIC
    I think the trick to this is that you should look at what investment recommendations you've going in your SOA (Tracy has already given those to you). Look at the different asset classes in the portfolio - property, shares, cash, whatever. Then total up the value of all the assets and work out what is the proportion of the total investment assets that's invested in each class, as a percentage? That's how you work out your asset allocation and I'm pretty sure that's how they've done it in the case study. The fact that they haven't taught this means that there can't be much weight put on it though - just give a percentage by value in each asset class and yo'll be fine.

    The variances I think come from how much they've actually got allocated in each category compared to their ideal asset allocation, the notional asset allocation that is inferred form their risk profile.

    In a real SOA you'd make your recommendations, look at the asset allocation that resulted and figure out from that whether or not your recommendations matched their risk profile - are they overweight in some categories/underweight in others? That's how you'd fine tune your recommendations to ensure that the risk/return of the whole portfolio is balanced to their risk profile.

    Don't get too caught up in the mathematics - that's not really the point of the exercise. You do portfolio construction in IP1.
     
  3. llanfachreth

    llanfachreth Member

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    11th Apr, 2010
    Posts:
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    Location:
    Manchester, UK
    Thanks serge, that's very helpful.

    By the way - do you know whether the residential property would be counted as 'Australian property' or is it ignored due to it being the main residence?

    Cheers