Certified Private Wealth Professional (CPWP) Module 1 Examination
Guidelines for Examination Preparation
Welcome to the "Guidelines for Examination Preparation". This section aims to assist candidates in preparing for the CPWP Module 1 Examination offered by the HKSI Institute. It explains the features of examination questions and provides some examination strategies and techniques that will be useful to candidates in their examination preparation. It is important for candidates to be aware that the CPWP Module 1 Examination is not an IQ test. A guess work approach, however intelligently applied, cannot be relied on by candidates. They require a rigorous approach to study.
Moreover, a taped sharing session to assist candidates in their preparation for Paper 2 examination, especially on how to approach structured questions, is available on the “CPT/Non-CPT Activity” page under the “Upcoming Activity” of the HKSI Institute Online Portal a week after his/her first enrolment of the examination and within 90 days from the enrolment date.
Candidates often think that multiple choice questions (MCQs) examinations are simply a matter of being able to recognise true statements. They often assume that MCQ examinations are easier than essay-type examinations, as the correct answer is already provided as one of the available choices and they may score marks with a lucky guess. However, MCQs in fact require careful selection from a mix of correct and incorrect statements. Candidates answering MCQs are expected to know the subject matter being tested as a result of their diligent preparation.
CPWP Module 1 Examination includes two types of MCQs - simple MCQ and complex MCQ which consist of two parts:
- a stem (i.e. the text of the question), which asks a question, poses a problem, or presents an incomplete sentence;
- a choice of 4 possible sets of answers.
Which ONE of the following measures is the key performance measurement for passively managed portfolio?
A. Tracking error
B. Jensen’s measure
C. Appraisal ratio
D. Sharpe ratio
In simple terms, the MCQs of the CPWP Module 1 Examination aim to test a range of abilities, including:
- Recall of the information;
- Understanding the information;
- Solving problems using required skills or knowledge;
- Comparing and discriminating between ideas.
It is therefore important to remember, understand and be able to apply the knowledge to practical situations.
Each examination paper of Paper 2 examination consists of 20 MCQs and a structured question. A structured question contains a scenario case and several open-end questions that requires candidates to apply and integrate knowledge and skills from different areas of the PWM.
Mr Chen is a Taiwanese, in his mid-60s and is married with a son and a daughter, aged 22 and 18 respectively. He has a total net worth of around USD300 million having inherited the family business from his late father years ago. The business manufactures kitchen equipment in Taiwan and has successfully grown in size over the years, their major customers being US brands.
Mr Chen suffered a large estate tax charge when his father passed away. At the time of his father’s death estate duty was 40% in Taiwan and, although the estate tax rate is now up to 20% for estates beyond the exclusion limit, this remains a cause for concern.
Due to growing demand, Mr Chen is planning to build a new factory in South East Asia and will need to take out a USD50 million loan to finance the development.
Mrs Chen is content in her role as a housewife and is not involved in the business. However, she is worried about the development of the new company in South East Asia, especially when it requires securing such a significant loan, and she would like to ensure that the family are protected against any future personal liability. Mr Chen’s son is quite academic and is currently studying in the US, whereas his daughter is more sports orientated. Mr Chen has very traditional Taiwanese views, intends to live out his life in Taiwan, and plans to pass the family business to his son, although he very much cares for his daughter and wishes to ensure that she is financially secure.
Mr Chen has an investment portfolio worth USD10 million with the bank under his personal name. Most of the assets under management are invested in a selection of blue-chip US stocks as Mr Chen, due to business commitments, does not have the time to properly manage his own portfolio.
Mr Chen’s original highly regarded private wealth manager retired six months ago, and you have taken over this high value relationship. You have now met Mr Chen three times and understand that he is very happy with his current relationship with the bank. You then evaluate your relationship with Mr Chen by using an attractiveness-positioning matrix which indicates Mr Hsu in the top right quadrant of the matrix, i.e. strong mutual attraction.
However, during your meetings with Mr Chen, you have also observed that he does conduct some personal investment activity. His typical investment behaviour seems to suggest that he makes his ‘buy’ and ‘sell’ decisions mostly based on ‘gut feel’, often in quite a compulsive manner. His view is that this approach works, citing the returns that he has made in the recent market conditions. He is also keen to attribute a cause to every investment event rather than acknowledge the random nature of many market movements.
Based on the information provided within the scenario, answer all questions
Question 1: Wealth Planning (25 marks)
(a) Suggest two relevant business succession solutions (4 marks), including the merits of each solution (2 marks)
(b) Identify two potential issues in respect of personal wealth succession (4 marks) and suggest three relevant solutions to address the issue (9 marks)
(c) In addition to business succession and personal wealth succession, identify two wealth planning need of Mr Chen (4 marks), citing the reason for your answers (2 marks).
Question 2: Behavioural Finance (10 marks)
(a)Identify two behavioural biases exhibited by Mr Chen during the meetings (4 marks) and describe the potential investment consequences caused by the behavioural biases (2 marks).
(b)Suggest two methods to address the impact of the two biases behavioural
Question 3: Customer Relationship Management (15 marks)
(a) According to the evaluation by using an attractiveness-positioning matrix:
i) Describe the relationship between Mr Chen and you. (3 marks)
ii)Suggest three methods to maintain and develop the relationship with Mr Chen. (6 marks)
(b) Suggest two methods to proactively retain the relationship with particular reference to Mr Chen’s personal wealth succession.
* Note: This example is intended to assist candidates to be familiar with the format of structured questions. It is NOT the actual question from the Paper 2 of CPWP Module 1 Examination. Under no circumstances shall the HKSI Institute be liable for any direct or indirect loss or damages caused or alleged to be caused by your use of or reliance on any materials in and/or content of this example.
MCQ examinations tend to focus on details, and detailed information cannot generally be retained effectively through short-term memory. However, it is not expected to test on those market and historical statistics/figures.
Plan your revision
Read every single topic in the study manuals and allow extra time for difficult topics. DO NOT glance over topics you think you know already. DO NOT simply rely on the knowledge you have gained through whatever means alone as this may not always be technically correct. Make sure you know and understand the products, instruments, techniques, rules and regulations, etc. covered in the syllabuses.
Pay attention to fundamental terms, concepts and key definitions
Pay attention to fundamental terms, concepts and key definitions. For example, terms such as "structured product", "family office" and “correlation”, etc. Candidates are expected to know what they mean.
You are advised to use the Learning Outcomes for each topic of the study manuals as a guide to the way in which you study the materials. They indicate the expected key areas of knowledge which you should master. The revision questions and checklists included in each topic help to reinforce your understanding of the subject covered in the topic. You may also access the Sample Practice Test developed by the HKSI Institute in either online or paper-based format for your examination preparation.
Understand and digest the materials
DO NOT just read and memorise the study manuals. Think about the issues and the practical application of them, where relevant. If possible, discuss the issues with other experienced practitioners.
It should be noted that there are variety of private wealth management products and practices with similar titles and yet different terms and conditions, available in the market. The study manuals may include some products and practices without the intention to cover an exhaustive list. However, examination questions would be set basing on the materials in the study manuals.
You have limited time to answer a certain number of questions. On average, you have around two minutes per question.
Read the questions including all the choices carefully
Read the questions carefully, more than once, if necessary.
Is the question asking for:
- the only correct answer? - e.g. Which ONE of the following statements is CORRECT?
- two or more correct answers? - e.g. Which of the following statements are CORRECT?
- the best answer? - e.g. Which ONE of the following is MOST LIKELY ......?
- the incorrect alternatives? - e.g. Which of the following statements are INCORRECT?
Read all the choices before answering a question. DO NOT assume that because the first or second choice appears correct, it is not necessary to read the remaining options.
Revisit the question
If you are unsure of the answer to a question, leave it and return to it later. DO NOT waste time over questions which you find difficult at the start. First, complete the answers for questions you know well. Then, try those questions you could not do on the first attempt. Sometimes, the answer will occur to you simply because you are more relaxed after having answered other questions.
DO NOT make any assumptions
All MCQs have been set out randomly so DO NOT assume that one question follows on from the previous one. DO NOT make assumptions when answering. Answer the questions as they are stated.
Identify the distractors that look as if they are correct but are not
Questions are not designed to mislead candidates. Good distracters (i.e. incorrect choices in the list of options) often appear to be correct but in fact, they are wrong. Distractors are designed to discriminate between those who really know the correct answer, and those who do not.
Make educated guesses
Make sure you have answered all the questions and double-check your answers. Marks WILL NOT be deducted for questions answered incorrectly in the CPWP Module 1 Examination. However, avoid pure guessing, rather eliminate answers that are obviously wrong and then choose carefully from those that remain.
Effective time management is critical to the success in any examination. Candidates are suggested to spend around 60 minutes on the structured question for reading and analysing the case extensively, as well as answering a series of questions (i.e. sub-questions) regarding the case. Candidate should allocate appropriate time for each question based on the marks allocated.
Read the question through carefully
Candidates are advised to ensure the questions and the marks allocation of each sub-question carefully to ensure what are and how much of the contents are expected to be provided in their answers. Missing any part of a question may cost lot of marks.
Use relevant case information fully to answer the questions
Candidates are strongly advised to allocate sufficient time in analysing the case. When answering the questions, candidates not only need to identify the relevant issues, state clearly their views, and apply relevant knowledge learned from the study manual to solve the problem, but also need to provide relevant case information to support their argument and conclusions.
Clear and concise answer
Marker can understand your answer easily and precisely if you write in well structured, clear, concise and in eligible manner. Writing in point form is also allowed. Thus, candidates are strongly advised to make a quick plan for what to be included in your answer.
Two of the most effective methods to combat carelessness are to re-read the questions before answering them and to check your answers before submitting them.
Failure to focus on questions
Some MCQs call for facts more than thought, but some require you to use factual information in a thinking process. Examination logic requires that you think thoroughly, concentrate upon the questions and answers, and search for memory cues to information that you have studied.
Cramming means mastering a lot of new materials in a relatively short period of time. Cramming does NOT work well for passing an examination because materials learned within 24 hours are difficult for most of us to recall. A final review is a last effort to organise and brush up on previously studied materials, but is not suitable for remembering new information. Educational psychologists suggest that the most effective technique for long-term memory is to use a series of study periods over a predetermined schedule broken by regular rest intervals.