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Basic Question 1 of 3

Which of the following are a portfolio manager's responsibilities?

I. Identifying the risk and return objectives for a portfolio given the investor's constraints
II. Developing a well-diversified portfolio with the selected risk level
III. Reducing transaction costs
IV. Implementing the chosen investment strategy and reviewing it regularly

User Contributed Comments 20

User Comment
PedroEdmundo Why transaction costs?
SanderLin transaction cost will reduce invertos' benefit, and a good portfolio manager should avoid this situation
awellman I would argue that transaction costs relate to the particular strategy -- but I am sure they are raising that point because it is a common way for brokerage firms to drive up costs
samsjo Transaction costs doesnt sound like a portfolio manager responsibility
nike but portfolio managers can reduce transaction costs by not trading that often - they can definitely control the total transaction cost (not 100% though).
charlie When evaluating these choices, we should consider each one individually and hold other factors constant. All else being equal, a portfolio manager should try to minimize transaction costs. Is this correct? I think so.
steved333 Good PM's do whatever they can to get the best return for their clients. When transaction costs hurt returns, the PM isn't doing his/her job.
aradin aye, fiduciary responsibility
mcspaddj I was thinking this was a trader job. Now I see how it is also the PM's job, but for the sake of the question I did not include the bullet pertaining to these trading costs.
romiee I think reducing the total transaction cost and/or the transaction cost per trading is not the responsibilities of a portfolio manager.
The responsibility of a portfolio manager is rising/reducing the total cost until the maximum profit that meet the investor objectives.
kutta2102 Actively managed mutual funds - trade a lot, buying and selling different stocks/bonds for the portfolio returns. All these activities lead to higher transaction costs (i.e. there's a cost to every trade).

Passively managed fund (index fund) - very little trading since fund is tracking an index like S&P 500 etc. Therefore, lower transaction costs.

In the end, an investor's returns are diminished by transaction costs. Therefore, reducing transaction costs is portfolio manager's responsibility.
tiamiyu PM must control the transaction cost to lower the total cost to the investor.
Simao2009 The main job of a PM is preserve the interest of the client and here the interest of the client is avoiding too much transaction costs and that is why it is the PM's responsibility.
GinnyB Higher transaction costs will lower the overall return to the investor - but must be weighed against the returns of transactions with smaller transaction costs (or undergoing fewer transactions to save on TCs).
pb09 Of course reducing transaction costs (via minimizing trading volumes, expense ratios, etc.) would fall in the realm of portfolio mgmt... however this question is somewhat misleading in leui of the study notes stating "it's the problem of the trading desk..."
gulfa99 transaction cost can be anything ranging from brokerage to management fee. churning of portfolio will have a negative effet on the overall returns as the documented fees will reduce return.
jonan203 the opposite of avoiding transaction costs would be churning, which is a huge compliance no-no.
Bududeen it is not the problem of the trading desk but that of the PM...if the PM does not authorise the purchase or sale of securities or alternative assets, the trading desk would not do any trading on them... thus transaction cost a responsilbility of the PM
gill15 I dont go with the notion of reduced transaction costs. You want to maximize return which may mean choosing a set of securities that requires a high transaction cost but overall return is greater.

I choose Me.
ascruggs92 For those arguing that transactions costs are the trader's or the trading desk's responsibility:

1. Who sends approved trades to the traders? The PM, so it ultimately it is still the PM who controls trading and therefore trading costs.

2. It is very often the case that the PM and the trader are the same person. Not every Fund or RIA is big enough to even have a trading desk.
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I am happy to say that I passed! Your study notes certainly helped prepare me for what was the most difficult exam I had ever taken.
Andrea Schildbach

Andrea Schildbach

Learning Outcome Statements

describe the steps in the portfolio management process;

CFA® 2024 Level I Curriculum, Volume 5, Module 61.