SIAA Securities & Managed Investments common mistakes
SIAA Securities & Managed Investments · Understand the traps and how to avoid them.
Treating a limit order and a stop order as interchangeable, so a client instruction to 'sell if the price falls to 40' is entered as a plain limit sell at 40 and executes immediately at the current higher price.
Both orders carry a price figure, and candidates memorise definitions without mapping them to the direction of the trigger (limit orders execute at the stated price or better; stop orders only activate once the stop is touched).
What to do instead
Before answering, state out loud what the trigger is and which side of the market it sits on: a sell stop sits below the current price, a sell limit above it, a buy stop above, a buy limit below. Draw the four-quadrant grid from memory and place the scenario in it.
Describing the exchange, the clearing house and the central securities depository as one body, or attributing settlement guarantee and trade matching to the same entity.
Market-infrastructure roles are taught as a list of acronyms, so candidates learn names without learning which function each performs in the trade lifecycle.
What to do instead
Learn the lifecycle as a chain: execution (exchange or venue) → clearing and novation (clearing house becomes counterparty) → settlement (CSD moves securities, settlement bank moves cash). For each body, be able to answer 'what fails if this body disappears?'
Calculating diluted EPS by adding all convertible securities to the share count but forgetting to add back the after-tax interest or preferred dividend to the numerator, or applying the if-converted method to anti-dilutive instruments.
Candidates focus on the denominator because it is the visible adjustment, and skip the test of whether each conversion actually reduces EPS.
What to do instead
For every potentially dilutive instrument, compute the incremental EPS effect (numerator adjustment ÷ denominator adjustment) and include it only if it is below basic EPS. Show the numerator and denominator adjustment side by side for each instrument before summing.
Quoting a bond's yield to maturity as the return the investor will actually earn without checking whether the bond is trading at a premium or discount and whether cash flows are reinvested.
YTM is presented as a single summary number, and candidates conflate it with realised return; the reinvestment assumption is invisible in the formula.
What to do instead
State the three embedded assumptions explicitly every time: hold to maturity, no default, and all coupons reinvested at the YTM. Then note the direction of the error - realised return falls short of YTM if reinvestment rates are lower, and the gap is larger for higher-coupon, longer-dated bonds.
Comparing a fund's performance against a benchmark without checking whether fees are deducted on both sides, or comparing an accumulating fund's NAV growth to a price-only index.
Factsheets present several return series (gross, net, NAV, total return) and candidates grab the first number without confirming the basis.
What to do instead
Before any comparison, write down the basis of each figure: gross or net of fees, income reinvested or distributed, hedged or unhedged, and the currency. Only then compute the difference. If the bases differ, adjust or state that the comparison is invalid.
Explaining a structured product by its headline coupon and ignoring the embedded derivative, so a reverse convertible is described as a high-yield bond rather than a bond plus a written put on the underlying.
Marketing material leads with the coupon, and candidates never decompose the payoff into its building blocks.
What to do instead
For every structured product, reconstruct the payoff as a combination of plain instruments (bond + option position) and then ask what market move makes the investor lose capital. State the direction of the investor's exposure: are they long or short volatility, and long or short the underlying?
Applying a single risk measure (usually standard deviation) to every portfolio, including one holding a concentrated illiquid position or a portfolio with significant tail exposure.
Standard deviation is the first measure taught and is easy to compute, so it becomes the default answer regardless of the return distribution.
What to do instead
Match the measure to the question: volatility for symmetric liquid portfolios, beta for systematic exposure, duration for rate sensitivity, VaR or expected shortfall for tail loss, and liquidity ratios for illiquid holdings. Name the limitation of the chosen measure in the same sentence you use it.
Recommending a product that suits the client's stated objective but breaches their risk tolerance, time horizon or liquidity needs, and treating the suitability assessment as a formality completed after the recommendation is formed.
Candidates equate suitability with 'the client said they want growth' and skip the constraints that override the objective.
What to do instead
Run the recommendation through each constraint in turn - objective, risk tolerance, horizon, liquidity, tax, and any restrictions - and identify which constraint could veto the product before writing the recommendation. If a constraint conflicts, document the conflict and the discussion rather than ignoring it.
Disclosing a conflict of interest only in the small print or after the transaction, or accepting a gift or inducement because it is 'not cash'.
Candidates treat disclosure as a box-ticking exercise and underestimate how broadly inducements and non-cash benefits are defined.
What to do instead
Apply the sequence: identify the conflict, disclose it clearly and prominently before the client acts, obtain consent where required, and manage or avoid it if disclosure alone is insufficient. For gifts, ask whether a reasonable client would regard the benefit as influencing the advice, and record the decision.
Treating customer due diligence as a one-off onboarding step, so a later large or unusual transaction is processed without refreshing the client profile or escalating the alert.
KYC is learned as a form-filling procedure at account opening, and ongoing monitoring is treated as a separate compliance function rather than an adviser obligation.
What to do instead
Remember the three stages - identify and verify, ongoing monitoring, and enhanced due diligence for higher-risk clients - and treat a transaction inconsistent with the known profile as a trigger to re-verify and escalate. When in doubt, escalate before executing rather than after.