Home › Finance › Start here
End-of-level assessment · Invest on your own
Invest on your own: two funds and a sales pitch
About 75 minutes. Work it as you would at work: on your own, with the material below, then judge your work against the criteria and compare it with a model answer. Pass mark: 75% with no criterion at 0.
General education, not financial advice.
The brief
This is an exercise in reading financial documents. The documents, funds, people and firms below are fictional, written to look like the real thing. Nothing here is advice to buy or sell any investment.
Sam is 34. They have an emergency fund and no debts, and have just inherited £40,000 that they don't expect to need for at least 20 years, probably for retirement. An adviser has sent them a recommendation. Before the follow-up meeting, Sam has asked you, a friend who has studied this, to explain the choice in plain words. Sam has been clear: "Don't tell me what to buy. Help me understand what I'm being offered and what to ask."
Document 1. Factsheet: Broadwater Global Index Fund (fictional)
Objective: to track the performance of the Broadwater Global All-Share Index, before costs. Ongoing charge: 0.12% a year. Transaction costs: 0.03% a year. Entry or exit charges: none. Holdings: 2,950 companies. Top 10 holdings: 19% of the fund. Regions: North America 64%, Europe 15%, Japan 6%, emerging markets 10%, other 5%. Currency: holdings are not hedged to sterling. Launched: 2006.
Annualised to 30 Sep 2026 1 year 5 years 10 years Fund 11.8% 9.6% 9.1% Index 11.9% 9.7% 9.2% Worst 12 months since launch: −21.0%.
Document 2. Factsheet: Halberd Global Opportunities Fund (fictional)
Objective: long-term growth from a focused portfolio of high-conviction global companies. Ongoing charge: 0.85% a year. Transaction costs: 0.40% a year. Performance fee: 15% of any return above the benchmark in each calendar year. Benchmark: a composite of 50% Broadwater Global All-Share Index and 50% sterling cash. Holdings: 38 companies. Top 10 holdings: 51% of the fund. Largest sector: technology, 46%. Launched: September 2021. In 2023 the Halberd Technology Leaders Fund was merged into this fund.
Annualised to 30 Sep 2026 1 year 5 years Fund 18.2% 13.4% Benchmark 7.0% 6.1% Past performance is not a guide to future returns.
Document 3. Email from the adviser (fictional)
Hi Sam,
Following our chat, my recommendation is simple: put the full £40,000 into Halberd Global Opportunities. It has beaten its benchmark by more than seven points a year for five years. That is skill, not luck. Index funds only ever give you the average; why settle for average with money that has 20 years to grow? I'd expect something like 12% a year.
My charges are standard: 2% of the amount invested to set things up, then 1% a year of the portfolio's value for ongoing advice and reviews. For full transparency, Halberd pays our firm a marketing allowance for client introductions; this doesn't affect my advice.
Best, Jordan
Your task
Write Sam a briefing note of no more than one page, in the box below. It should:
- compare the total yearly cost of each route (the index fund on its own; Halberd through the adviser), and show what £40,000 might grow to over 20 years under each, as a range of possible market returns;
- say what Halberd's five-year record does and doesn't show, and why;
- say who benefits from each part of the recommendation;
- describe the risks of each route, including the bad case;
- list the questions Sam should ask Jordan, and what answer would change your reading.
Don't tell Sam what to buy. Then work the reasoning check and score your note.
Reasoning check
Worked numbers and judgement calls, marked as you go.
Work it through
Work out the total yearly cost of each route, in % of the money invested.
- 0.12 + 0.03
- 0.85 + 0.40
- 1.25 + the adviser's 1.00
- 2% of 40,000
Work it through
Suppose the market returns 6% a year before costs for 20 years, and Halberd does exactly as well as the market before its costs. Leave out the performance fee for now. Work out what £40,000 grows to under each route.
- 40,000 × 1.0585^20
- 39,200 × 1.0375^20
- 124,703 − 81,856
Quick quiz
Tap an answer to check it.
Halberd's benchmark is 50% global shares and 50% cash. Why does that matter for the email's claim?
- the factsheet shows 38 shares; the benchmark is only a yardstick
- it is paid on any return above the benchmark, which is easier to exceed
- a fair benchmark matches what the fund invests in
Show answer
A benchmark that is half cash is easier to beat in a rising market, so beating it by seven points says little about beating the global share market. Against the global index (about 9.7% a year over five years on Document 1's figures), Halberd's lead is about 3.7 points a year, not 7.
Leaving out the performance fee, roughly how much would Halberd have to beat the market each year, before its costs, for the adviser route to end level with the index fund over 20 years at a 6% market return?
- that covers only Halberd's ongoing charge
- that covers only the adviser's yearly fee
- the other costs are paid every year whatever happens
Show answer
About 2.2 percentage points a year, every year. It must cover about 2.1 points of extra yearly costs and the 2% set-up charge. Any performance fee raises the hurdle further, and against a half-cash benchmark it can be charged even when the fund only matches the market.
The email says the marketing allowance "doesn't affect my advice". What is the most useful thing to do with that statement?
- disclosure is good, but it doesn't remove the incentive
- an incentive isn't proof of bias
- payments to the firm can still shape what it recommends
Show answer
Note it, ask how much the allowance is and how it is paid, and judge the advice on its own merits. Ask who benefits: a disclosed incentive is a reason to look harder at the advice, not a verdict on it.
Spot the error
One line is wrong. Tap it.
Which sentence in this draft briefing would a reviewer flag first?
Show answer
Halberd has proved its managers are skilled: it beat its benchmark by seven points a year for five years.. That states the email's claim as a fact. Five years is short, the benchmark is half cash, and the record includes a 2023 merger.
Score your work
For each criterion, pick the description that matches what you wrote, not what you meant. Be strict: the model answer comes next.
Model answer
Sam: your two options, what they cost, and what to ask Jordan
Costs, every year. The index fund costs about 0.15% a year (0.12% ongoing charge, 0.03% transaction costs), about £60 in the first year. Halberd through Jordan costs about 2.25% a year (Halberd's 0.85% and 0.40%, plus Jordan's 1%), plus 2% (£800) at the start and 15% of any return above Halberd's benchmark: about £1,680 in the first year before any performance fee.
What that does over 20 years, if Halberd only matches the market before its costs (and before any performance fee):
Market return a year Index fund Halberd via Jordan 3% about £70,000 about £45,500 6% about £125,000 about £82,000 9% about £218,000 about £145,000 In every case the adviser route ends about a third smaller. To come out level at 6%, Halberd would need to beat the market by about 2.2 percentage points a year, every year, before its costs, and by more once the performance fee is counted. Because the benchmark is half cash, that fee could be charged in a year when Halberd only matches the market.
The track record. The factsheet shows Halberd 7.3 points a year ahead of its benchmark over five years, but that benchmark is half cash. Against the global share index in Document 1 (9.7% a year), the gap is about 3.7 points. Five years is short; the fund is concentrated (38 holdings, 46% technology) in a period when technology did well; and a technology fund was merged into it in 2023. The record may be skill, luck or the sector. These figures can't tell which.
Who benefits if you say yes. Halberd earns its charges and any performance fee; Jordan's firm earns £800 at the start, 1% a year and a marketing allowance from Halberd. Jordan has disclosed this, which is good practice, but it's a reason to ask more questions, not proof of bias.
Risks. The index fund's factsheet says it fell 21% in its worst 12 months: you should expect falls like that at some point. A fund with 38 holdings and half its money in its top ten can fall further when its sector does. The index fund isn't hedged to pounds (Halberd's factsheet doesn't say), so exchange rates will move your returns either way.
Questions for Jordan, and what would change my reading:
- How has Halberd done against the global share index, after all costs, since launch? A consistent lead, after Halberd's own charges, of well above 1 point a year (enough to cover Jordan's fees) would make the costs easier to justify.
- What will I pay in pounds each year, including the performance fee, at a normal return? If the total is much lower than I've estimated, the comparison changes.
- How much is the marketing allowance, and would your advice or your fee differ if I chose an index fund? A lower fee for the index route would show the advice can be separated from the product.
- What would you expect in a bad year? "12% a year" is a hope, not a range.
Why this answer works
- It turns every cost into pounds and into a 20-year result, under three assumptions (ask who benefits; think in ranges).
- It tests the record against the right benchmark and names three reasons it can't separate luck from skill.
- It treats the disclosed incentive as a reason to ask, not as an accusation.
- It never says what Sam should buy; the questions do the work.
What a reviewer would flag in a weaker answer
- Comparing 0.12% with 0.85% and stopping there, without transaction costs, the adviser's fees or the performance fee.
- Taking "beaten its benchmark by seven points" as beating the market.
- Using the adviser's "12% a year" as the expected return.
- "You should buy the index fund": that's a recommendation, and the brief asked for none.
A second opinion
Studyfern has no AI of its own. For feedback on your answer, copy this into an AI assistant you trust, with your answer pasted at the end.
You are a strict reviewer of investor-education writing. I was asked to write a one-page briefing for a friend, Sam, comparing two fictional funds and an adviser's recommendation, without telling Sam what to buy. Mark only what I wrote; if my note doesn't clearly meet a higher description, give the lower score. THE DOCUMENTS (all fictional). Index fund: ongoing charge 0.12%, transaction costs 0.03%, 2,950 holdings, top 10 = 19%, 64% North America, not hedged to sterling, annualised returns to 30 Sep 2026 of 11.8% (1 year), 9.6% (5 years), 9.1% (10 years) against an index of 11.9%, 9.7%, 9.2%; worst 12 months −21.0%. Active fund (Halberd): ongoing charge 0.85%, transaction costs 0.40%, performance fee 15% of any return above its benchmark each year; benchmark 50% global index and 50% cash; 38 holdings, top 10 = 51%, technology 46%; launched September 2021; a technology fund merged into it in 2023; 5-year annualised 13.4% against its benchmark's 6.1%. Adviser (Jordan): recommends the full £40,000 in Halberd; charges 2% set-up and 1% a year; expects "12% a year"; discloses a marketing allowance from Halberd. Sam is 34, has an emergency fund and no debt, and won't need the money for 20 years. KEY NUMBERS. Yearly costs: about 0.15% (index) against about 2.25% (Halberd through the adviser) plus £800 at the start and any performance fee. At a 6% market return for 20 years, with Halberd only matching the market before costs: about £124,700 against about £81,900. Break-even, before any performance fee: Halberd must beat the market by about 2.2 points a year before its costs; the performance fee, measured against a half-cash benchmark, raises the hurdle. Halberd's lead over the global index over five years: about 3.7 points a year (13.4% against 9.7%), not 7. THE RUBRIC (score each 0, 1 or 2): 1. Total cost in money, over time. 0 = headline percentages only, or a cost left out. 1 = all costs found but not combined, or not turned into money or a long-term effect. 2 = every cost combined for each route and shown in money over 20 years under at least two return assumptions. 2. Ask who benefits. 0 = incentives not mentioned. 1 = fees or the allowance mentioned but not linked to the advice. 2 = who is paid what if Sam says yes, and why it matters, without accusing anyone. 3. Separate luck from skill. 0 = record taken as proof of skill. 1 = one or two weaknesses found, or no comparison with the global index. 2 = at least three (short record, half-cash benchmark, sector concentration, 2023 merger), with the comparison against the global index. 4. Think in ranges. 0 = a single return, or the adviser's 12% accepted. 1 = a range, but the bad case, the size of losses or currency risk missing. 2 = at least two return assumptions, the bad case for each route, and currency risk. 5. Questions and what would change your mind. 0 = none or general. 1 = fewer than three specific questions, questions not linked to findings, or no answer that would change the reading. 2 = at least three specific questions, each with an answer that would change the reading. 6. Plain, honest briefing. 0 = tells Sam what to buy, a material factual error, or well over a page. 1 = a document's claim stated as fact. 2 = accurate, neutral, within a page, claims attributed, no recommendation. HOW TO MARK. For each criterion give the score and quote my exact words that justify it. List any number of mine that differs from the key numbers by more than rounding. Add the total out of 12 and say whether I pass (9 or more, and no criterion at 0). Give at most three priority improvements, each with an example from my note. Do not rewrite my note, and do not give investment advice yourself. MY NOTE: (paste it here)