7 - Process of giving Investment Advice

Question 1

EIRIS

Answer 1

Ethical investment research and info service - provides research and guidance for orgs and investors

Question 2

Main objective of CESG (commission on ESG)

Answer 2

main objective = facilitate the integration aspects of ESG issues in relation to corporate performance into investment process

Question 3

FCA eligible complainant

Answer 3

• consumer - no wealth limit
• charity - annual incom <£6.5 million
• trust NAV < £5 million
  certain SMEs – annual turnover < £6.5 million and balance sheet <£5 million or <50 employees.

Question 4

FTOC 6 outcomes

Answer 4

1 - consumers sure FTOC central to culture
2 - prods in retail market designed to meet needs of identified groups
3 - consumers have clear info and informed before during after sale
4 - advice is suitable and takes account of circumstance
5- prods perform as consumers have been led to expect
6 - no unreasonable post sale barriers

Question 5

RDR reqs

Answer 5

• Full disclosure of scope and range of advice up front
• Product providers banned from offering commissions to advisers
• Advisers set own charges, based on level of service, not the provider or
  product
• On-going charges only levied where there is an on-going service, except for
  regular contribution products
• Enhanced professionalism requirements of advisors

Question 6

4 key drivers of vulnerability

Answer 6

health - illness (serious or terminal)
resilience - low savings, erratic etc cant withstand shock
life events - death of relative, divorce
capacity - literacy, learning difficulties

Question 7

benefits of robo advisors

Answer 7

easy set up
automation
low min balances
low fees and charges
tax efficiency
variety of financial solutions
removes behavioral biases (e.g. panic selling)

Question 8

limitations of robo advisors

Answer 8

impersonal
not for those with complex portfolio
fees and charges - sometimes more than passive funds
limitations on tech
performance still not guaranteed

Question 9

FTSE4Good insex series

Answer 9

performance of companies that meet globally recognized corp responsibility standards

Question 10

MSCI KLD 400 social index

Answer 10

US equiv of FTSE4Good
measured by float adjusted market cap

Question 11

CALCOR index

Answer 11

The Calvert US Large-Cap Core Responsible (CALCOR) Index - created by calvert investment
bench of large companies considered socially resp or ethical

Question 12

Shariah law on lending

Answer 12

prohibits interest based lending (riba = usary)
prohibits investing in haraam business

Question 13

Ijara

Answer 13

Ijara – a leasing agreement whereby the bank buys an item for a customer and then leases it back
over a specific period.

Question 14

Ijara-wa-Iqtina

Answer 14

Ijara-wa-Iqtina – bank buys item for consumer and leases back - customer is able to buy the item at end of contract.

Question 15

Mudaraba

Answer 15

Mudaraba – offers specialist investment by a financial expert in which the bank and the customer
share any profits. Customers risk losing their money if the investment is unsuccessful, although the
bank will not charge a handling fee, unless it turns a profit.

Question 16

Murabaha

Answer 16

Murabaha – a form of credit allows customers to make purchase without interest-bearing loan.

The bank buys an item and then sells it on to the customer on a deferred basis.

Question 17

Musharaka

Answer 17

Musharaka – an investment partnership in which profit-sharing terms are agreed in advance, and
losses are pegged to the amount invested.