7 - The investment advice process Flashcards
What are the advantages of using a structured advice process?
Discipline for advisers
An admin template for a sequence of actions
Clear compliance trail
What are the high level steps of the advice process?
Determine clients requirements Analyse clients financial position Formulate a strategy to meet objectives Produce recommendations and implement Revist investments, objectives and strategy
Under MiFID11, what else must be taken into account over and above the clients investment objectives?
The clients knowledge and investment experience
The clients risk tolerance
The clients ability to bear losses
What does the client agreement set out in terms of services, scope and costs?
Renumeration
The service provided and the timescale
Duration of the agreement
Frequency of contact
What other issues should the client be clear of within the agreement?
The amount of reporting on investments
The frequency of reviewing the clients circumstances and plans
Whether or not the adviser wll alert the client to any changes to their planning that might be needed in the future
What are the key areas in which client information is required?
Needs and objectives Assets and liabilities Income and expenditure Priorities Attitude to risk
If an adviser considers the clients expressed goals to be unrealistic, what should they do?
The adviser should explain to the client why the goal is unrealistic and assist them to reframe
Does asset allocation within a portfolio have more or less of an impact than the selection of succesful fund managers?
More of an impact
What are the criteria used for ESG (environmental, social and governance)?
Environmental factors including climate change and pollution
Social factors including human rights
Governance including quality of the company’s management
How does choice of individual funds within a portfolio affect the risk-reward ratio?
By selecting funds with a risk-reward ratio lower or higher than the market average, an adviser can reduce the prospective returns and volatility of the portfolio
Why may an investor with a higher risk profile be interested in VCT’s, EISs and SEIS schemes?
May be attractive for the tax advantages they offer
What is the minimum reporting period for a portfolio under MiFD11?
every three months
Or if the fund falls by 10% or more within a reporting period
What are the two main categories for ivestment solutions?
Investments that maximise returns for a given level of risk - i.e. collective investments, OEICs, UT’s, investment trusts, discretionary managed accounts
Investments designed to match future liabilities - i.e. DB pension funds, life assurance, general insurance, investment funds that meet specifc income requirements
What are the 5 risk classes?
No risk Low risk - cautious Medium risk Medim high risk High risk
What are the specified terms for return objectives?
Capital preservation
Capital appreciation
Current Income
Total return
What are the constraints that need to be considered in terms of the impact on a clients investment?
Time Horizon Liquidity Tax Legal and regulatory factors Unique needs and preferences
What are the differnt approaches an adviser could use to establish a clients capacity to take risk?
Printed questionnaires Computer based assessments Psychometric profiling numercial scales Open discussions Graphical presentations
What factors does an adviser need to take into account when projecting portfolio cash flow with a client?
Initial yield on investments
overall rate of income generated
likely level of inflation and interest rates
probable rate of growth in company dividends
Indentify two constraints that will have an impact on an investors ability to tolerate risk?
The time horizon of the investor and thier liquidity requirements will affect their ablity to take on risk
How might a client take advantage of accumulation and decumulation of assets?
When markets are weak, drawing less funds means less units are cancelled to pay for income requirements, when markets are strong money could be ‘taken off the table’ by taking a higher value to maximise the high price of units
