9 The investment advice process Flashcards
What does COBS require, regarding suitability of recommendations?
Firms must take reasonable steps to ensure any recommendations are suitable
What are the components of the Consumer Principle?
- Act in good faith
- Avoid foreseeable harm
- Support customers’ objectives
What is the first step of establishing a client relationship?
Scope of services + costs
What is the typical starting point for a risk profile?
Questionnaire using hypothetical questions
What are the three components of a risk profile?
- Attitude to risk
- Tolerance of risk
- Capacity for loss
What should happen once you’ve established a risk profile?
The client must accept it in writing
Is it possible to have separate portfolios for different objectives?
It’s technically less efficient, but possible, if it’s what the client wants
What are two ways of controlling a portfolio’s risk/reward ratio?
- Asset allocation
- Selection of investments within asset class
What does SRI stand for?
Socially responsible investment
What does ESG stand for?
Environment, social & governance
Which should you select first: investments or vehicles/tax wrappers?
Investments first
What does a platform do?
Allows a single set of investments to be held across several wrappers
What are four types of investment objectives?
- Capital preservation (real terms)
- Capital appreciation
- Current income
- Total returns
What is an advisable amount for a rainy day fund?
Income for 6-9 months
What does MSCI stand for?
Morgan Stanley Capital International
What does PIMFA stand for?
Personal Investment Management and Financial Advice
What are the MSCI PIMFA Private Investor Indices for?
Benchmarks for evaluating performance of different investment strategies
What is tactical asset allocation?
Varying an asset class within its strategic range OR selecting assets within a class
Why are significant variations to asset allocation generally only used for growth portfolios?
Changes interrupt income flow
What is an example of rebalancing a portfolio?
If equities started at 50%, but good returns mean they’ve risen to 70%, you should sell some & buy other classes
What is a guideline safe withdrawal rate for someone retiring at 60?
4%
What is sequencing risk?
Withdrawing from a fund during/after market downturn
