Chapter 1: Platform Assets Flashcards
What are Platforms?
Platforms are services designed to enable retail investors ( and any FA assisting those investors) to manage their investment portfolios.
What is a Platform Operator?
The term is used to describe the regulated financial services firm responsible for the functionality and performance of the platform.
What is the Product Provider responsible for?
Ensuring that the product has been designed in line with the relevant tax laws and guidance so that investments made using the product are not subject to certain taxes. Note: They are also referred to as “wrappers”.
Who are Wrappers subject to?
HM Revenue & Customs (HMRC)
Assets available on most platforms will be a combination of:
- Cash
- Exchange traded assets ( e.g. equities)
- CIS units/shares
- Structured products
What may cash be used for?
The platforms expects the investor to retain some cash available for readiness for future transactions and to pay out any platform charges when they become due.
What are Exchange Traded Assets?
A diverse range of investment types from shares, government bonds through to exchange traded funds.
Are the number of Exchange traded asset shares fixed or flexible?
Fixed.
The regulated market is the market mechanism for willing sellers to be paired off with willing buyers.
What is a bond?
A debt instrument that is often written up for a fixed period.
What is the regular interest rate that is paid to the issuer known as?
Coupon rate
What are some examples of issuers of Supranational bonds?
Agencies: European Investment Bank and the World Bank
What are some examples of Close-ended funds?
Investment trusts, Real estate investment trusts (REIT) and Venture Capital trusts (VCT).
Who are close-ended funds issued by?
Companies who’s business is investment
What does the close-ended fund issue?
A fixed number of shares and uses capital it receives to build on investment portfolio.
What is a REIT?
Real Estate Investment Trust
A company that owns and in most cases operates income producing real estate.
What is the name of the legislation laid out for REITS?
The Finance Act 2006, subsequently amended by the Corporation Tax 2010.
What percentage of Income must be distributed to its shareholders in order to qualify as REIT?
90%
What is a Venture Capital Trust (VCT) ?
A highly tax efficient UK close ended CIS designed to provide private equity for small expanding companies and capital gains for investors.
Where are VCTs listed ?
LSE - London Stock Exchange
Who are CIS run by ?
A regulated financial services firm referred to in FCA rules as AFM - Authorised Fund Manager.
How does an investor purchase unit shares in an authorised CIS?
Through AFM ( there is no secondary market).
Are Authorised CIS open or closed?
Open ended assets as the number available to investors can change every dealing day.
What are open and closed assets pricing subject to?
Open - Net Asset Value (NAV)
Closed - Supply and Demand
Who protects the property of CIS?
Trustee or depository
Annual Management Charge (AMC)
The AFMs annual management charge to operate the fund is collected from the assets of the fund rather than each investor being separately invoiced.
Why are Share Classes needed?
In order to charge different levels of AMC across a single portfolio.
Average Foreign Currency Classes examples:
A GBP Class
C GBP Class
C EUR Class
C USD Class
What is the further variable that distinguishes between available share classes?
Whether the share class provides income units ( which pay a periodic distribution of income received) or accumulation units ( which do not pay the income).
An example of the increased complexity share class.
A GBP Inc Class
An operational difficulty of multiple share classes is?
An investors wishing to move their portfolio from one platform to another might find a particular class held by the current platform is not accepted/supported by the receiving platform.
What does PAIF stand for?
A property authorised investment fund.
What type of fund is a PAIF?
Open-ended CIS whose investment portfolio comprises predominantly real estate property or shares in UK REIT and similar entities.
What are the three distinct streams of income paid to avoid the distortion in the tax paid to investors.
- Property Income
- UK dividend Income
- Other taxable incomes
Pricing and dealing for Open-ended funds.
All orders must be received prior to valuation point and are aggregated and executed on a timely basis.
Pricing and dealing for Exchange-traded products.
The platform operator must be clear whether it will aggregate such orders or deal upon receipt of the investors instructions.
Structured products
Are effectively engineered promises from a financial services firm to anyone wishing to buy that promise.
What are the promises of structured products based on?
The performance of some publicly available financial measure, such as the value of a stock market index e.g. might offer the investor a five year period after which they would receive their money back, plus or minus an adjustment reflecting the performance of that stock market during the five year period.
When are redemptions required for UK authorised CIS?
COLL requires a UK authorised CIS to act on investors redemption instructions on the next dealing valuation point. This will usually be daily.
Deferred Redemption is?
This allows the AFM to move forward all redemption instructions received for a given dealing day, so that they will instead be actioned on the following dealing day.
Why may a fund be effectively closed to trading activity?
Prevent it from getting “too big”
Fund closure and suspension
This is often referred to as ‘hard closure’ or ‘winding up the fund’.
Soft closure
Is used to describe the scenario in where the fund manager is not winding up the fund but in order to avoid any expansion of the fund, the fund manager applies some measures so that the investor will not wish to invest.
Examples of other assets
Classic cars, work of art, fine wine
Range of asset types that a platform operator must decide are:
- Investor desire for a given asset
- cost to the platform of building necessary system functionality and communication
- need for robust controls
- ongoing costs of servicing small portion of assets
Which product is based on a package of derivative products and gives a ‘guarantee’ on the protection of capital invested for a fixed period.
Structured Products
Types of redemptions
• Deferred
• Queued
Which unit share classes is most likely to be the most expensive and why?
An insured fund share
Offers the additional benefit of life insurance to the holder. This is reflected in a higher price.
What is valuation point?
The fund manager will calculate the value of the fund, giving a price per unit on a daily basis.
What is redemption in finance?
buy back something such as repayment of the principal on a debt.
What is redemption in finance?
buy back something such as repayment of the principal on a debt.
Structured products are
No clear definition
Often based on package of derivative products and gives a ‘guarantee’ on the protection of the capital invested if held for a fixed period
Structured products in the UK are called:
Retail structured product or Market linked product
Hedge funds are
Unauthorised fund with no public marketing
Hedge funds trading strategy
Short selling
Use of derivatives
Hard close means
The fund no longer accepts further investment
A queued redemption is what ?
Redemptions are made as and when funds become available.
Are ETFs open ended ?
Yes
What is a GIA
Flexible savings account that allows you to buy and sell investments like shares, funds, and bonds.
When is a GIA often used?
When ISA allowance has been used up for the year.
Is a GIA subject to tax?
Yes income and CGT
What is a trustee/depository appointed for?
They are appointed to protect the interests of unit holders and keep safe the property of CIS.
What responsibility does the trustee have?
The trustee should ensure that the AFM is running the fund in line with the regulatory requirements and the relevant scheme documentation.
What is the difference between an AFM and Trustees role for a fund?
While the AFM operates the fund, the trustee should ensure that the structure and operations of the scheme do not prejudice any group of unit holders favouring another group.
What is the price of an open ended fund entirely dependent on?
NAV of the underlying assets of the fund at the time of valuation point.
Equities, gilts and traded options are all:
Exchange-traded assets
Is queued redemption available under COLL?
It is a separate approach not available under this.
What is a clear disadvantage of queue redemptions
Expensive as the trade dates and settlement dates would be unknown.
What’s a Unit holder:
A unit holder is an investor who owns units in an investment trust, mutual fund, or exchange-traded fund (ETF).
Platforms were originally designed to hold?
Designed as fund supermarkets to hold CIS.
