Chapter 1: Technology in investment management

Question 1

what is the function of retail banks?

Answer 1

Taking deposits from and lend funds to retail
customers
Provide payment and money transmission
services

Question 2

what is the function of building societies?

Answer 2

Groups of people pool their savings allowing
some members to build or buy houses
Jointly owned by individuals that have deposited
or borrowed money from them – the ‘members’

Question 3

what is the role of investment banks?

Answer 3

• Provide advice to, and arrange
  finance for, companies wanting
  to float on the stock market
• Raise additional finance by
  issuing further shares or bonds
• Carry out mergers and
  acquisitions
• provide services for institutions
  wanting to invest in shares and bonds
  (pension funds and asset managers)

Question 4

what are asset owners?

Answer 4

organisations and individuals that legally own the assets managed by firms

Question 5

what are the most common types of asset owners?

Answer 5

• pension funds
• sovereign wealth funds
• insurance companies
• ultra-high net worth individuals (UHNWIs),
  and
• retail investors.

Question 6

what is the role of insurance companies?

Answer 6

Facilitate the effective management of
risks. collect premiums in
exchange for the cover provided. This
premium income is then used to buy
investments such as shares and bonds. premiums will be used to pay claims that arise

Question 7

what is the role of wealth managers?

Answer 7

• Arrange stock market trades on behalf of their
  private investors and charity clients
• Advise investors which stocks, bonds, or mutual funds
  to buy
• May offer “execution-only” services where
  instructions are followed but no advice is given

Question 8

what is the difference between fund managers and wealth managers?

Answer 8

• Wealth managers focus on the overall financial well-being of an individual, while fund managers focus on managing specific pools of assets

Question 9

what are platforms in investment management?

Answer 9

online services designed to enable wealth managers, financial advisers and retail investors to manage their investment portfolios

Question 10

what are users able to do with platforms?

Answer 10

• view and monitor
• research
• keep track
• place orders
• monitor tax liabilities
• perform modelling
• compare returns

Question 11

what is the role of financial advisors?

Answer 11

offer financial planning services to private investors. establish the client’s investment objectives and attitude to risk, and then
recommend suitable investments that will meet the client’s requirements

Question 12

what is a robo-advisor?

Answer 12

New type of financial adviser that provide investment services
online based on a set of computerised rules and/or algorithms
with a minimal amount of human involvement.

Question 13

what are custodians?

Answer 13

banks that specialise in safe custody services
looking after portfolios of shares and bonds on behalf of
others, such as fund managers, pension funds and insurance
companies.

Question 14

what are TPAs?

Answer 14

Third-party administrators (TPAs) undertake
investment administration on behalf of other firms
and specialize in this area

Question 15

what is the FX market?

Answer 15

decentralized market where currencies are traded. Trading of foreign currencies is always done in pairs, where one currency is bought and the other is sold, and the price at which this takes place is the exchange rate

Question 16

what do securities include?

Answer 16

bonds and equities that can be bought, sold, borrowed and lent

Question 17

what is the principal amount in securities?

Answer 17

The number of shares multiplied by the price

Question 18

what is the consideration in securities?

Answer 18

Principal amount + fees and charges

Question 19

what is the value date?

Answer 19

date on which the investor should pay the consideration of the trade and take legal ownership of the instrument (T+2)

Question 20

what is the settlement date in securities?

Answer 20

date on which the investor actually does pay the consideration of the trade, and takes legal ownership of the instrument. Settlement date should be the same as value date, but there may be a delay in the process

Question 21

what is the consideration in relation to bonds?

Answer 21

principal amount + accrued interest + commission + fees and charges

Question 22

what is automation?

Answer 22

set of working practices and systems that enable transactions to move seamlessly through the processing cycle, without manual intervention or redundant handling

Question 23

what are the principles of automation in securities?

Answer 23

• trade is entered into the firms systems only once
• Trade processing should be done in a series of logical steps, with each step depending on the successful completion of the one before it
• Clerical intervention should be avoided as far as possible, but clerical staff should be able to manage by exception

Question 24

how has automation solutions improved the financial industry?

Answer 24

• shorten settlement cycles
• reduce systematic and operational risk
• improve the certainty of settlement
• minimise operational cost
• improve customer

Question 25

what does data need to be in the asset management industry?

Answer 25

• accurate
• complete
• timely
• securely delivered

Question 26

what are the challenges in relation to data?

Answer 26

• different sources, difficult to integrate
• can struggle to process data due to multiple platforms