Chapter 6 - Discretionary and advisory management Flashcards
What is Top-Down Approach stages?
1 - Asset Allocation
2 - Sector Selection
3 - Stock Selection
Investment Management Style - Value
Rigorous analysis can identify businesses whose value is greater than their market price. By buying and holding such shares (often for long periods), a higher return than the market average can be achieved.
Investment Management Style - Growth at a reasonable price (GAARP)
GAARP is based on finding companies with long-term sustainable advantages in terms of their business franchise, quality of management, technology or other specific factors.
Proponents argue that it is worth paying a premium price for a business with premium-quality characteristics.
This style is used mainly by active growth managers.
Investment Management Style - Momentum
Aims to capitalise on continuing existing trends in the market. The momentum investor believes that large increases in the price of a security will be followed by additional gains and vice versa for declining values.
This is the style for most widely adopted by middle-of-the-road fund managers.
What general information is in the client agreement?
Purpose and scope of agreement
Details of firm and regulatory status
Effective date
Cancellation rights
Client Classification - retail client
Conflict of interest policy
Firms responsibility for own actions
Fee charging
Occasional Reporting
The issue of contract notes as and when trades are undertaken
Periodic Reporting
Regular reports on the valuation of the portfolio and supporting statements.
Trust role (Settlor)
The person who creates the trust. The settlor is not normally a beneficiary but may be a trustee.
Trust role (Trustees)
Individuals whom the settlor trusts to look after the money in the best interests of the beneficiaries.
Trust role (Beneficiaries)
Set out by the trust’s settlor. These may be referred to as beneficiaries or in the case of an interest in possession trust as follows:
The “life tenant” is someone who is entitled to receive the income from the trust during their lifetime or a shorter period
“Remaindermen” are the class of beneficiaries who take the capital of the trust once the interest of the life tenant has ended.
What are the types of trust?
Absolute or Bare Trust
Interest in Possession Trust
Discretionary Trust
What is an absolute or bare trust?
An absolute or bare trust is one where the beneficiary is absolutely entitled to the assets of the trust.
What is an Interest in Possession Trust?
An interest in possession trust involves one person having the right to, say, the income from the trust for their life after which it will pass to other beneficiaries
What is an Discretionary Trust
A discretionary trust is one where the settlor gives the trustees discretion over whom the trust funds pass to and when. Therefore, it provides flexibility but the settlor will typically set out a class of beneficiaries from whom they expect the trustees to select.
