DFM Flashcards
Explain how a DFM operates and what services might be provided with regards to an Advisory Service
Ascertains attitude to risk and provides a suitable asset allocation based on ATR.
Makes recommendations about which shares to buy and sell
Clients make decision to accept advice or not
Manager charges based on the value of assets in their portfolio
Manager should produce an end of year statement for tax return completion
Explain how a DFM operates and what services might be provided under a Discretionary Service?
Ascertains attitude to risk and suitable asset allocation
Buys & sell shares on client’s behalf
There may be specific areas in which they do not wish to invest
Trading limit might be imposed that can’t be exceeded without referring to client
Manager will charge based on value of assets in client portfolio
Charge will be higher than advisory services
Manager should produce an end of year statement for tax return completion
Main benefits of investing in a diversified investment portfolio?
Reduces volatility/risk
Non-correlated assets
Can match attitude to risk
Can be rebalanced
Potential for higher returns
Why is diversification important?
Diversification can reduce risk in a portfolio
By holding a different range of non-correlated assets
Each different investment can perform well in certain market conditions
Downside risk of an investment can be offset by the upside potential of another one
Diversification can reduce stock specific risk but not market risk
State limitations of using an asset allocation model
Doesn’t take tax wrappers/position into account
Charges not considered
Questions asked aren’t always relevant
Different models produce different results
Underlying assumptions subject to change/based on historic data
Needs to be reviewed
What is the purpose of a policy statement?
Should set out:
The purpose of the investments
Income or growth objective
Timescale
Statement about risk profile
Statement about asset allocation
Other issues such as sustainable and responsible investment
