Funds And Investments Flashcards
Detirmining suitability of funds/investments
Income/Accumulation
FSCS
Making contributions
Asset allocation
Diversification
Risk and capacity for loss
Administration
Charges
Sutability for client
UK equity fund
Uk equity fund cons
Global equity fund pros
Global equity fund cons
Additional information to assess fund sutability
Additional information to determine sutability for tax puposes
Benefits of OEICs
DIGITAC
Diversification
Inflation hedge
Growth potential
Income possible through Div/Interest
Tend to have low charges
Allowances can be used
Can bed and ISA
Drawbacks of OEICs
MILD T
May need advice
Included in LTC assessment
Loss potential
Dividend not guaranteed
Taxable income and CGT outside ISA
What information would you require to advise whether to hold, switch, or sell investments
Facts
B
A
-Original investment amount
-Asset allocation
N
-Sutability for the client
T
-Date of original investment
-Other capital sums invested
T
-Use of CGT exemption
-CGT losses to carry forward
E
-Details of previous encashments
-Charges
R
-Performance
R
Willingness
B
A
N
T
T
-Willingness to gift/use trusts for tax efficiency
E
R
R
Active management
Objective to achieve returns above market
Fund managers buy and sell stocks or funds on how they believe they will perform in order to reach this goal.
Constant changes are made to the portfolio
High level of information required and complex selection and trading systems are used to choose stocks
Usually higher costs than passive investment
No guarantee of producing funds above the market
Many ways of running an active fund encompassing differing methods and types of analysis
Passive fund massive
Does not seek to outperform market
Fund invests in a selection of assets that produce an average return for those classes
Periodically rebalanced to maintain asset classes
Does not look to select stocks or funds that appear or otherwise forecast the future price.
No active intervention is required
Does not require lots of information to drive the selection process
Usuallg costs less than active funds
Will often underperform the market average due to costs
Investing in cash deposits
Protection up to £85,000 by FSCS
Protected up to £1m for 6 months, temporary high balances
Interest may not be competitive
Limited growth
Limited inflation protection
Real value of cash will fall
Can increase when rates are high
No CGT
Considered low risk
Taxed at marginal rate on interest over personal allowance
What are the 9 forms of risk
Inflation
Taxation
Interest
Liquidity
Currency
Diversification/Concentration
Non-systematic
Market/systematic
Default/provider
Explain the difference between attitude for risk and capacity for loss
Capacity for loss
-An individual’s perception of their ability to absorb losses should they occur
Attitude for risk-
-The amount of risk and individual is willing to take
-Whether they are comfortable investing their funds now and how prepared they are to see the value of investments fluctuate and see potential losses
What are the features of using a platform
Offers access to a wide range of investment funds or collective investments
Different platforms offer access to different types of collective investments
Open architecture wrap platforms tend to offer unfettered access to OEICs, investments trusts, and ETFs
Wrappers can include ISAs, SIPPs, pension contracts, and investment bonds
Investors’ holdings are shown in a single account
Which is usually accessed online
Which enables investors to view their total assets and asset collections
And the up to date valuation of thier investments in one place
Benefits of appointing a discretionary fund manager to look after investments
Profesional/active management
Potential for higher returns
Regular reviews
Will target objectives/bespoke service
No requirment for ongoing involvement
Consolidated tax statements/information
Wider investment options
Can utilise tax efficient allowances
Drawbacks of appointing a discretionary fund manager to look after investments
Higher charges
No guarantee of performance
May not provide regular service
Lack of control
May invest in unacceptable sectors/unethical
May not provide tax advice/tax efficiency not always considered
