Investment Advice Flashcards
10 points
Process adviser would use when providing investment advice
- Establish goals, expectations and timescales
- Confirm whether income or capital growth required or both
- Confirm ATR, CFL and tolerance to risk
- Identify level of emergency fund required
- Full details of existing investments
- Any ehtical/religious/SEG views to take into account
- Establish appropriate asset allocation
- Select appropropriate funds for new monies and switching
- Allocate tax wrapper
- Implement, monitor, review and rebalance
Passive fund manager
- Doesnt seek to outperform the market
- Fund seeks to invesst in selection of assets and seeks an average return for them
- Periodically rebalance to maintain asset allocation over time
- Does not seek to select funds deemed attractive or forecast future stock price
- Does not require active intervention
- Does not require a large amount of information gathering to drive processes
- Less costly to run than active managed fund
- Slightly underperfrom due to deductions of fund manager charges
Active management
- Objective is to achieve returns which exceed the market
- To achieve this fund managers select funds or stocks to buy and sell at a time they deem correct to make selections
- Constant changes to the portfolio
- High level of information required in order to select funds to exceed market returns using complex selection and trading system
- Cost higher than running a passive fund
- Dont always produce returns in excess of the market
- Many ways to run active managed fund
Advantages and disadvantages of DFM
ADV
* Target specific objective and provide bespoke service
* Access to wide investment options, including alternatives which can include Tom and Sally’s interest in ESG investing, Commodities and precious metal
* No client involvement in investing except for when there yearly reviews and risk discussions, which matches Tom and Sallys preference of reducing the burden of reviewing their financial arrangments
* Tom and Sally’s asset allocation aligned with their medium ATR taking account of tolerance to risk and medium to high capacity for loss
* Rebalances asset allocation and provides a regular review service
* Can utilise tax efficient allowances and tax wrappers such as ISAs and pension
* Tom and Saly would benefit fomr professional active fund management
* Potential for higher returns
* Consolidated tax statements and information in one report, saving Tom and Sally hassle
* Can help Tom and Sally release money for Amelia and Noah’s university cost taking into acount of exemptions and allowances
DISADV
* May not always consider tax wrappers or allowances
* Lack of control
* Can be more expensive than advisory service as higher charges for ehnhanced level of advice
* May not get higher return, better performance
* Tom and Sally have an interest in ESG investment, DFM may invest in non ethical invstement and unacceptable sectors
* Not all DFM provide tax advice/automatic use of tax efficient allowances
Advisory service
- Advisor ascertains ATR and suitable asset allocation
- Makes recommendation about which shares or funds to buy
- Client makes decision as to whether to accept the advice
- Advisor charges based on assets under management
- Advisor produces end of year statement for tax return
9 points
Features of a platform
- Offer access to a wide range of investments and collective investments
- Different platforms will offer different types of investments and collective investments
- Open architecture wrap platform offer unfettered access to OEICs, Unit Trusts and ETFs as well as shares.
- Wrappers can include pension wrappers, ISA or investment bonds
- Investors holding shown in one single account
- Ease of administration and access
- Access online with a range of investment information that can be accessed
- Enable client to view total assets and asset allocation on line
- Provide up to date valuation in one place
- Possible cost savings having everything in one place
- Re- registration so that any transfers means Tom and Sally are not out of the market
- Can use discretionary fund manager/model portfolios and specialist funds
7 points workshop Q
Multi-Asset funds
- Provides a balanced portfolio across all asset classes
- They have similarities to balance managed investments can be structured to prvide growth and lower income requirements
- Generally fits a medium risk category which meets Tom and Sally’s ATR, there risk ratings to match client’s ATR
- The higher the risk level the higher the equity content, the lower the risk the more fixed interest exposure
- Asset allocation selection is the key and different risk option dependent onf equity content
- Fund manager will identify best longer term investment opportunities across all asset classes including commodities and alternative investments
- Stratgic asset allocation will typically feature an asset allocation preferred by the fund manager and maintained through rebalancing
- Can include blend of active and passive funds
- No CGT liablity on internal rebalances of the fund
- Control of non correlated assets
Factors to consider when selecting a platform
- Cost and charges
- The number of funds and investments available
- Range of tax wrappers available
- Suitability in relation to the clients resources and requirements
8 points workshop Q
Explain to Tom and Sally the benefits of using a DFM and how this could assist them in making future ESG investments
- DFM provides a professional expertise and management and does not require client involvement which matches Tom and Sally’s need to reduce the burdun of reviewng their financial arrangements
- DFM will have yearly reviews with Tom and Sally to ensure the investment is on track to meeting their objectives and will rebalance the portfolio for them
- A DFM has access to a wide range of investments and can access a large number of ESG investments opportunities and carrys out ESG research
- The DFM can provide a bespoke service and align Tom and Sally’s portfolio with their ESG investing requirement while also taking account of their medium ATR and CFL in the selection process
- DFM would also be able to diversify their portfolio using different asset classes and have wide range of alternatives that they can access.
- A DFM can take account of their allowances and exemptons and ultilise tax wrappers
- Likely to get greater returns
Benefits of Multi asset funds
- Internal rebalances are CGT free unlike DFM
- Can take a strategic stance in falling markets
- Risk rating to match Tom and Sally’s medium ATR
Difference between Multi manager and multi asset
- Invest in a broad range of funds form other fund management groups
- Delegate stock slesction to speacialist in each field
- Profit in investment styles and specialist knowledge of greater range of experst that can gain acces to funds open to institutional investors
- Avoid single manager risk
- Expensive though
