Investment Advice Process

Question 1

The investment advice process can be broken down to include 9 points:

Answer 1

1. Establishing and defining the relationship between the client and the adviser
2. Gethering client data and determining goals, expectations and any ethical issues
3. Analysng and evaluating the client’s financial status.
4. Creating a risk profile in agreement with the client.
5. Formulating the investment strategy for asset allocation.
6. Selecting inestments, funds and products.
7. Selecting a choice of wrappers for tax efficiency.
8. Presenting and implementing recommendations.
9. Monitoring the portfolio and, when appropriate, rebalancing the portfolio and switching out of underperforming investments.

Question 2

Client categorisation rules - a firm is required to categorise its clients if it is carrying on designated investment business.

COBS defines a client as someone to whom a firm intends to provide, provides or has provided a service in the course of carrying out a regulated activity.

A client may be categorised as :

Answer 2

• Retail client
• Professional client
• Eligible counterparty

Per se professional clients are often ones that are automatically treated as professional clients and are generally:

• another authorised firm
• ‘large undertakings’ that meet certain size criteria for the size of their balance sheet, turnover or own funds
• national or regional governments, public bodies managing public debt, banks and supranational institutions
• institutional investors

Elective professional clients are those who have chosen to ‘opt up’ to be treated as a professional client.

Question 3

Firms are required to provide clients with appropriate information in a durable medium or on the website that can be understood by the client:

Answer 3

• the firm and its services;
• the investments and investment strategies it proposes to use, including guidance and warnings of the risks associated with them;
• the execution venues it will use; and
• costs and associated charges