Investment Process & wrappers Flashcards
What does capacity for loss mean?
The ability to withstand any negative investment event.
Adverse effect on standard of living
What non financial factors affect attitude to risk?
Previous experiences
Time horizon/age/health state/dependents
Client objectives/ethical/religious views
Investor psychology/perception
Framing
Society/collective mood/political/economic environment
Benefits and drawbacks of using an ISA long term compared to pension?
Benefits:
Accessible at any time/before age 55
Tax free on any withdrawals/income
Not subject to earnings/annual allowance
Not subject to LTA
Drawbacks:
No tax relief
Lower investment limit
Part of estate/can’t write under trust
Funds not earmarked for retirement/temptation to access early
Why use DFM?
Active management/ alpha Wider range of assets/funds Time markets/hold cash/speed of transactions Bespoke Influence asset allocation Tax planning service
Potential risks of using DFM?
FSCS limit exceeded/not available DFM could use unsuitable assets Duplication with another portfolio DFM acts outside mandate/deviation from benchmark Regulatory issues Overtrading/higher cost Service may incur tax liability Underperformance/negative alpha/does not add value
What are the ISA limits:
Adult
Junior
LISA
Adult £20,000
Junior: £9,000 (can have adult and junior at 16)
LISA: £4,000 (not in addition to the adult allowance - age 18-39)
What is the LISA bonus?
25% bonus (max £1,000 annually) paid until 50
On capital only
25% penalty bonus if not used for 1st home or retirement
What is risk tolerance?
Clients willingness to tolerate a certain level of fall in value of investments - no immediate need to sell
Timescales/other assets/age/stage of life etc.
Degree of uncertainty a client can cope with
What is risk perception?
Subjective - personal opinion
Based on knowledge and experience
What is risk capacity?
Ability to absorb losses - negative financial events
Largely objective
What is SAA & TAA?
SAA
Long term view
Regular rebalancing
Adjusted only in exceptional circumstances/client change in circumstance
TAA Short term variations Moves away from asset allocation for tactical reasons, also includes moves away from allocations within asset class Take advantage of market movements Judgement call by managers
What is positive and negative screening?
Positive - Invest in companies with positive approach/ responsible
Negative - Not investing in companies that do not meet clients ethical criteria/values e.g. tobacco, alcohol
Benefits of a platform?
Reduced admin Reduced paper and online access Wide range of authorised fund available Share dealing account Consolidated statements/tax reports Agreed charge by client - not rebates Availability of wrappers Asset allocation across wrappers Income flexibility Prefunding Access to tools Discounted fund charges
Different Bottom Up approaches/Styles?
Contrarianism - Going against the trend to try and achieve higher returns - market sentiment tends to exaggerate prices
Growth at Reasonable Price - Companies with sustainable advantages over long term - significant growth potential
Value - Shares perceived to be undervalued - low price relative to market - low P/E - increase over time
Momentum - Takes advantage of trends in prices believing prices will continue in same direction due to momentum - sell when believes peaked - lost momentum
What is the best of sector approach?
Include all required sectors but select companies with best ESG record within each sector
