The Financial Services Industry

Question 1

The role of the financial services sector can be broken down into three core functions what are they?

Answer 1

1. Investment Chain
2. Risk
3. Payment Systems

Question 2

Within the financial services industry there are two distinct areas what are they?

Answer 2

1. wholesale

2. institutional

Question 3

What do Retail banks do?

Answer 3

Retail or high street banks provide services such as taking deposits from, and lending funds to, retail customers.

Question 4

What do Investment Banks do?

Answer 4

Investment banks provide advice to and arrange finance for companies that want to float on the stock market, raise additional finance by issuing further shares or bonds, or carry out mergers and acquisitions. They also provide trading services for institutions that might want to invest in shares and bonds, in particular pension funds and asset managers.

Question 5

What do Pensions funds do?

Answer 5

Pension funds receive contributions from or on behalf of employees and then provide an income on retirement. Pension funds are large, long-term investors in shares, bonds and cash. Some also invest in physical assets such as property. Given their aim of providing a pension on retirement, the sums of money invested in pensions are substantial.

Question 6

What do Fund Managers do?

Answer 6

Fund managers, also known as asset managers, run portfolios of investments for others. They invest money held by pension funds, insurance companies, high net worth individuals and others. Some are independent companies; others are divisions of larger entities such as insurance companies or banks. Fund managers will buy and sell shares, bonds and other assets in an attempt to increase the value of their clients’ portfolios.

Question 7

What 3 subdivisions can Fund Managers be divided into?

Answer 7

• *Institutional fund managers work on behalf of institutions, for example, investing money for a company’s corporate pension fund, or an insurance company’s fund.
• *Retail fund managers operate mutual funds that are available to the general public to invest in, often with relatively low initial investment amounts.
• *Private client fund managers invest the money of wealthy individuals.

Question 8

What do Stockbrokers do?

Answer 8

Stockbrokers are members of a stock exchange which allows them to provide services that enable their clients to buy and sell shares and bonds on financial markets but, increasingly, they advise investors about which individual shares or bonds they should buy and provide other wealth management services.

Question 9

What do Custodians do?

Answer 9

Custodians are banks that specialise in safe custody and asset services, looking after portfolios of shares and bonds on behalf of others such as fund managers, pension funds and insurance companies.

Question 10

What is meant by Wealth Management?

Answer 10

Wealth management refers to the provision to private individuals of financial services that have the goal of preserving and enhancing those clients’ wealth.

Question 11

What range of services does Wealth Management provide?

Answer 11

• *Tailored banking products
• *Investment management;
• *Secured lending against investment portfolios to allow them to be leveraged;
• *Investment products in areas such as foreign exchange, structured investments, property and alternative investments;
• *Trusts and estate management;
• *Tax planning;
• *Estate planning.

Question 12

Relating to Wealth Management the services can be segmented according to wealth, with clients classified as mass affluent, high net worth, very high net worth or even ultra-high net worth what are each of their investable asset wealth?

Answer 12

• Mass affluent – investable assets over US$100,000.
• High net worth individuals – investable assets of over US$1 million.
• Very high net worth individuals – investable assets of over US$5 million.
• Ultra-high net worth individuals – investable assets of over US$30 million

Question 13

What is meant by Discretionary basis?

Answer 13

where the portfolio manager makes investment decisions within parameters laid down by the client.

Question 14

What is meant by Non-discretionary or advisory basis?

Answer 14

where the client makes all of the investment decisions, with or without seeking advice from the portfolio manager.

Question 15

Know the function of the financial services industry in the economy: transferring funds between individuals, businesses and government; risk management

Answer 15

1. Central to all economies
2. Offers a diverse series of activities such as;
   a. banking, b. insurance, c. stock markets, d. venture capital, e. wealth management