What are the two categories of investors?
Institutional
Individual (retail)
What is the FCA definition of a high net worth individual?
annual income
£100,000 or more and investable assets of £250,000 or more
What is the FCA definition of a certified sophisticated investor?
assessed by a firm as being sufficiently knowledgeable to understand the risk of a particular investment
NOT LEARNT – Examples of institutional investors
- Pensions funds
- Insurance companies
- Collective investment schemes
- SWFs
Question about obligation and FCA principles..
…
What are the main factors in an investor’s needs and objectives when giving advice?
Time horizon
Return required
Risk tolerance
NOT LEARNT – What are examples of other things that may need to be taken into account for an investor giving advice to a client?
- Liquidity
- Tax considerations
- Religious or ethical beliefs
What is a letter of authority?
Authorises relevant third parties to release information for the purpose of getting info about a client
What is capital risk?
The risk that an investment may be worth less in future
What is shortfall risk?
investment return falls short of the amount required
for an investor to achieve their objectives
What are the risks associated with cash investment?
Inflation risk
Interest risk
Shortfall risk
Credit risk (for corporate bonds)
Market risk
Operational risk
Rank equities, fixed income, and cash for capital risk lowest to highest
Cash
Fixed income
Equities
Rank equities, fixed income, and cash for inflation risk lowest to highest
Equities
Fixed income
Cash
Rank equities, fixed income, and cash for interest rate risk lowest to highest
Equities
Fixed income
Cash
Rank equities, fixed income, and cash for shortfall risk lowest to highest
Equities tied with fixed income
Cash
What is a clients risk profile made up of?
Risk required - min
Risk capacity - max
Risk tolerance - comfortable
Key factors that affect a client’s risk profile
Horizon
Risk capital
Investment experience
Psychology
What is risk capital?
money to invest that would not affect the client’s lifestyle if lost
What should you do when assessing a client’s risk profile?
- Examine a client’s existing investments
- Ask specific questions (risk profile questionnaire)
- Capacity for risk
What does the FCA require regarding determining a client’s risk profile?
Attitude to risk questionnaire
What is asset allocation
Distribution of asset classes within portfolio
What are the main asset classes?
Cash
Fixed interest
Equities
Property
Can specific investment recommendations be made before there is an agreed asset allocation?
No
NOT LEARNT – Factors to consider when selecting a fund
- Past performance
- Charges
- Financial stability of provider
- Stability, independence and standing of:
- Trustees
- Custodians
- Auditors
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NOT USED ---- Textbook Chapter 1 - Financial Markets and Institutions154
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NOT USED ---- Chapter 1 - Financial Markets and Institutions102
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NOT USED -- Chapter 2 - Ethics & Investment Professionalism37
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NOT USED ---- Chapter 3 - The Regulation of Financial Markets and Institutions77
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Chapter 4 - Legal Concepts36
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Chapter 5 - Client Advice34
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Chapter 6 - Taxation in the UK80
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Chapter 1 - Financial Markets and Institutions Part 172
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Chapter 3 - The Regulation of Financial Markets and Institutions Part 150
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Chapter 1 - Financial Markets and Institutions Part 234
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Chapter 3 - The Regulation of Financial Markets and Institutions Part 248
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Chapter 1 - Financial Markets and Institutions Part 350
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Chapter 3 - The Regulation of Financial Markets and Institutions Part 448
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Chapter 3 - The Regulation of Financial Markets and Institutions Part 355
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Chapter 3 - The Regulation of Financial Markets and Institutions Part 542
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Chapter 3 - The Regulation of Financial Markets and Institutions Part 649
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Chapter 1 - Financial Markets and Institutions Additional lecture info4
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Chapter 2 - Ethics & Investment Professionalism12
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Chapter 1 - Hard facts22
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Chapter 3 - Hard facts49
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Chapter 4 - Hard facts9
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Chapter 5 - Hard facts3
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Chapter 6 - Hard facts19
