investment advice Flashcards
(17 cards)
1
Q
advice process
A
- establishing and defining
- gather client data esg considerations
- analysing the clients finances
- creating risk
-creating investment strategy - selecting wrappers
-presenting implementing recommendations - monitor portfolio among any necessary adjustments rebalncinnganf switching out of underperforming funds
- FCA conduct of business sourcebook firms should take reasonable steps to make sure recommendations are suitable
- must take information on knowledge of investments and experience, risk tolerance and ability to bear losses
2
Q
consumer duty
A
- expects outcomes in products and services, price and value, consumer and understanding and consumer support.
- 31 July 2023 for new and July 2024 for closed products
3
Q
establishing client relationship
A
- ensure the client ahs a clear understanding about issues such as
- the amount of reporting on investments
- the frequency of refusing the clients ciruncstances and plans
- whether or not the adviser will alert the client to any changes to their planning that might be needed in the future
4
Q
risk
A
- need to consider capacity for loss as well as attitude to risk as the desired growth may skew the results if they don’t have the funds to cover
- tolerance to risk (there’s three)
5
Q
investment strategy
A
- choosing sectors for risk reward
- it’s not just sector ie high yield bond is more risky than govt
6
Q
investment strategy
A
- choosing sectors for risk reward
- it’s not just sector ie high yield bond is more risky than govt
7
Q
equities
A
Higher
- alpha
- smaller company
- specialist
Lower
- equity income
- growth funds
8
Q
fixed interest securities
A
lower risk
- gilt funds
- global government bonds
- investment grade corporate bond funds
higher risk
- emerging market bond
- hugh yield bond funds
- tactical bond funds
9
Q
environmental
A
- sustainability compromises issues that are environmental
- social - can be poverty and climate change
- ethical - values ie alcohol
fund selection
- positive selection - directs managers to invest in assets that meet specific published policy requirements
- negative exclusions - direct fund managers to avoid particular sectors or behaviours
- responsible -actively encourages companies to have higher
- muslims may not be able to use interest
- some are mixed. Oil and gas also play a part in new energy discovery
10
Q
fund level
A
- sustainability - they are fulfilling certain sustainability criteria and delivering specific and measurable outcomes
- impact - investments made with the intention to generate positive measurable social and environmental impact alongside a financial return
11
Q
investor risk tolerance
A
total return - usually fir long term investors who are looking for growth in the value of a portfolio to come fromm both capital gains and reinvestment of income
- current income - for investors who are focusing on income rather than capital gains. Perhaps income from the portfolio is needed to pay for living expenses
- capital appreciation - this is is usually for longer term investors where growth in the value of assets in real terms is a priority perhaps to build a retire mr fund. under this strategy growth usually comes from capital gains.
- capital preservation - this is for risk averse investors who esnt to minimise the risk of loss,visually in real terms. this means they want to achieve a return that is equal to or higher inflation.
12
Q
time horizon
A
- the shorter the time the more important to preserve the capital value.
- where the time horizon is longer short term volatility becomes more acceptable as long as the clients are warned of the likelihood of such short term movements in value.
13
Q
sequencing ridk
A
- risk of withdrawing too much capital during a market downturn which then creates a drag.
14
Q
behavioural finance
A
- it is not rationality but biases
- prospect theory moss aversion - people do not always behave rationally particularly with respect to their risk tolerance.
- investors place different eights on gains and losses and on different ranges of probability. individuals are much more distressed by prospective losses.
- people do not want to sell when there is a loss when they should
- overestimation of knowledge
- critics are that it’s not a theory and emotions that can’t be measured.
15
Q
portfolio construction - top down
A
1) determine the asset allocation geography
2) choose sector weightings
3) decide on the stock to select
16
Q
bottom up investment
A
they don’t pay attention to benchmarking
they select stocks purely on th basis of their own criteria value momentum growth at reasonable stock
17
Q
why switch
A
- change in clients objectives or circumstances that necessitates a move to investments with a different yield
- market conditions affect original intention
- client wishes to switch
- there has been consistent underperformance of an anti investment over a medium too long period
