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Flashcards in Types and Characteristics of Investors Deck (16)
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Institutional investors - difference in size and examples

Employ FUND MANAGERS to manage large scale funds

Larger firms employ professionals internally whilst smaller outsource

e.g. pension, insurance, mutual, hedge, SWF


Individual (Retail) investors and FCA restrictions

Less time and resources, FCA restricts riskier investments to certain types:

1. High Net Worth - £100,000 income / net investable assets of £250,000

2. Sophisticated Investor - certificate in the required form. Must also sign statement that acceptance may result in loss

3. Self Certified Sophisticated Investor


Self Certified Sophisticated Investor definition

1. Member of network of business angels for 6 months

2. More than 1 investment in unlisted companies in the 2 years prior

3. Have worked in private equity or in provision of finance in the 2 years prior

4. Have been a Director (of a company with annual turnover of £1m) in the 2 years prior


Investment Professionals

An authorised person, or exempt person (plus local gov, gov or international body)

Usually meant by investment adviser or II


Non-mainstream Pooled Investments (NMPIs)

Promotion of NMPIs is restricted to High Net Worth, Sophisticated and Investment Professionals


FCA's Principles for Business (PRIN 6 and 7)

PRIN 6: treat customers fairly

PRIN 7: communicate to customers clearly


TCF Initiative - 6 Outcomes

1. Fair treatment of customers central to corporate culture

2. P+S are designed and targeted for identified market

3. Consumers provided with clear info before, during and after sale

4. Advice given is suitable for circumstances (based on KYC and Suitability Reports)

5. P+S perform as consumer has been led to expect (both risk and return explained)

6. Consumers can easily change product or make complain post sale


TCF Initiative - Outcome 1

Consumers are confident fair treatment of customers is central to corporate culture

Must be delivered from top of organisation, down
Through leadership, strategy, controls, recruitment and reward


TCF Initiative - Outcome 2

Products and services designed to meet the needs of target market

Should be marketed carefully to avoid mis-selling


TCF Initiative - Outcome 3

Consumers are kept informed before, during and after point of sale (including financial information)



TCF Initiative - Outcome 4

Consumers receive suitable advice, which takes into account their circumstance

Firms undertake 'KYC' before giving recommendations

Investment Advisory and Portfolio Management services provide a 'Suitability Report'


TCF Initiative - Outcome 5

Consumers provided with products and services that perform to acceptable standard and as led to expect

E.g the risk SCARPs were not properly explained alongside their high returns


TCF Initiative - Outcome 6

Consumers do not face post sale barriers from firms to change product, switch provider or make a complaint

Firms must make customers aware of complaint handling procedures


TCF Initiative - Vulnerable Clients examples

More susceptible to harm and less able to advance own interests

- high debt / low income
- over 80 or young
- changes to circumstances (bereavement, job loss, divorce)
- Lack of English
- Non standard credit history (armed forces, returning from abroad)


3 Major factors determining an Investors Needs

1. Time Horizon - longer horizon = less need for liquidity and more risk

2. Return Requirement - desired outcome at end of time horizon

3. Risk Tolerance - linked to investor psychology and assessed via questionnaire. Also longer horizon, more risk


Minor factors determining Investor Needs

1. Liquidity - need for liquidity increased as investment horizon nears (e.g. approaching retirement)

2. Tax

3. Religious / Ethical beliefs - may restrict portfolio