Our approach to investment advice is based on clearly understanding your financial situation, your aims and how much risk you are prepared to take with your money.
The guidance we will give you helps you through this process and means we can make sure our solutions are right for you and that you have all the information necessary to make a clear decision.
Why People Invest
We invest for a number of reasons:
Saving for a specific purpose
Building a fund of money for personal use at a later date
To generate an income that will maintain a good standard of living
To achieve growth that will at least outpace inflation
Before investing we recommend you address four key areas:
Have you cleared any outstanding debt?
Have you adequate emergency funds?
Have you sufficient financial protection to cover risks such as sickness, accident or death?
Have you planned for an income in retirement?
We will help you meet the needs and actions in these areas in line with your investment requirements.
Understanding Your Needs And Requirements
We will take you through a fact find where we will ask you about your current financial situation, your investment aims and objectives. We will also ask about your feelings concerning your investments. How you feel about risk and your expectations are important aspects of getting the right investment for you. We will also consider your tax position to ensure you are maximising any tax free or tax allowance entitlements.
Some Of The Areas We Will Consider With You:
• Are you investing for growth, income or both?
• What other investment plans do you already have?
• How long are you prepared to invest for?
• Do you need access to money at any time?
• What is your tax position now and when you intend to take the benefits from your investments?
• What degree of risk are you prepared to take?
Financial risk is the risk associated with investing in certain investment types and the potential returns from those investments.
Investment returns are not usually guaranteed and any investment strategy brings with it the potential for loss. Each type of investment carries a different level of risk.
Generally the amount of risk you take is linked to the reward, i.e. the more risk you take the greater the potential for higher returns.
It is important to understand the level of risk you are prepared to take with your investment. To understand your attitude to risk we will take you through an independent risk profiling tool in which we will ask you to respond to a series of statements which help to understand your overall willingness to take risk.
You will be asked to respond to each statement with one of:
• Strongly agree
• No strong opinion
• Strongly disagree
The Risk Profile Statements Are As Follows:
People who know me would describe me as a cautious person.
I feel comfortable about investing in the stock market.
I generally look for the safest type of investment, even if that means lower returns.
Usually it takes me a long time to make up my mind on financial matters.
I associate the word ‘risk’ with the idea of ‘opportunity’.
I prefer the safety of keeping my money in the bank.
I find investment and other financial matters easy to understand.
I am willing to take substantial financial risk to earn substantial returns.
I have little experience of investing in stocks and shares.
When it comes to investing, I’d rather be safe than sorry.
I’d rather take my chances with high risk / high return investments than have to increase the amount I am investing.
I am concerned by the uncertainty of stock market investments.
The Profiler will place you in a risk category based on your answers. This risk category is the starting point to discuss and agree the correct risk category for your investment.
The Risk Profiles
Risk averse investors prefer knowing that their capital is safe rather than seeking higher returns. They are not comfortable with the thought of investing in the stock-market and would rather keep their money in the bank or other cash based investments.
Risk averse investors are unlikely to have much experience of investments beyond bank and building society accounts. They will usually suffer from severe regret if their decisions turn out badly.
Risk averse investors need to understand that their caution can mean that their investments may not keep pace with inflation.
Low risk investors prefer knowing that their capital is safe rather than seeking higher returns. They are not particularly comfortable with the thought of investing in the stock-market and would rather keep their money in the bank or other cash based investments. They do, however, believe that not all their money should be invested in lower risk assets.
Low risk investors have fairly limited experience of investments and financial matters.
Low risk investors will normally have a portfolio consisting of cash and bonds with a little exposure to equities.
Lower Medium Risk
Lower medium risk investors prefer not to take too much risk with their investments but will do so to a limited extent. They prefer lower risk investments but they may realise that other investments might get better results over the longer term.
Lower medium risk investors may have limited experience of financial matters but will be more familiar with bank accounts than other types of investment.
Lower medium risk investors typically have portfolios with a majority of bonds and cash but with some exposure to equities and other higher risk investments.
In general, medium risk investors understand that they have to take investment risk to meet their long term goals. They are likely to be willing to take risk with a high proportion of their available assets.
Medium risk investors usually have a good knowledge of financial matters and some experience of investing in higher risk assets such as equities and bonds.
Medium risk investors will typically have portfolios with a mix of higher risk investments such as equities and lower risk investments such as bonds and cash.
Higher Medium Risk
In general, higher medium risk investors are willing to take investment risk and understand this is necessary in terms of generating long-term returns. They are willing to take risk with most of their available assets.
Medium risk investors are usually experienced investors who have used a range of financial products in the past which have contained high levels of equities.
Medium high investors will typically have portfolios with a majority of high risk investments such as equities but that also contain bonds and cash.
In general, high risk investors want the highest possible return on their capital and are willing to take considerable amounts of risk to achieve this. They are usually prepared to invest all of their available assets in equities.
High risk investors usually have considerable experience of investments and may have managed their own investments. They will not suffer from regret to any great extent and can accept poor outcomes without much difficulty.
High risk investors will typically have portfolios made up of equities with little in bonds or cash.
Diversification Of Risk
Having established your risk profile we need to understand the best way to invest.
Spreading risk is one of the most important principles of investing and is achieved by using several different investment types or asset classes.
The asset classes to invest in are linked to your chosen risk profile. Different asset classes have varying degrees of risk and return. Examples of different asset classes are listed below:
Cash is often perceived as a risk-free investment but it is also a low-return investment. Historically, cash has given a return of close to zero once the impact of inflation is taken into account.
Fixed Interest Securities (Bonds)
There is a wide range of fixed interest securities from low risk short-term government bonds to higher risk long-term corporate bonds. Bond investment can be a useful counter-balance for equities because the performance of these two asset classes tends not to move in parallel.
Property is an asset class that offers the potential for long-term income and capital growth and is normally uncorrelated to equity markets.
Investment in equities, both UK and global, has long been the cornerstone of most investment portfolios, providing long-term scope for growth of both capital and dividend income. Equity performance tends to be volatile in the short term.
Commodity investments are useful in creating a diversified portfolio and these are sometimes known as Alternative Investments.
These different asset classes are blended together to produce a portfolio that aims to match the risk profile.
By taking this approach, even if a particular asset class goes through a bad patch the rest of your investment need not be affected.
Investment Fund Types
Once we have determined your risk profile and its corresponding asset allocation we then need to decide on the funds you want to invest in to achieve your financial goals.
Cash and Cash-like Funds
Funds that provide lower volatility than risk based funds with returns linked to bank and building society deposit rates.
Insurance Company Products
This involves investing directly with an insurance company either in one of their in-house portfolios or their external range of funds. The management charges for these portfolios will normally be lower than the Active Management or DFM funds.
Passive Management Funds
These are invested in multi asset classes which predominantly track a particular market or index e.g. FTSE. The performance of these type of funds attempt to mirror the selected indices and are essentially run through computer programmes and therefore do not include active fund management.
Active Management Funds
These are multi-asset funds actively managed by the chosen fund managers.
Discretionary Fund Management
These consist of a portfolio pf varying assets and investment types based on the attitude to investment risk and the agreed investment strategy. The Discretionary Fund Manager is responsible for switching between funds and sectors in response to market changes, research and analysis. They will rebalance the portfolio assets in line with the agreed strategy when deemed appropriate.
Fees and Charges
When making an investment there are three main parties that can be involved.
1. The administration platform (if used)
2. The manager of the invested funds
3. The financial adviser
The Administration Platform
Typically the charge will be a percentage of the funds invested. Each platform has a different charge but usually range between 0.25% and 0.50% depending on the size of the fund.
The Fund Manager
The charges made are a percentage of the funds invested. This is known as the fund’s Total Expense Ratio (TER) and is made up of the various costs and expenses of running the fund.
The TER charged will vary depending on:
• The investment fund chosen
• The size of the investment
• The fund ‘type’ e.g. passive, active, DFM
The Financial Adviser
The amount of fee for advice is agreed in advance. There will be an initial fee for the advice provided and the implementation of any recommendations. There will also be a Servicing Fee for ongoing monitoring, valuations and regular reviews.
The fee can be paid by cheque or can be paid through the investment provider if authorised by you.
What Happens Next?
If you want to proceed further in receiving advice regarding investments it will be necessary to meet to complete the following documents:
• Fact Find
• Terms of Business
• Risk Profiler
We will then prepare our report with recommendations. This report will also outline the fees payable. If you decide to proceed with the recommendations we would then complete the required documentation.