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Following a detailed personal review of your current financial position, aspirations and objectives, we will assess all of the above factors with you before making recommendations for your asset portfolio.
Wealth creation and management is an ongoing process and we will look to meet regularly with all clients in order to ensure the best chance of your objectives being met. Depending on the kind of investment, the term and your objectives, we may recommend annual, half-yearly, or quarterly reviews.
The following information outlines some of the general investment terminology you may have heard and is by no means a summary of the entire investment market. Financial institutions are constantly innovating and bringing new financial solutions to the marketplace, each with different features and benefits. A full financial review with your adviser can help establish what sort of investment strategy is right for you.
Platforms
Investment Platforms are innovative, transparent and sophisticated tools which have become very popular over the last few years. They are usually designed as web-based systems which can streamline the investment and ongoing administration of client portfolios. In essence, everything can be seen, valued, and administered from one central location, rather than being scattered across a range of companies offering limited access to investment funds and facilities.
Rather than marketing and selling their own financial products, an Investment Platform is a 'conduit' through which a client can invest into a range of assets e.g. shares, investment funds, bonds, ETFs and also take advantage of multiple tax-wrappers such as ISAs, Onshore and Offshore Investment Bonds, and Pensions.
Collectives - Unit Trusts
Unit trusts are a popular investment vehicle today, they are 'open ended collective investments' which put the cash of many investors into one fund a 'pooled fund'. This system allows investors to invest "collectively" which has the benefits of spreading and reducing risk and keeping costs under control. Unit trusts allow you to invest in the stock market but enable you to spread your risk and benefit from expert investment management.
There are many unit trusts to choose from across a wide range of investment sectors. The managers of the trusts can buy and sell within the trust without having to pay any tax, however tax liabilities can arise on dividends and unit sales by the holder.
Unit Trusts can usually be accessed directly with the investment manager or via an investment platform.
Collectives - OEICs (Open Ended Investment Companies)
Open-Ended Investment Companies are often referred to as the modern day and flexible equivalent of the unit trust. They combine the elements of unit trusts and Investment trusts enabling you to pool your investments along with other investors. This helps to spread the risk and enables you to take advantage of the skills of a professional managing the fund.
OEICS are regulated by the FSA. The rules are based on specifically written company law, whereas unit trusts are based on old trust law.
They have a single price for buyers and sellers and the charges are shown separately. A unit trust has a separate buying and selling price (bid/offer spread). The OEIC share price directly reflects the underlying assets of the portfolio
OEICS have an Umbrella Fund structure, which means that there are different classes of share. Each sub share fund can be invested in a different area if required.
OEICS can usually be accessed directly with the investment manager or via an investment platform.
Investment Trusts
An Investment Trust is simply a company that has been set up to invest in shares of other companies. By buying shares in an investment company, the investor is in effect spreading the risk that would normally by associated with a single share investment because the value of the Investment Company's shares are directly related to the spread of investments it is making.
ISAs
Individual Savings Accounts (ISAs) were introduced in 1999 and replaced PEPs and TESSAs. They are available to all UK residents over 18 years of age or, in the case of cash ISAs, 16 years of age.
They benefit all taxpayers, as any income or capital gains received from investments held within an ISA do not have to be declared to the tax man. Please note, however, that tax legislation is subject to change and regular alteration.
ISAs can invest in cash or longer term investments like stocks and shares including unit trusts, investment trusts, Open Ended Investment Companies, fixed interest securities, or any share quoted on a stock exchange recognised by the Inland Revenue.
In April 2008, the old Mini and Maxi ISA's disappeared and investors now have a choice between a Cash ISA and Stocks and Shares ISA. At the same time, PEPs became Stocks and Shares ISAs and maturing TESSAs became Cash ISA’s.
The annual investment allowance is £10,680. Up to half of that allowance can be saved in cash with one provider. The rest can be invested in stocks and shares with either the same or a different provider. You can invest in two separate ISAs each tax year – a cash ISA and a stocks and shares ISA. You can transfer money saved in a cash ISA to a stocks and shares ISA – but you can't transfer money the other way.
Cash ISAs are widely available with different interest rates. It is a good idea to shop around for the best Cash ISA rates. It is important however to understand the conditions attached to those rates, for instance access may be restricted in order to achieve that particular rate. The limit for a cash ISA is £5,340.
Stocks & Shares ISA - Your entire ISA allowance can be in stocks and shares. However if you hold a Cash ISA which you have taken out in the same tax year, you will be restricted to the difference between the overall ISA limit and what you have deposited in the Cash ISA. The Stocks & Shares ISA is one account and managed by one provider.
ISAs can usually be accessed directly with the provider or investment manager, or via an investment platform.
From a tax perspective, investing in investment trusts is treated the same as investing in shares.
Investment Trusts can usually be accessed directly with the investment manager or via some invesment platforms.
Risk and Reward
Different people have different attitudes towards risk. You need to be clear about the degree of risk you are willing to accept before undertaking any kind of investment. The following chart provides a basic view of the deemed risk associated with different kinds of investment:
As part of your initial consultation and during your regular investment reviews, Investment Solutions will ask you to complete an 'Attitude To Risk' questionnaire in order to help establish the degree of risk you may be willing to take with your investments. We will discuss the results of this with you in full in light of any objectives and any time horizons you may have.
Investment Solutions recognise up to 10 unique risk categories ranging from 1 (Highly Risk Averse) to 10 (Highly Acquisitive). We will allocate your portfolio into various different asset classes and financial markets in accordance with our financial modelling of these profiles, which should then be reviewed on a regular basis in light of any changes to the macro-economic climate or the performance of certain assets, markets or investment funds.
Risk and return is a highly complex area, and different organisations take differing views on levels of risk. Ultimately, its important to remember that you are in control, and we are here to guide and advise you. If you would like to try completing an Attitude To Risk Questionnaire, then click here to get started.
Some Caveats:
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The above illustration is for guidance only.
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Different institutions have different means of categorising and assessing risk
- You need to be clear about the degree of risk you are willing to accept
- There is a balance between reward and potential return. Generally, higher risk investments can potentially offer higher returns but also carry a higher risk of suffering capital losses. Lower risk investments generally offer lower returns but with greater security of capital, although the value of your capital in real terms may be eroded by inflation.
- Risk is also related to how long the investment is undertaken. With Stocks & Shares you should always take a long-term view and we strongly advise a 5 year time frame as a minimum.
- Risk can also be in terms of how you invest. Investors wishing to minimising risk would consider a broader investment spread as opposed to investment in a specialist area.
- Remember past performance is not a guide to future returns. The value of investments and the income from them can go down as well as up.
- The level of tax benefits and liabilities will depend on individual circumstances and may change in the future.
- Exchange rate fluctuations may cause the value of underlying overseas investments to go down as well as up.
- Some Funds investing in specialist sectors or areas carry greater risks due to the potential volatility of market sectors into which the funds invest.
- You should not invest without consulting a Key Features Document and supporting literature.
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