A brokerage firm or a broker should work towards wisely investing the funds of the client in different investment options in order to maximize profits. Apart from thorough professional knowledge, data interpretation, market analysis and understanding the trends in the market, a broker should have good communication skills. A broker should use his expertise but conform to the needs of the client.
A brokerage firm must always be transparent, clear, prompt and effective in communicating with the client on various aspects. The firm is in custody of the client's funds. It is imperative that the firm keeps the client informed at all times of the fund status. Keeping the overall goal of the client in mind, the options chosen on the client's behalf must be communicated. A feeling of not knowing where, how or when the client's funds are invested is a clear sign of unhealthy communication.
The broker working on behalf of the client should have trading qualities similar to the client. An aggressive client should be served by an aggressive broker. Alternately, a safe player should have a safe broker. It is then that the goals of the broker and the client will match.
Accessibility to one's trading account to get frequent updates on the fund and profit status should be a priority. This ensures transparency in functioning. With most firms and brokers being online, it is easier to know the account status on a minute to minute basis also.
One should engage a firm or broker depending on one's own requirement using references, information from forums, and online checks.
Wednesday, September 1, 2010
Wealth Manager
Many wealth managers approach investors positioning themselves as "trusted advisors". Can you develop this type of relationship with someone who is compensated for selling product, or should you seek out a wealth manager who operates without conflicts of interest between the firm and the client? As more independent advisors arise, this question will present itself more frequently to investors.
One of the biggest complaints investors have is that they feel they are being "steered" towards specific investments by their advisor. Frequently, these products are manufactured and/or managed by the firm that employs the relationship manager. They can take the form of mutual funds, managed accounts, or partnerships. This is true for brokerage firms, investment banks, and trust banks. In many instances, the compensation of the "trusted advisor" is largely impacted by how much proprietary product he or she can sell. With that type of motivation in place, it is fair for investors to ask if their best interests are being placed first.
Some large financial services firms responded to investor's lack of trust by creating a "platform" that includes a limited number of outside advisors side by side with their own offerings. This is frequently presented in the form of a "wrap" program that entails a large, all-encompassing fee. The wrap fee includes compensation to the investment manager, the advisor, and the advisor's employer. These layers of fees add up. While convenient, it may prove to be an expensive proposition to the investor. As a result, many investors are gravitating to fee-only independent wealth managers who offer open architecture in a conflict-free manner.
The role of a fee-only advisor is quite different from that of the more traditional relationship between the client and his broker or trust officer. A fee-only wealth manager does not and will not manufacture or sell investment products; their only source of income comes directly from their clients. They will refuse compensation from investment managers, insurance companies, banks, and other sources of investment merchandise. His or her role is to work with you to structure a multi-manager portfolio that fits your specific investment needs. The advisor will likely spend time with you to understand your goals, objectives, and risk tolerance long before the investing process begins. Many fee-only advisors have Certified Financial Planners on staff. These professionals will work with you to ensure that you have the right structure around your assets (i.e. wills, trusts, etc.) to help you meet you your long-term financial goals in the most tax efficient way possible.
It is becoming more difficult for investors to pinpoint outstanding investment talent. There are so many choices that one can become overwhelmed. Fee-only wealth managers offer true open architecture. They are not limited by an investment platform. This enables them to seek out the best and brightest managers in all asset classes. You should expect that your wealth manager has conducted a thorough amount of due diligence on each of the managers in the suggested portfolio. The advisor should suggest separate accounts over mutual funds. Separate accounts are less expensive and more tax efficient than commingled funds. Since your advisor is not compensated for transactions in your account, he or she will probably recommend that your assets be held at a large discount brokerage firm. This will help minimize overall costs to you. While you will be receiving monthly statements from your brokerage firm, the wealth manager should provide consolidated performance reporting on a monthly basis.
To review, here is what individual investors should expect from an independent, fee-only wealth manager:
* A thorough independent appraisal of your current investment portfolio,
* A discussion about what you want to accomplish with your investment capital,
* An examination of the structures around your assets such as wills, trusts, and retirement plans,
* A well-designed asset allocation model that fits your investment goals,
* A suggested multi-manager portfolio that foots with your goals and objectives,
* Thorough and ongoing due diligence on each of the managers in your portfolio,
* Face-to-face meetings at least twice a year to update you on performance and review your objectives,
* A strong effort to reduce investment costs (i.e. manager fees, brokerage commissions, etc.),
* Monthly performance statements,
* No pressure to buy or sell any investment product,
* A fee based upon the amount of assets under advisement.
Fee-only wealth managers offer an attractive alternative to traditional sales-based financial relationships. You have the comfort of knowing that the advisor is working in your best interests and that all recommendations come from a desire to do an excellent job for you.
One of the biggest complaints investors have is that they feel they are being "steered" towards specific investments by their advisor. Frequently, these products are manufactured and/or managed by the firm that employs the relationship manager. They can take the form of mutual funds, managed accounts, or partnerships. This is true for brokerage firms, investment banks, and trust banks. In many instances, the compensation of the "trusted advisor" is largely impacted by how much proprietary product he or she can sell. With that type of motivation in place, it is fair for investors to ask if their best interests are being placed first.
Some large financial services firms responded to investor's lack of trust by creating a "platform" that includes a limited number of outside advisors side by side with their own offerings. This is frequently presented in the form of a "wrap" program that entails a large, all-encompassing fee. The wrap fee includes compensation to the investment manager, the advisor, and the advisor's employer. These layers of fees add up. While convenient, it may prove to be an expensive proposition to the investor. As a result, many investors are gravitating to fee-only independent wealth managers who offer open architecture in a conflict-free manner.
The role of a fee-only advisor is quite different from that of the more traditional relationship between the client and his broker or trust officer. A fee-only wealth manager does not and will not manufacture or sell investment products; their only source of income comes directly from their clients. They will refuse compensation from investment managers, insurance companies, banks, and other sources of investment merchandise. His or her role is to work with you to structure a multi-manager portfolio that fits your specific investment needs. The advisor will likely spend time with you to understand your goals, objectives, and risk tolerance long before the investing process begins. Many fee-only advisors have Certified Financial Planners on staff. These professionals will work with you to ensure that you have the right structure around your assets (i.e. wills, trusts, etc.) to help you meet you your long-term financial goals in the most tax efficient way possible.
It is becoming more difficult for investors to pinpoint outstanding investment talent. There are so many choices that one can become overwhelmed. Fee-only wealth managers offer true open architecture. They are not limited by an investment platform. This enables them to seek out the best and brightest managers in all asset classes. You should expect that your wealth manager has conducted a thorough amount of due diligence on each of the managers in the suggested portfolio. The advisor should suggest separate accounts over mutual funds. Separate accounts are less expensive and more tax efficient than commingled funds. Since your advisor is not compensated for transactions in your account, he or she will probably recommend that your assets be held at a large discount brokerage firm. This will help minimize overall costs to you. While you will be receiving monthly statements from your brokerage firm, the wealth manager should provide consolidated performance reporting on a monthly basis.
To review, here is what individual investors should expect from an independent, fee-only wealth manager:
* A thorough independent appraisal of your current investment portfolio,
* A discussion about what you want to accomplish with your investment capital,
* An examination of the structures around your assets such as wills, trusts, and retirement plans,
* A well-designed asset allocation model that fits your investment goals,
* A suggested multi-manager portfolio that foots with your goals and objectives,
* Thorough and ongoing due diligence on each of the managers in your portfolio,
* Face-to-face meetings at least twice a year to update you on performance and review your objectives,
* A strong effort to reduce investment costs (i.e. manager fees, brokerage commissions, etc.),
* Monthly performance statements,
* No pressure to buy or sell any investment product,
* A fee based upon the amount of assets under advisement.
Fee-only wealth managers offer an attractive alternative to traditional sales-based financial relationships. You have the comfort of knowing that the advisor is working in your best interests and that all recommendations come from a desire to do an excellent job for you.
Structured Products
Structured Products are... well... structured! That means they are put together by a product provider for a particular type of investor and use. They can be used, for example, to provide a regular known income, to give you the opportunity for a higher return than you would get from savings, or to control volatility in a portfolio.
So here's some basics...
Retail Structured products include both deposits and investments. They achieve their objective by offering different levels of risk, return and protection, and by basing the performance on an appropriate index such as the FTSE 100 or S&P 500 - although other indices can also be used.
Plans last a specific amount of time - typically 3 to 6 years. Products can provide full capital protection, or partial capital protection with the chance of an enhanced return. In some cases the maximum return is limited in order to limit the loss if the index goes down.
Different types of product are appropriate at different times in the economic cycle, and certain types do not require the stock market to rise in order to give you your return. And if you have particular views about the future progress of the markets in general or one index in particular, then it may be possible to find a product to match your view.
One other interesting class of structured product is the "kick-out" variety. If the index which the product is linked to reaches (or stays above) a certain level, then the product may kick-out, normally on an anniversary, and return your investment with some growth. This growth is generally very good, but you have to be able to cope with the product kicking-out or not kicking-out.
Don't forget to consider the risks...
As well as being dependent in some way on an index, the returns available from a structured product rely on the provider being able to return your money. Generally the plan provider who put it together will use a separate organisation - the "counterparty" (typically an investment bank) - to underwrite it, and you are dependent on that counterparty still being able to pay up when the end of the term comes, or to pay any income in the interim.
You should also consider any compensation scheme available. Since 2008 we have all become a lot more aware of that. For structured products the situation is not simple, though, and generally if the counterparty fails, then no compensation would be due.
So are they for you?...
Structured products do provide a useful alternative to give you some diversity in your portfolio. Generally they should be seen as an extra to an existing portfolio and not a replacement for a more traditional investment.
Since there are so many types, it is worth taking professional advice before diving into this world full of its own terminology! But depending on your circumstances, you may find a Structured Product or two a rewarding addition to your portfolio.
So here's some basics...
Retail Structured products include both deposits and investments. They achieve their objective by offering different levels of risk, return and protection, and by basing the performance on an appropriate index such as the FTSE 100 or S&P 500 - although other indices can also be used.
Plans last a specific amount of time - typically 3 to 6 years. Products can provide full capital protection, or partial capital protection with the chance of an enhanced return. In some cases the maximum return is limited in order to limit the loss if the index goes down.
Different types of product are appropriate at different times in the economic cycle, and certain types do not require the stock market to rise in order to give you your return. And if you have particular views about the future progress of the markets in general or one index in particular, then it may be possible to find a product to match your view.
One other interesting class of structured product is the "kick-out" variety. If the index which the product is linked to reaches (or stays above) a certain level, then the product may kick-out, normally on an anniversary, and return your investment with some growth. This growth is generally very good, but you have to be able to cope with the product kicking-out or not kicking-out.
Don't forget to consider the risks...
As well as being dependent in some way on an index, the returns available from a structured product rely on the provider being able to return your money. Generally the plan provider who put it together will use a separate organisation - the "counterparty" (typically an investment bank) - to underwrite it, and you are dependent on that counterparty still being able to pay up when the end of the term comes, or to pay any income in the interim.
You should also consider any compensation scheme available. Since 2008 we have all become a lot more aware of that. For structured products the situation is not simple, though, and generally if the counterparty fails, then no compensation would be due.
So are they for you?...
Structured products do provide a useful alternative to give you some diversity in your portfolio. Generally they should be seen as an extra to an existing portfolio and not a replacement for a more traditional investment.
Since there are so many types, it is worth taking professional advice before diving into this world full of its own terminology! But depending on your circumstances, you may find a Structured Product or two a rewarding addition to your portfolio.
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