How can I become an investment manager or financial adviser?
- Choosing investment management or financial advice as a career
You will need to be a literate and numerate individual with a good record of academic achievement – certainly good school qualifications and probably a degree. These do not need to be related directly to investment management or financial advice, or even to numeracy particularly, as you will have every opportunity to prove these later!
There are many other opportunities within investment management and financial advice firms and there will always be a demand for highly skilled people in other disciplines such as IT, marketing, auditing and compliance.
- Professional qualifications
In order to become an investment manager or financial adviser you need to pass an examination recognised on the Financial Conduct Authority’s (FCA) list of approved examinations. You will also need to become an FCA approved person. This entails your firm, which will be authorised by the FCA, putting you forward for approved status by the FCA. The process will require your firm assessing your competence by supervising and checking your work and when it is satisfied that you need no longer work under supervision – and you have met all other necessary criteria – it will put you forward for approval to the FCA.
- Useful resources
PIMFA member, The Chartered Institute for Securities & Investment (CISI), has a comprehensive careers section on it’s website.
BPP Professional Education also has a section on it’s website which gives an overview of the attributes needed and outlines the qualifications required to work in investment management, financial advice and other careers.
Why should I invest in stocks and shares?
Over the medium term, direct investment in UK equities has tended to outperform most other types of investments, such as building societies’ and banks’ savings and deposit accounts.
Although share prices rise and fall, even the blackest Wednesday has done nothing to undermine the upward trend in the performance of ordinary shares. In spite of the headlines, it is still the case that investment in a sensible spread of shares over a reasonable period will typically yield a significantly higher return than that offered by for example, building society or equivalent investments.
But it is not simply the rise in share prices which gives you a return on your investment – you also get income in the form of dividends and these should rise if the company continues to prosper.
How do I know which shares I should invest in?
The attraction of direct equity investment is that you can tailor your investment strategy to your own needs. Some shares offer a relatively high immediate income, while others are geared more to future growth of both capital and income. Your needs, whatever they are in terms of security versus risk, or income versus growth, can generally be satisfied with a professionally constructed portfolio of stocks and shares.
But in order to construct that portfolio you need reliable advice. As the client of an PIMFAmember, you have real choice in organising your investments but can draw on our members’ considerable knowledge of the stock markets, of constructing investment portfolios and of creating tax-efficient schemes to ensure the best possible return in line with your requirements and needs.
Where can I find a list of investment managers, stockbrokers and independent financial advisers?
PIMFA’s Members Directory is a comprehensive list of investment managers, stockbrokers and independent financial advisers, detailing contact names, addresses and the kinds of services they offer, as well as providing links to their websites.
How can I manage my investments?
PIMFA members traditionally operate on the basis of providing services which are tailored to suit your individual circumstances and requirements, these can range from execution only facilities, through advice to full discretionary management of portfolios. As well as discussing the degree of risk you are comfortable with, and your aims for income or capital growth, you will agree the type of service you require, based upon your own investment knowledge and experience. Detailed information of this sort enables PIMFA members to act in the best interests of their clients at all times.
Our Find a Firm facility will show you which services are offered by PIMFA members. As stated above, the main optios are; discretionary, advisory and execution-only services – further details below.
What are the differences between discretionary, advisory and execution-only services?
These are the main three services offered by PIMFA members. Essentially they relate to the level of advice you require.
- Discretionary Services
Discretionary services give your investment manager complete authority to buy and sell investments for you without needing to obtain your prior approval for each transaction. This will be in the context of a carefully-designed brief, a clear framework for your portfolio manager to use when making transactions on your behalf. If you still wish to instruct your investment manager to buy or sell a particular security then they will normally label this a ‘one-off’ transaction as ‘E/O’ for execution only (see below). The advantage is that your manager can therefore act instantly on changes in the market, rather than spending valuable time trying to contact you. You will either receive a contract note every time a transaction is made or have elected to receive a transaction summary and other detailed reports will be sent to you regularly.
- Advisory Services
Advisory services begin with the creation of another carefully-designed brief setting out investment objectives, but this time it affords the investment manager an insight into the level of advice you will need. Instead of managing the portfolio without consulting you, your investment manager will suggest courses of action which you may or may not choose to take. As well as verbal or written advice, you may receive regular newsletters which review the market.
A second kind of advisory service gives you access to this advice, but still allows you to control your own portfolio and manage your own bargains. Essentially you simply call your professional and ask whether he or she shares your view on whether you should buy or sell a particular share.
- Execution Only
Execution only services are generally the cheapest as they do not require advice or management – you simply instruct your stockbroker to buy and sell shares for you. This is only appropriate for investors who know exactly what they are doing and simply need to transact business quickly. A growing number of telephone and Internet-based brokers provide this basic service, but more and more traditional brokers are offering this service too – see our directory for details.
Just as every investor’s needs are different, the kind of service required is also subject to many different influences. IMFA members will be happy to tailor a service to your investment needs.
How do I control the element of risk?
With discretionary or advisory services, this is the responsibility of the investment manager in line with your agreed mandate.
At the outset you will have agreed the degree of risk you feel comfortable with and your broker will therefore manage your portfolio accordingly. You may be advised to spread your investments across a wide range of companies by investing in a unit trust, or you may wish to strike your own balance between riskier investments and reliable performers.
However, if you are an execution-only client, the assessment of risk on your investments is entirely down to you.
What is a boiler room?
Boiler room firms run a financial scam using convincing sales tactics to persuade you to buy shares which are of little or no value. You will almost certainly lose all the money you spend.
The vast majority of boiler room victims are male and most are experienced investors, with 41% of victims saying they had been investing for over 11 years – it is not just the novice investor who can be duped in this way. They are scamming between £200 and £500 million in the UK every year.
If you deal with a boiler room you will have no rights to complain or claim compensation in the UK, as boiler rooms are not authorised by the FCA to do business in the UK.
Generally it’s against the law to ‘cold call’ a person to try to sell shares or other investments. So if you haven’t invited the call just hang up!
Find out more on this in our Boiler Room Scam section.
How will I be charged?
Dealing charges used to be fixed – on a scale of commissions laid down by the Stock Exchange – but this practice ended years ago. Now full competitive pressures apply and all our members, in setting their charges, need to take market forces into account.
There are essentially two systems;
- There are brokerage commissions charged on each purchase or sale of securities, normally as a percentage of the money being invested or raised.
- And there are fixed fees, charged perhaps once or twice a year, for a continuing service such as investment management (this is not normally associated with the actual buying and selling of shares).
Some firms offer a tariff which combines elements of both of these systems i.e a mixture of fees and brokerage commissions.
Many firms offer different scales of charge for different services and, if you find these in any way difficult to understand, you should not hesitate to ask the firm in question to explain them in detail.
Why do I need to prove my identity even when I am a longstanding client of a firm?
All banks, building societies and businesses providing financial services are required to have in place procedures to guard against money laundering, a practice whereby criminals introduce ‘dirty’ money into the financial systems. These include procedures to establish that a client’s identity has not been stolen and/or misused for money laundering purposes.
What is money laundering?
Money laundering is the process used by criminals to try to hide the financial proceeds of their criminal activities. Criminals try to “clean” their money so that it can be used without arousing suspicion. They often attempt to do this by introducing it into the financial system, often moving it in and out of different financial products so that its origin becomes harder to identify. A common method is to use a false name and address to set up a bank or building society account, from which the funds are transferred to other accounts, invested or used to buy other goods. The more complex the route, the harder it is to trace the money back to its criminal beginnings.
The UK’s financial regulator, the Financial Conduct Authority, is responsible for enforcing the UK’s anti-money laundering rules.
Please click here to read the Financial Conduct Authority’s financial crime section of the FCA’s website.
Why should money laundering concern me?
It makes crime pay. It enables drug-traffickers, terrorists, smugglers and other criminals to expand their operations and it increases the cost of law enforcement as more government tax revenue has to be spent on fighting crime which indirectly takes money away from honest taxpayers.
How can I prove my identity?
There are a number of ways of proving that customers are who they say they are. One of these is to obtain appropriate documents that can reliably confirm the name and address of a person. You will normally be asked to provide proof of both your name and address, i. e. two documents issued by an official authority.
To prove your name, an IMFA member will usually ask for either:
- a passport
- a driving licence or
- an Inland Revenue tax notification
This is because these documents may have a photograph on them and cannot easily be forged.
To prove your address, you may be asked to provide:
- a recent utility bill (but not a mobile phone bill),
- a current council tax bill, or
- Your driving licence (as long as you haven’t already used it for proving your name).
If you approach the firm via post, telephone or email rather than in person, you will need to supply certified copies of these documents. Please do not send originals of valuable documents such as passports or birth certificates: sending certified copies avoids the risk of loss in the post.
What are certified copies and how do I get them?
Certified copies are duplicates of documents, which a person of professional standing has stated to be genuine copies of the original documents. People who are able to provide you with certified copies include:
Ministers of Religion
Justices of the Peace
The person certifying the copy has to see the original and should write on the copy “I hereby certify this to be a true copy of the original”; where there is a photograph he or she should write “I hereby certify this to be a true likeness of ….” next to the photograph. The person should then write his or her name, address and profession on each copy and sign and date each one. There may be a charge for this service.
It is not possible to accept a copy of the certified copy.
What if I can't provide the documents requested?
If you are having difficulty, just contact your IMFA member to discuss what other forms of proof might be acceptable but please be patient through this process.
How can I donate shares to charity?
Many investors find small shareholdings uneconomic to sell, but that does not mean they are worthless. They can still help to fund a wide range of UK charities.
The Orr Mackintosh Foundation is a registered charity which administers a charity share donation scheme called Sharegift. The Orr Mackintosh Foundation re-registers donated shares, aggregates them, then sells them when possible and gives the proceeds to a growing number of UK charities.
Sharegift can also help with larger, tax efficient gifts of shares to charities. There are no Capital Gains Tax implications (no gain or loss) on gifts of shares to charity and it is now also possible to obtain income tax relief on the value of your donation.
If you would like more details and a donation coupon, visit the Sharegift website.
How can I track down my unclaimed dividends?
If you have not received dividends from shares which you hold it is probably because the company does not have the correct address on its share register. Always ensure that you notify companies of any changes of address and preferably accept payment by direct transfer rather than by cheque.
It is estimated that there are approximately £15 billion worth of unclaimed assets in the UK.
The Unclaimed Assets Register can help to find missing dividends. You can do this by completing a Lost Asset request form via the UAR website and returning it to:
The Unclaimed Assets Register
PO Box 9501
The cost of a search (even if unsuccessful) is £25. You can contact The Unclaimed Assets Register on 0870 241 1713 or by email at [email protected].
What are the Private Investor Indices and how can I use them?
The Private Investor Indices are a set of calculations which indicate the returns which investors might expect from portfolios. The skill in investment management is to design a unique portfolio which will meet an individual investor’s needs, so it is unlikely that your portfolio growth will reflect the movement of the Indices exactly.
Since they began in 1997 the Private Investor Indices have become accepted as benchmarks accross a wide private client base, but they do not provide any kind of alternative to the professional investment advice of portfolio managers. However, used properly, they can give a useful perspective on the world of stocks and shares and on the performance of your portfolio.
They can provide:
- measures to compare the range of performance across Income, Growth and Balanced funds.
- a basis for reviewing the asset allocation and structure of your portfolio with your fund manager or stockbroker.
- a benchmark for assessing and comparing the performance of discretionary fund managers.
There are five Private Investor Indices, to reflect the differing aims of investors:
- the Growth portfolio
- the Income portfolio
- the Balanced portfolio
- the Conservative index
- the Global Growth index
The latest values of the indices can be found on PIMFA’s website and the Indices values are also published every weekend on the Databank page of the Financial Times’ Money & Business section.
Find out more on this in our Private Investor Indices section.
How does settlement work?
Equity transactions are generally settled (that is to say, all stock and money transferred) a fixed number of days after dealing. For a standard settlement this is currently three working days after the date of the transaction (or T+3 for short).
For “standard settlement” your shares will most likely be held in a nominee account at a broker or by the company itself (see “How can I hold my shares” below). When you give an instruction to buy or sell those shares an electronic message is sent from your broker via CREST and that message is matched on behalf of the buyer or seller on the other side of the trade. Three working days after the date of the trade further electronic messages are sent to confirm “settlement” of the trade and the relevant funds and stock move within the system.
It is still possible (and necessary) to deal with a longer settlement period, such as T+10, particularly where you are buying or selling an equity using a share certificate. The longer settlement period is required as the share certificate needs to move from the shareholder via the broker to CREST to be onward sent to the company registrar. Confirmation of the sale can then be electronic but if it is a purchase which generates a share certificate that will need to be sent from the registrar back through the system. A purchase will also involve the payment of stamp duty (see “What is stamp duty?” below) which will need to be sent to HMRC.
Most firms charge more for certificated trades due to the additional administration that is involved but this will be made clear in their fees and charges schedules.
How can I hold my shares?
In the UK there are essentially four options:
- “Own name” certificates
- Nominee account
- Corporate Nominee
- CREST Personal Member
“Own name” certificates – Many investors wish to retain a share certificate as their “proof of ownership” of their shares. This also means that they are the legal owner of the shares and their name is recorded on the share register of the company in which they own those shares. This means that they are automatically sent company information (including the annual report and accounts) and are entitled to attend and vote and company meetings.
Many of the share certificates in the UK are as a result of the privatisations and demutualisations that took place in the 1980s and 1990s. It is generally much more expensive to buy and sell shares in certificated form for the reasons highlighted in the previous answer.
Nominee Account – Those private investors who trade more frequently and/or have a portfolio of investments would tend to hold their shares in a nominee account operated by an IMFA member firm.
Instead of holding paper share certificates these shareholders have their holdings recorded electronically, like money in a bank account. The problem of day-to-day physical control of your share certificates can be solved using nominee services. These remove a lot of administrative work, ensuring prompt settlement of transactions. If you take advantage of this service, your shares will be registered in the nominee company’s name. Your investment adviser will then be able to handle all the administrative paperwork for you (such as transfer deeds, dividend claims and rights issue documentation) without having to send documents backwards and forwards through the post.
This means, for instance, that you will not miss a deadline for signing a document if you are on holiday.
You remain the beneficial owner of the shares, even though your name does not appear on the company share register. Please also note that nominee companies owned and controlled by IMFA members are monitored very carefully by their external auditors and by their regulators.
Given the problems you would face if your personal share certificates were lost or stolen, it is often safer to have your shares held in a stockbroker’s nominee company. If you do hold your shares in a stockbroker’s nominee for which the stockbroker has accepted full responsibility, you will be eligible for compensation on exactly the same basis as if the shares were held in your own name.
You will not automatically receive company information but your broker or investment manager should be able to arrange for you to be sent such information if you wish to receive it.
Corporate Nominee – some companies operate a nominee for their shareholders. It is similar to that operated by the broker or investment manager but only for the shares of the company in question. You will automatically receive company information. Shareholders of the company are not required to hold the company’s shares in the corporate nominee.
CREST Personal Membership – Some IMFA members offer CREST Personal Membership (CPM) as a special service for those clients who want the benefits of electronic (nominee) shareholding but who want the shares to be held directly in their name. A special nominee account within CREST is created for the client, which means that he or she can enlist to receive regular company communications (such as reports and accounts), attend and vote at company meetings and receive any additional shareholder perks. The CPM account is effectively sponsored by a broker or investment manager.
You can find more information about CPM on the Euroclear UK & Ireland website.
What is stamp duty?
Stamp duty is a charge the Government levies on share purchases (not sales), currently 0.5% on each purchase. For transactions that are purchased electronically and without paper, Stamp Duty Reserve Tax (SDRT) is imposed at the same rate.
Will I pay Capital Gains Tax on returns from my investments?
Not on the first £11,000 of gains on any disposals in 2014/2015.
The CGT rate is 18 per cent if total taxable gains and in come are less than the upper limit of the income tax basic rate band. The rate of CGT is 28 per cent for gains (or parts of gains) above that limit.
Who regulates investment managers and stockbrokers?
All PIMFA members are fully regulated by the appropriate authorities.
As of the 1st of December 2001, all UK IMFA members are regulated by the Financial Conduct Authority (FCA).
You can check whether an investment manager or stockbroker is regulated via the FCA Register.
What compensation can I expect if I hold shares with a firm which goes bust?
The actual level of compensation you receive will depend on the basis of your claim. The FSCS only pays compensation for financial loss. Compensation limits are per person per firm, and per claim category.
Slightly different limits and rules apply if you have a claim against an insurer or a bank that was insolvent before the FSCS became operational (1 December 2001), or if your claim is against an investment firm that was declared in default before the FSCS became operational.
All UK IMFA firms are members of the Financial Services Compensation Scheme (FSCS) which guarantees the following maximum levels of compensation:
- Deposits: The maximum level of compensation for claims against firms declared in default from 31st December 2010 is £85,000 per person per firm.
Deposits made by private individuals and small businesses to any authorised firms are protected by the FSCS. These can be referred to as “retail deposits”. Slightly different limits and rules apply if you have a claim against a deposit firm that was declared in default before the FSCS became operational (1 December 2001). From 31 December 2010, the deposit compensation limit is £85,000.
Depositors may still receive a share of their savings above this limit following any distribution of assets as part of the insolvency process for a failed bank. This would be a matter for the insolvency practitioner to determine and any recovery would, by necessity, vary according to the circumstances of the specific failure.
- Investments: The maximum level of compensation for claims against firms declared in default on or after 1 January 2010 is £50,000 per person per firm.
See FSCS for compensation limits.
Many member firms also make their own insurance arrangements – for more details, ask the firm directly.
What if I have a dispute with my financial services provider?
You should contact the person at the firm responsible for complaints. In the event you are unable to resolve your dispute with the firm The Financial Ombudsman Service (FOS) offers a free-to-consumers service to help resolve the issue.