How to select an investment services firm
Do not hesitate to ask questions about the level and scope of services that your investment services firm can provide. All investment services firms will welcome your questions. After all, investment services firms would prefer you asking them questions before you invest rather than having to confront your uncertainties after your investment.
Not all investment services firms authorised by the FSC are the same or offer the same services. Some investment services firms are authorised to provide you with a range of products and services. Others may only be able to sell you a particular product or service.
The following notes might assist you in the course of making your decision as to which firm to use. Most of the points cover all the different types of investment vehicles mentioned previously, however, some will be specific to particular types of investment services firms:
- Do not hesitate to talk to two or more different investment services firms. It would be useful to enquire about their investment experience and professional background. If possible, meet them face to face at their offices. Ask them about what they are allowed to do under the terms of their authorisation. If you can, do shop around for products available. If you find that different investment services firms are offering you different products, ask why - they should tell you why they are recommending a certain product in relation to your needs.
- Not all investment services firms offer or charge the same for their services. Understand how the investment services firm is paid by asking for a copy of the firm's commission or fee schedule. Ask what fees or charges you will be required to pay when investing in a product, buying or selling a security or when opening, operating and closing an investment account.
- Certain investment services firms are authorised to hold your money and investment on your behalf in their own name. A private investor would not usually require having his monies and investments held in the name of the investment services firm. You may however find it convenient to have your investments held in this way. After you determine whether you need what the investment services firm holding your money or assets has to offer, make sure that the benefits and pitfalls of having your investments held by the investment services firm in his own name are explained clearly at the outset.
- Think about your investment objectives. For example, you could ask yourself: Do I need my investment to provide me with periodic income or do I wish my capital to grow over a period of years? What financial commitments do I already have or plan to have? What is my appetite for risk - should I go for risky or safe products? How much can I afford or am I willing to lose? When will I need access to my funds? Not all investment firms offer services for persons with different approaches to risk. Check which one most suits your requirements.
- Ask how your investments could be affected, if at all, if the investment services firm or his agent (such as a foreign broker) ceases to trade.
- You should make up your mind as to your preferred investment services firm and preferred products after you have obtained and understood all the information which is provided to you. This can consist of information obtained during your discussions with the investment services firm and other information from brochures and product documentation.
- Remember, part of making the right investment decision is finding the investment services firm that best meets your personal financial needs. Be careful of investment services firms who urge you to immediately purchase a product or service from them. If you are still in doubt, it will be useful to continue asking questions.
- Remember that ultimately it is up to you to decide whether to invest or not. Take your time and do not rush. The decision that you will make today will have an effect on your income in the future.
- Take notes of what is said in any meetings with your investment services firm and keep this for your own records. These notes could be useful should you wish to make any complaint against the service provided, or product sold by the investment services firm. If you do not wish to take notes, you can always take a close friend or family member with you to discuss the information you have been provided with.
- Do not be afraid to say "no" to an investment services firm, even if the person you are dealing within the investment services firm is a personal friend of yours. Again, do not be afraid to say "no" even if you do not want to disappoint someone who has gone to a lot of trouble to help you. Remember it is your money at the end of the day.
- Do not sign anything until you have read and fully understood all the literature associated with the product you are opting for. Do not sign a blank form and leave it for the investment services firm to complete at a later stage.
If you are being contacted directly by the investment services firm there are a few things you should bear in mind:
- Do not be pressurised! - When you are on the phone it is very easy to agree to something without giving it too much thought. Unscrupulous firms and particularly fraudsters may try the 'hard-sell' and it is surprising how many people will give in to this. Remember that there is no rush to conclude business quickly in this way and any firm or individual who does not allow you time to think things over or investigate further is probably one you should exercise caution with. If in doubt, just say no.
- Cold calling - There are rules about when an investment services firm can contact you out of the blue and you should be aware of these. Unsolicited calls, commonly known as 'cold-calling', are broadly defined as calls that are either not initiated by you, or calls that you have not made an express request to receive. This means that an investment services firm cannot say you have agreed to receive calls simply because you have failed to 'opt-out'. Firms CAN make unsolicited calls when they relate to certain types of investment product or if you have an existing customer relationship with them.
What type of information would investment services firms need to know about me and my investment objectives?
An investment services firm will need you to provide information about:
- your personal circumstances,
- your investment objectives,
- your financial needs,
- and your attitude to risk.
This is normally referred to as the "fact-finding" process. Once the investment services firm has obtained this information from you they will be able to provide you with investment advice or an investment recommendation. Normally this is provided to you in a "reason-why" letter. Alternatively, if the investment services firm is a portfolio manager they may provide you with a document setting out how your money will be invested and will follow this up with periodic statements showing how your investments are doing.
The following link to the insurance guide provides additional information on fact-finds and reason-why letters. The insurance guide also provides useful information about other general terms in relation to different types of life insurance policies.
What should I do after I invest?
Make sure that all documents related to your investment are filed properly and kept in a safe place. The following is a non-exhaustive list of documents which you might have:
- "Reason-why" letter or suitability report
- Terms of business letter or investment agreement
- Receipts in respect of payments for investments made
- Contract notes
- Valuation statements
- Advertising or marketing material
- Correspondence with the investment services firm
- Notes of conversations or meetings with the investment services firm
You will not necessarily have all of the above, as this may depend on the service being provided by the firm or the product you have invested in.
Monitor your investment regularly - either by looking at the financial press or by contacting your investment services firm. Be sure you receive the documents or statements you were promised and any regularly scheduled payments of interest or dividend. If you have questions, do not hesitate to ask your investment services firm.
Investments always entail some degree of risk!
- The higher the expected rate of return, the greater the risk. Depending on market developments, you could lose some or all of your initial investment.
- Some investments cannot be resold easily. Check to see if there is any penalty or charge if you must sell an investment quickly or before its maturity date.
- Investments in securities issued by a company with little or no operating history or published information may involve greater risk.
- The past success of a particular investment is never a guarantee of future performance.