Financial investment opportunities assignment 2

Unit OutcomesAssessor’s decision Internal Verificati on First attem pt work 3.1 Design portfolios of investments for different individuals 3.2 Explain the functions of financial adviser

Assignment Received By: Date:

BANKING ACADEMY OF VIETNAM BTEC HND IN BUSINESS (ACCOUNTING)

ASSIGNMENT COVER SHEET

I, Nguyễn Thị Kiều Anh hereby confirm that this assignment is my own work and not copied or plagiarized from any source I have referenced the sources from which information is obtained by me for this assignment.

_ 20 December 2013 _ Signature Date

FOR OFFICIAL USE

Unit Outcomes

Assessor’s decision

Internal Verificati on First

attem pt

work

3.1

Design portfolios of investments for different individuals

3.2

Explain the functions of financial advisers and how to select one

3.3

Explain investors’ rights and the protection available to them

4.1

Calculate stock exchange ratios and be able to explain what they mean

4.2

Describe and evaluate collective investments, e.g.

Investment and unit trusts OEICs and bonds.

4.3

Outcome Evidence for

Assessor’s decision

Internal Verificati on First

attem pt

work

Assignment

( ) Well-structured; Reference is done properly / should be done (if any)

Overall, you’ve

Areas for improvement:

ASSESSOR SIGNATURE DATE / /

NAME:

(Oral feedback was also provided)

STUDENT SIGNATURE DATE / /

A REPORT FOR SENIOR PERSONAL FINANCIAL CONSULTANT

Prepared for:

Lecturer, Mrs Joey LaiFinancial Investment Opportunities Banking Academy, HanoiBTEC HND in Business (Finance)

Prepared by:

Nguyễn Thị Kiều Anh - Snow - F05ARegistration No: F05-014

No of words: 3295Submission date: 20th December, 2013

TABLE OF CONTENT

INTRODUCTION 6

CONTENTS 7

TASK 1: UNDERSTAND INVESTORS’ NEEDS 7

3.1 Identify the investment needs for each investor 7

3.2 Design portfolio of investments of different individuals 9

3.3 Explain the functions of financial advisers and how to select one 13

3.3.1 The function of financial advisers 13

3.3.2 The way to choose financial adviser 13

3.4 Explain investors’ rights and the protection available to them 14

3.4.1 Investors’ rights 14

3.4.2 Investors’ protection 15

TASK 2: UNDERSTAND THE WORKING OF THE STOCK EXCHANGE AND THE RANGE OF INVESTMENT AVAILABLE 16

4.1 Explain the information in the financial pages of The Financial Times 16

4.2 Calculate stock exchange ratios and be able to explain what they mean 17

4.2.1 Earnings per share (EPS) 17

4.2.2 P/E ratio 18

4.2.3 Dividend yield 18

4.2.4 Dividend cover 19

4.3 Describe and evaluate any one collective investment (investment trust, unit trust, mutual funds, OEICs) on the London Stock Exchange (LSE) 19

4.3.1 General description on collective investment 19

4.3.2 Evaluate investment trust on the London Stock Exchange (LSE) 20

CONCLUSION 22

REFERENCES 23

In this report, I play role as the financial consultant in Citizens Investment Ltd Myresponsibility is base on the information about my clients to provide for them withpersonalized guidance to support all of their financial needs Besides, I also calculated thestock market ratios of BIX Company in order to recommend the clients whether should inthat company or not I write this report based on information in the Investing course book andsome reference books, many sources from internet, newspaper In addition, many slideswhich were continuously updated every week by lecturer Joey also help me collectinformation, theory in order to support in giving the advices for clients in specific financialsituation

CONTENTS TASK 1: UNDERSTAND INVESTORS’ NEEDS

3.1 Identify the investment needs for each investor

Each investor will have different needs Overall, there are 4 main types of investors’ needswhich are identified based on their different set of goals and objectives, namely:

 Peter belongs to moderate risk tolerance

Financial

position

- Planning for retirement soon and has less than £10,000 saved

He is near to retirement; however he has not started saving for retirement

so saving money is small (less than £10,000)

 Peter has weak financial position

Investment

horizon

Saving for retirement soon (in less than 3 years)

 Peter’s investment is medium term horizon

 Investor’s needs: Needs for retirement

Table 2: Peter’s need

- Gender: Male

- Experience: Has some (has already started investing but needs moreguidance to clearly understand his choices)

Michael is in middle years of working career He still has enoughcapacity to recover the loss from investment Moreover, he also has someexperience in investment

 Michael belongs to aggressive risk tolerance

Financial

position

- Has more than £25,000 to invest

 Michael has strong financial position

Investment

horizon

Plans to use the money down the road but still have more than 5 years to

go and looking for direction

 Michael’s investment is long term horizon

 Investor’s needs: Needs for growth

Table 3: Michael’s need

- Income: Does not have income yet

- Experience: Does not have (has not yet started any types of savings plan)Sandy is young students She still does not have income yet however shecan borrow money from parents, friends and banks to invest She does nothave experience in investment but she has high education and can hireadvisors for giving investment advices

 She belongs to moderately aggressive risk tolerance

Pay for college (in 3 - 5 years)

 Sandy’s investment is long term horizon

 Investor’s needs: Needs for balanced + growth

Table 4: Sandy’s need

3.2 Design portfolio of investments of different individuals

A portfolio is a combination of different investment assets mixed and matched for thepurpose of achieving investor’s goals [ CITATION invnd \l 1033 ] Based on analysing the needs

of 3 investors: Peter, Michael and Sandy in first part of report, the researcher can design aninvestment strategy by using asset allocation In order to accurately assess the portfolio fordifferent investors, this report will compare two pie chart of investment portfolio which is

designed based on two different software of reliable website, that are cgi.money.com andmoney-zine.com

Peter belongs to moderate investor who doesn’t accept high risk but accept some risk to getgood return to save for retirement

[ CITATION cgind \l 1033 ]

[ CITATION monnd \l 1033 ]The portion for bonds, large-cap stocks,

foreign stocks and small-cap stocks are 70%,

15%, 10%, and 5% respectively Portfolio

shows that bonds is good choices for Peter

because bond is low risk financial instrument

and can generate steady growth interest as

well as can be flexible in time of investment

The figure shows that he should spend 48%

in bonds, 32% in cash and 20% in stocks Itmeans that besides bonds, Peter should investmore on cash because cash investment isconsidered as ideal for increasing savingswith low risk which make sure a certainsafety for retirement saving

Calculation risk and return of investment

Assume have the returns on assets as follows

Michael is aggressive investor who doesn’t concern about market fluctuation, willing toaccept high risk for receiving high return, high growth in the future

[ CITATION cgind \l 1033 ] [ CITATION monnd \l 1033 ]Michael is recommended that he should

invest most of the assets on stocks with

large-cap stocks (30%), foreign stocks and

small-cap stocks accounted for the same portion

(20%) which bring high interest but also go

with high risk Although Michael accepts

high risk to get maximum interest, he still

should continue investing small part of his

assets (30%) in bonds for safety in

investment

The second recommendation shows that heshould spend the most (60%) for stockswhich are considered as good choices forgenerating wealth due to high risk withhigh rate of return The other saferinvestments are spending on 24% in bondsand 16% in cash which will help Michaelrecover the loss from investing more instocks in the case of stocks investment isunsuccessful

Calculation risk and return of investment

Assume have the returns on assets as follows

Sandy is moderately aggressive investors who willing to accept medium to high risk forreceiving high return, high growth in the future

[ CITATION cgind \l 1033 ] [ CITATION monnd \l 1033 ]The first recommendation for Sandy is The portion for bonds, stocks, cash are

spending the most of her assets on investing

in stocks with large-cap stocks accounted for

30%, foreign stocks (15%) and 10% for

small-cap stocks However, still invest large

part in bonds (45%) which brings steady

growth interest, flexible in investment This

prefer to her characteristics of moderately

aggressive risk tolerance

40%, 40%, and 20% respectively Portfolioshows that investing more on stocks isgood choices for purposes generatingwealth to support for college expenses ofSandy However, bonds and cash stillaccounted 60% of investment for reducingthe loss from investment because Sandyonly is medium to high risk takers

Calculation risk and return of investment

Assume have the returns on assets as follows

3.3 Explain the functions of financial advisers and how to select one

3.3.1 The function of financial advisers

Nowadays, the financial advisors play an important role in financial industry They areknown as a trained specialist who helps people with their investments and financial planning [ CITATION wis13 \l 1033 ] Financial advisors provide clients with advice on financial matters,making recommendations on ways to best utilise investors’ money Their client is individual

investors, organizations The role involves researching the marketplace and advising clients

on products and services available, ensuring they are aware of and understand those that bestmeet their needs Before giving any suggestion for clients, financial advisors must conductin-depth reviews of clients’ financial circumstances, current provision and future aims,analyse information and prepare plans best suited to individual clients’ requirements to givethe advice based on these data Moreover, in investment process, they must contact clientswith news of new financial products or changes to legislation that may affect their savingsand investments, meet the regulatory aspects of the roles such as requirements of disclosure,costs of the services provided and also the advised products [ CITATION pro13 \l 1033 ]

3.3.2 The way to choose financial adviser

Firstly, clients should identify types of financial advisor Financial advisors are divided into

three types:

- Tied advisers: working for one organization, such as bank, building society or insurance

company, and selling only their products

- Multi-tied advisers: selling several companies’ products

- Independent financial advisers (IFAs): advising on any company’s products and, by

law, providing clients with the most suitable advice [ CITATION Placeholder2 \l 1033 ]

Investor

s

Peter’s need for retirement  He only need chooseproducts from one specific provider which help himreceive steady interest for saving for retirement soon

financial advisers

Michael’s need for growth  IFAs could help himwiden products chosen from the whole of the market forfinding new investment opportunities for generatingmore wealth in the future

multi-Table 5: Identify suitable types of advisors for different investors After identify types of financial advisor which suitable the most for themselves, investors

should focus on legal of a financial advisor All financial advisors must register with

Financial Service Authority (FSA) so it is easy for investors to ensure the qualification offinancial advisors by entering into homepage of FSA

Thirdly, in order to choose good financial advisors, investors needs to consider on manyaspects, namely

- Advisors are required to be registered with Security and Exchange Commission

License (SEC) to ensure for investors due to financial advisor owed important liability

in their financial

- Look for advisors with experience to ensure advisors’ ability to deal and handle

different situation

- Look for advisors with professional designations (Chartered Financial Analyst - CFA,

Certified Investment Management Analyst - CIMA ) to ensure advisors are an expert

in the field that they are trained

- Typical professional investment advice fees to ensure that investors can afford fee for

services

advisors’ ability

because good advisors always consider the big picture of clients’ financial situationbefore advising on products or recommending specific actions [ CITATION Tim12 \l 1033 ]

In conclusion, based on above process, Peter, Michael and Sandy could make sure that theirfinancial advisor is good for them to reach success in investment

3.4 Explain investors’ rights and the protection available to them

3.4.1 Investors’ rights

There are six common rights of investors, including:

Voting Power

Investors have power in electing directors, which takes place at thecompany’s meeting annually and voting for proposals forfundamental changes affecting the company such as liquidation ormergers

when business thrives

Books and Records

Investors have right to be provided annual report which playsimportant role in helping them assess financial position of thecompany

financial health, investors have right for suing the company

Table 6: Investors’ right [ CITATION inv13 \l 1033 ]

3.4.2 Investors’ protection

UK government provides some regulations to protection rights of investors as follows:

Financial Services Authority (FSA) regulates so many different aspects of financial systemfrom stockbrokers, banks and stock markets to independent financial advisers All firms orindividuals offering financial advice, products or services in the UK must be authorised bythe FSA Thus, investors can be protected in order to minimize level of the risks, damagesthat they may offer [ CITATION Placeholder2 \l 1033 ]

Investors are also protected by rules and regulations in London Stock Exchange as follows:

- Monitors market makers’ quotations and the price of actual trades to ensure compliancewith its dealing rules

- Look-out for patterns of trading that deviate from the norm with the aim of catching thosemisusing information, creating a false or misleading impression to the disadvantage ofother investors or some other market distorting action

- Requires companies to disseminate all information that could significantly affect theirshare prices

 Compliance with LSE rules, aimed at making sure members (market makers ) act withthe highest standards of integrity, fairness, transparency and efficiency [ CITATION Placeholder2 \l 1033 ]

Investors have right to receive information about the company and to expect that there arelaws and other pressures to discourage the management from going astray and acting againstinvestor interests [ CITATION Placeholder2 \l 1033 ]

Besides, protection of UK government, investors also have to protect themselves by methods

as follows:

- Make sure the financial service company is authorised (FSA)

- Understand the risks of the underlying investments

- Choosing qualified and ethical a stockbroker and financial advisors

- Check the fees charged by stockbrokers and financial advisors [ CITATION Placeholder2 \l

1033 ]