Wed | Dec 1, 2021
ADVISORY COLUMN: PERSONAL FINANCIAL ADVISER

Oran Hall | Where to go to invest

Published:Sunday | April 25, 2021 | 12:21 AM

QUESTION: I was reading your article recently and I would kindly like some clarification on which institutions I could go to in order to invest. I am not a high-risk taker as I have just recently started working.

– Mullings

FINANCIAL ADVISER: Four options are a stockbroking company, a portfolio management company, a unit trust, and a mutual fund. Whereas the first two can assist you to create a portfolio, made up of stocks, preference shares, bonds and money market instruments, for example, the other two allow you to buy into existing pooled investment funds, or portfolios, which, though not specifically created for each investor, best fit the investor’s profile.

A stockbroker is a company or person authorised to buy and sell listed securities on the stock exchange for investors, such as individuals, pension funds, and companies, and on their own behalf. Stockbroking companies must be members of the stock exchange and are called member-dealers of the stock exchange. Individuals who are stockbrokers must be employees of a stockbroking company and act as its agents.

Member-dealers of the stock exchange are also called broker-dealers, and apart from dealing in securities, provide investment advice to their clients, conduct and publish investment research, and raise capital for companies. Some do manage portfolios for their clients, but this is not their primary function.

Generally, investors make their own decisions to buy and sell with, in many cases, advice from the stockbrokers but may enter into a formal arrangement with a broker to manage their portfolios if the stockbroker offers such a service. For a list of the stockbrokers, see: jamstockex.com/investor-centre/jse-brokers.

There are other licensed securities dealers who offer portfolio-management services. To be better able to identify them, look for the companies that say that they offer portfolio-management services, asset-management services, or wealth-management services.

They buy and sell a wide range of securities for their clients, but because they are not dealer-members of the Jamaica Stock Exchange, they do not trade on it but must engage the stockbrokers to execute the orders that pass through the stock exchange.

You can find the names and contact information of some of these companies, stockbrokers, and unit trusts under the heading ‘Investment Advisory & Securities Services’ in the telephone directory. Some of these securities dealers give a good description of the services they offer, and you may check their websites for a closer look at them.

Professional portfolio-management services cost. Generally, the management fee is a percentage of the value of the portfolio. The rates and arrangements differ, so it is up to you to make your own enquiries about the services and charges.

In addition to the management fees, investors bear the trading expenses, including the stockbroker’s commission, just as they would pay for the execution of orders when they manage their own portfolio and place their orders directly with a stockbroker.

Generally, the portfolio managers operate on a discretionary management arrangement, whereby it is the fund manager who makes the decisions after establishing the goals, risk tolerance, and overall profile of the client. There are instruments for determining these.

Different managers have different philosophies and approaches to investing. They also have different interests and competencies, which may be reflected in the research and other services they provide.

Some portfolio managers also offer their clients the option of investing in pooled funds or portfolios into which many of their clients invest, so these are not customised to the unique needs of each client.

Before engaging a fund manager, you may want to know the following: the services offered, the kinds of yields generated for clients with similar profiles to yours, and even yields on other types of portfolios, the nature and frequency of portfolio reports generated, the research reports generated, fees and the basis on which they are computed, and the minimum sum required to open an account. If the companies have web sites, I suggest you check them first.

There are also unit trusts and mutual funds. Both offer pooled investments to the investing public. The primary difference between them is that the unit trust is an investment trust governed by a trust deed, overseen by a board of trustees, and sells units to investors, and a mutual fund is an investment company that sells specially created shares to investors.

They offer a wide range of investment options as seen in the variety of funds that they offer to investors. The funds are diversified as they use the proceeds from the sale of units or shares to the public to invest in several types of assets for their benefit. The Financial Gleaner is an excellent source for information on unit trusts and mutual funds and their performance.

Whichever option you choose, it is best to familiarise yourself with the various types of investment instruments so you can have a fruitful discussion with the investment professional and be able to decide what options you want to pursue. I doubt you would buy an item in the supermarket without knowing what it is.

- Oran A. Hall, author of Understanding Investments and principal author of The Handbook of Personal Financial Planning, offers personal financial planning advice and counsel. Email finviser.jm@gmail.com