Investment Management
Direct Investment
Direct investing is where the investor buys specific investments. In this context, we mean either equities or fixed income securities.
For the investor, there are several advantages to this approach, including:
- A greater degree of control over the investments made
- A higher degree of "ownership"
- Access to opportunistic investments to achieve enhanced levels of return
- Historically higher levels of return than cash or cash based investments
However, there are also possible downsides to such an approach, including:
- When investing in equities there may be a higher level of investment risk than other asset classes
- No guarantee to the funds invested. Prices can fall as well as rise
- Lower levels of investment diversification than other forms of investment management
Investments can be made in number of ways, including:
-
Execution Only
- The investor controls the whole buying and selling process, relying on the broker simply to execute the transaction to the investor's instructions
-
Advisory
- The investor enters into an ongoing dialogue with an Investment or Stock Broker concerning the investments that should be made. This can allow for a high level of involvement for the investor.
-
Discretionary
- Again, using the services of an Investment or Stock Broker, but after the initial investment parameters have been set, almost 100% authority is given to the Broker to control the investment decisions. This tends to mean a limited amount of involvement for the investor.
In terms of the amounts that can be invested, many brokers look for a minimum amount of £50,000 for either an Advisory or Discretionary approach. For an Execution Only approach, there is no minimum. If an investor wishes to purchase as little as £100 worth of a particular share, any broker should be able to effect the transaction.
With regard to charges and costs, for all three approaches, dealing charges will be levied on all purchases and sales. Dealing charges vary from broker to broker and indeed there are some very competitive deals offered by internet based firms.
In addition, Stamp Duty - currently 0.5% - will be levied on the majority of purchases, with the exception primarily of British Government securities (Gilts) and certain other fixed interest securities.
Should either an Advisory or Discretionary approach be taken it is most likely that an annual management fee, based on the value of funds being managed, will be levied. Whilst such management fees vary from broker to broker, a figure of 1% is generally regarded as a good rule of thumb.
