Investment services generally describe the level of involvement you will have in the management of your investments and how much control you will give to the financial provider when it comes to making decisions about your investments. The type of investment service offered will depend on the financial provider you use to buy your investment. Some financial providers will offer all three types of investment services and others will not. Be aware that there may be fees for using these services and these can vary considerably by provider and the type of investment you make.
The three types of investment services are:
Discretionary services – you give the financial provider full permission to buy and sell investments on your behalf. They will carry out an assessment to find out your investment goals and your attitude to risk. They will use this information when making decisions on your behalf.
Advisory service – you retain full control over where your money is invested. The financial provider will advise you on the most suitable investments for you based on the information you have given them about your investment goals and your attitude to risk, but you make the decision on where to invest your money.
Execution-only service – the financial provider will carry out transactions (buying and selling of investments) on your behalf only and will not provide advice or recommendations.
An increasingly popular way to invest money is through online trading platforms. These provide a relatively easy way to create a trading account online to buy investments directly in a wide variety of companies. Online trading platforms offer an alternative to the traditional ways of investing such as stockbrokers and investment brokers.
These platforms offer a simple set-up process which can all be done digitally and once your account is established, you will get access to a smartphone or desktop app. You are then able to watch the market in real time. You can also receive automatic alerts on a particular share to your smartphone or desktop. Once you decide to trade, the investment can be made almost immediately.
One of the main attractions of using an online trading platform is that they offer lower costs compared to more traditional ways of investing. However, the majority of these online trading platforms operate on an ‘execution-only’ basis which can be very risky as no advice will be provided to you before you invest your money. There is no assessment of whether the investment is suitable for you and the level of risk you are willing to take.
Some investment products available through online trading platforms are quite complex, e.g. contracts for difference. Financial advice is an important service to consider when choosing any investment product but it is particularly important when buying complex products to ensure you fully understand it before you invest.
The technology behind these trading platforms has many advantages. However, given the speed at which you can invest, it can be quite easy to over-invest quickly.
It is important to check if the platform is regulated. The type of regulation will depend on the country the platform is based in and information on where the platform is regulated should be available on their website. It is also important to check if the platform is covered by any compensation scheme. If you buy an unregulated investment such as cryptocurrency, there are no protections in place.
There are tax obligations linked with the sale of investments. The type and rate of tax you pay depends on the type of income you receive. If you receive a dividend you will have to pay income tax, whereas if you sell your shares for a profit then generally Capital Gains Tax will apply. It may be useful for you to seek advice from a tax expert about your requirements.
When you put money into an investment, the investment company may use your money to lend to certain companies to grow their business, or buy stocks and shares directly in certain companies to try to make a good return on your money. Ethical saving and investing lets you select investment options which claim to meet certain ethical principles.
In general, there is no single meaning of ‘ethical’ and each person will have their own view of the types of industry they feel happy to invest in. Ethical or sustainable investments are a way of investing your money in investments which include Environmental, Social and Governance (ESG) issues.
For example, you might want to avoid investing in firms that employ child labour, or you may be concerned with the environment and want to invest in green technologies to fight climate change.
To save or invest ethically, you should research and/or ask the bank, stockbroker, investment broker, life insurance company or trading platform what ethical principles (if any) they put in place and whether these are a good match with your own values. There are also independent websites where you can check the ethical status of a range of investment products.
These types of investments have become more popular due to the increased demand from investors for greater transparency around where their money is being invested. Within the EU, when offering ESG investment products, all financial providers must give clear and full information to consumers about how these products meet ESG criteria. This is to prevent greenwashing; a practice that can give a misleading impression that the investments you are being sold are invested in environmentally and/or ethical investments.
