CISI PART 4 International Certificate in
Wealth Management
European Investment Schemes - CORRECT ANSWER-UCITS-compliant
investment schemes in Europe are now very similar as a result of the various
directives that have been issued by the EU, though there are still some
significant regional differences in
non-UCITS schemes. In essence, the differences revolve around schemes' legal
structures rather than
any investment style or offering.
European Investment Schemes - CORRECT ANSWER-Trusts are not generally
recognised in Europe, so investment schemes are therefore structured either
around a corporate entity or via a contract structure. The two main types
encountered are a SICAV and a FCP, both of which are considered below.
European Investment Schemes - CORRECT ANSWER-A SICAV is a collective
investment scheme that is structured as a company. The acronym stands for
Société d'Investissement à Capital Variable and, like a UK OEIC, it is an ICVC, or
investment company
with variable capital.
European Investment Schemes - CORRECT ANSWER-The other main type of
structure encountered in Europe is an FCP, which stands for Fonds Commun
de Placement. Like unit trusts, FCPs do not have a legal personality and,
instead, their structure is
based on a contract between the scheme manager and the investors. The
contract provides for the
funds to be managed on a pooled basis and is a popular vehicle for investors on
the continent. As FCPs
have no legal personality, they have to be administered by a management
company, but otherwise the
administration is very similar to that described above for SICAVs.
Dealing in Unit Trusts and OEICs - CORRECT ANSWER-Investors can buy or
sell units in a number of ways:
,• direct with the fund manager (either by telephone, via the internet or by post);
• via their broker or financial adviser;
• through a fund supermarket.
Dealing in Unit Trusts and OEICs - CORRECT ANSWER-A fund supermarket is
an organisation that specialises in offering investors easy access to a range of
unit trusts and OEICs from different providers. They are usually based around an
internet platform which takes the investor's order and processes it on their behalf,
usually at reduced commission rates.Investors can therefore look at their various
holdings in different funds in one place, analyse their performance and easily
make switches from one fund to another. In this way, fund supermarkets offer
online dealing, valuations, portfolio planning tools and access to key features
documents and illustrations.
Dealing in Unit Trusts and OEICs - CORRECT ANSWER-Whether an investor
wishes to buy or sell his units, they will be either bought from, or sold back to, the
authorised fund manager. There is no active secondary market in units or shares,
except between the investors and the fund company.
Dealing in Unit Trusts and OEICs - CORRECT ANSWER-The key point to note,
therefore, is that units in unit trusts and shares in OEICs are bought from the
managers themselves and not usually via a stock market.
Dealing in Unit Trusts and OEICs - CORRECT ANSWER-Where an order to buy
or sell units is undertaken by an organisation that provides dealing services, such
as a fund supermarket, they are likely to use a systems platform to place those
orders with the fund management group. One widely used system is EMX, which
can be used by firms to enter customer orders, aggregate these and then send
them electronically to the fund group. The firm then receives
an electronic confirmation of receipt and, once the deal is traded at the next
valuation point, EMX will send an electronic dealing confirmation showing the
price at which the deal was done.
Pricing of Unit Trusts and OEICs - CORRECT ANSWER-The prices at which unit
trusts or OEICs are bought and sold are based on the value of the underlying
fund's investments.
, Pricing of Unit Trusts and OEICs - CORRECT ANSWER-The authorised fund
manager is, however, given the flexibility to quote prices which can be either
single-priced or dual-priced (although this decision must be taken at the outset
and the manager cannot switch between the two as and when it suits).
Pricing of Unit Trusts and OEICs - CORRECT ANSWER-Single-pricing refers to
the use of the mid-market prices of the underlying assets to produce a single
price, while dual-pricing involves using the market's bid and offer prices of the
underlying assets to produce separate prices for buying and selling of
shares/units in the fund.
Pricing of Unit Trusts and OEICs - CORRECT ANSWER-Traditionally, unit trusts
have used dual-pricing and OEICs have used single-pricing. All funds now have
a choice of which pricing methodology they use, but whichever is chosen must
be disclosed in the prospectus.
Pricing of Unit Trusts and OEICs - CORRECT ANSWER-Where a fund is
single-priced, ie, its underlying investments are valued based on their mid-market
value, this method of pricing does not provide the ability to recoup dealing
expenses and
commissions within the spread. Such charges are instead separately identified
for each transaction: some commentators argue that this is a much more
transparent disclosure for OEIC investors, although others believe that it is
unduly confusing for them. It is important to note that the initial charge will be
charged separately when comparing single pricing to dual pricing.
Open-Ended Investment Companies (OEICs) - CORRECT ANSWER-An
open-ended investment company (OEIC) is another form of collective investment
scheme. OEICs are referred to as investment companies with variable capital
(ICVCs) by the FSA.
Open-Ended Investment Companies (OEICs) - CORRECT ANSWER-An OEIC is
a collective investment scheme structured as a company, with the investors
holding shares. The OEIC invests shareholders' money in a diversified pool of
investments and has the ability to issue more shares or redeem shares as
demanded by investors.
Wealth Management
European Investment Schemes - CORRECT ANSWER-UCITS-compliant
investment schemes in Europe are now very similar as a result of the various
directives that have been issued by the EU, though there are still some
significant regional differences in
non-UCITS schemes. In essence, the differences revolve around schemes' legal
structures rather than
any investment style or offering.
European Investment Schemes - CORRECT ANSWER-Trusts are not generally
recognised in Europe, so investment schemes are therefore structured either
around a corporate entity or via a contract structure. The two main types
encountered are a SICAV and a FCP, both of which are considered below.
European Investment Schemes - CORRECT ANSWER-A SICAV is a collective
investment scheme that is structured as a company. The acronym stands for
Société d'Investissement à Capital Variable and, like a UK OEIC, it is an ICVC, or
investment company
with variable capital.
European Investment Schemes - CORRECT ANSWER-The other main type of
structure encountered in Europe is an FCP, which stands for Fonds Commun
de Placement. Like unit trusts, FCPs do not have a legal personality and,
instead, their structure is
based on a contract between the scheme manager and the investors. The
contract provides for the
funds to be managed on a pooled basis and is a popular vehicle for investors on
the continent. As FCPs
have no legal personality, they have to be administered by a management
company, but otherwise the
administration is very similar to that described above for SICAVs.
Dealing in Unit Trusts and OEICs - CORRECT ANSWER-Investors can buy or
sell units in a number of ways:
,• direct with the fund manager (either by telephone, via the internet or by post);
• via their broker or financial adviser;
• through a fund supermarket.
Dealing in Unit Trusts and OEICs - CORRECT ANSWER-A fund supermarket is
an organisation that specialises in offering investors easy access to a range of
unit trusts and OEICs from different providers. They are usually based around an
internet platform which takes the investor's order and processes it on their behalf,
usually at reduced commission rates.Investors can therefore look at their various
holdings in different funds in one place, analyse their performance and easily
make switches from one fund to another. In this way, fund supermarkets offer
online dealing, valuations, portfolio planning tools and access to key features
documents and illustrations.
Dealing in Unit Trusts and OEICs - CORRECT ANSWER-Whether an investor
wishes to buy or sell his units, they will be either bought from, or sold back to, the
authorised fund manager. There is no active secondary market in units or shares,
except between the investors and the fund company.
Dealing in Unit Trusts and OEICs - CORRECT ANSWER-The key point to note,
therefore, is that units in unit trusts and shares in OEICs are bought from the
managers themselves and not usually via a stock market.
Dealing in Unit Trusts and OEICs - CORRECT ANSWER-Where an order to buy
or sell units is undertaken by an organisation that provides dealing services, such
as a fund supermarket, they are likely to use a systems platform to place those
orders with the fund management group. One widely used system is EMX, which
can be used by firms to enter customer orders, aggregate these and then send
them electronically to the fund group. The firm then receives
an electronic confirmation of receipt and, once the deal is traded at the next
valuation point, EMX will send an electronic dealing confirmation showing the
price at which the deal was done.
Pricing of Unit Trusts and OEICs - CORRECT ANSWER-The prices at which unit
trusts or OEICs are bought and sold are based on the value of the underlying
fund's investments.
, Pricing of Unit Trusts and OEICs - CORRECT ANSWER-The authorised fund
manager is, however, given the flexibility to quote prices which can be either
single-priced or dual-priced (although this decision must be taken at the outset
and the manager cannot switch between the two as and when it suits).
Pricing of Unit Trusts and OEICs - CORRECT ANSWER-Single-pricing refers to
the use of the mid-market prices of the underlying assets to produce a single
price, while dual-pricing involves using the market's bid and offer prices of the
underlying assets to produce separate prices for buying and selling of
shares/units in the fund.
Pricing of Unit Trusts and OEICs - CORRECT ANSWER-Traditionally, unit trusts
have used dual-pricing and OEICs have used single-pricing. All funds now have
a choice of which pricing methodology they use, but whichever is chosen must
be disclosed in the prospectus.
Pricing of Unit Trusts and OEICs - CORRECT ANSWER-Where a fund is
single-priced, ie, its underlying investments are valued based on their mid-market
value, this method of pricing does not provide the ability to recoup dealing
expenses and
commissions within the spread. Such charges are instead separately identified
for each transaction: some commentators argue that this is a much more
transparent disclosure for OEIC investors, although others believe that it is
unduly confusing for them. It is important to note that the initial charge will be
charged separately when comparing single pricing to dual pricing.
Open-Ended Investment Companies (OEICs) - CORRECT ANSWER-An
open-ended investment company (OEIC) is another form of collective investment
scheme. OEICs are referred to as investment companies with variable capital
(ICVCs) by the FSA.
Open-Ended Investment Companies (OEICs) - CORRECT ANSWER-An OEIC is
a collective investment scheme structured as a company, with the investors
holding shares. The OEIC invests shareholders' money in a diversified pool of
investments and has the ability to issue more shares or redeem shares as
demanded by investors.
