Route to investment strategy
Elaboration of the investment strategy follows the explanation. An adviser who pursues an investment strategy inconsistent with the needs of the customer violates his duty of due diligence.
The investment strategy should always be matched to the customer’s profile. An adviser who does not know his customer is unable to develop the right investment strategy for that customer.
The investment strategy is worked out by discussion between adviser and customer. It is the adviser’s responsibility to obtain as clear as possible a picture of the customer’s investor type based on a catalogue of questions. The adviser can be absolved from liability if the customer provides false information. The adviser violates his duty of explanation if he fails to discuss or explain certain critical points in relation to the investment strategy.
Investment criteria
Any sensible investment strategy must take account of the following criteria:
- Risk:
- Credit risk
- Interest rate risk
- Currency risk
- Monetary value risk
- Price risk
- Country risk
- Product risks (e.g. structured products)
- Liquidity: Negotiability
- Yields
- Long-term nature
- Diversification:
- Geographical
- By sector
- By currency
- By risk groups / products
- By liquidity considerations
- No bulk risks
- Individual
- Clearest possible regulation
See also: What type of investor are you?
