FAQ's

1. Why do I need a financial advisor?

There is an enormous array of financial options available and selecting the one that will best meet your needs is a vital part of successful investment. A financial advisor will help identify your risk profile, your financial goals and your overall financial position. With this knowledge the advisor can help you select a combination of investments tailored to match your needs now and in the future. Financial advisors’ experience and skills bring clarity and focus to a subject that can often seem complex and daunting.

2. I have kept my savings in a bank account for many years. Why should I now switch to investment funds?

Although bank accounts are generally considered very safe investments, interest rates in most countries are at their lowest level in many decades and bank savings provide very low returns. Investment funds offer investors the opportunity to earn higher returns, either to increase income or to save for future needs. The vast choice of funds available allows you to select investments that suit your willingness to take risks – or not.

3. Am I too old to plan for my retirement?

Obviously the younger you start to invest for you retirement the better, but anyone – even a person just five years away from retiring – can still take steps to increase the amount of money available upon retirement. However, older investors should adopt a more cautious investment strategy to minimise the risk of a significant loss of capital in the run-up to their retirement, whereas younger investors can be more aggressive, knowing that they have many years of earning and investing ahead in which to make up any short-term losses.

4. Why should I invest in investment funds rather than directly in shares and bonds?

Investment funds provide a cost-effective and efficient way to access a wide variety of financial assets. With a portfolio of assets selected to meet specific investment objectives, investment funds are available to suit every type of investor, from the most cautious to the most adventurous. Investment decisions for a fund are taken by highly skilled professionals with years of specialist experience. By contrast, direct investment in shares and bonds requires in-depth knowledge both of companies and of the economic environment. Even with help from a financial advisor, it is a time-consuming and expensive process that should only be attempted by sophisticated and experienced investors with time to devote to making financial decisions and acting on them.

5. Can I access my money quickly?

Typically UCITS funds can always be sold back to the company running it within a day or a week at a price that reflects the assets held by the fund. The UCITS rules give investors a legal right to redeem their holdings at least twice a month, but most funds buy and sell on a daily basis and the proceeds are paid to the investor on the settlement day, which is usually up to five days later. Details of redemption and settlement day will be found in the fund’s prospectus. Exchange-traded funds can be sold on stock exchanges throughout the trading day, although the settlement period may be different. It’s worth remembering that in general investments tend to produce the best performance if they are held for the medium to long term, but in case of emergency UCITS funds can be redeemed at fairly short notice.

6. How can I be sure that my money is being invested correctly?

Investment decisions for UCITS funds are taken within a framework of checks and balances designed to ensure that the fund is being managed as set out in the fund prospectus. Independent service providers such as the fund’s custodian are part of a regulatory structure designed to protect the interests of investors. If you are concerned that the fund is not following the stated investment policy, you should first contact your financial advisor. You may also contact the fund management company and the financial regulator of the country where the fund is registered.

7. How is risk controlled within a fund?

Risk is a much-misunderstood aspect of investing. Successful investment is not simply about constructing a portfolio to deliver the maximum returns but also meeting investors’ performance objectives while taking the least possible risk. Investment companies put in place elaborate controls to monitor and manage risk. Fund managers adhere to strict guidelines on the maximum proportion of the assets that can be invested in individual securities or particular countries or sectors, which are set out in the prospectus. Fund management companies have internal investment processes designed to monitor risk and intervene at an early stage.

8. Is there a good and a bad time to invest?

When you choose to invest, the timing of the investment should depend primarily on your own personal circumstances. You should take into account factors such as your current income and expenditure, your age, dependents and lifestyle expectations, and any need for large amounts of money at some point in the future.

Ups and downs in the price of shares, bonds and other assets are normal, but they tend to average out over time, so the longer the period over which you invest, the less your money will be affected by short-term price fluctuations. This is helped by regular investment that ensures you put money in the market in all conditions, when prices are low as well as when they are high.

9. Are there investment products guaranteed not to lose money?

There are certainly investment funds on the market that offer guarantees or some kind of capital protection, usually covering all or part of the original investment, and others that ‘lock in’ gains that have already been made. These funds offer cautious investors peace of mind, but it comes at a price. The cost of providing the guarantee is likely to mean that in good market conditions, returns will be lower than they would have been without it. These products require capital to be locked up for a fixed period in order for the guarantee to take effect. For certain guaranteed products an early decline in the value of the investments can mean the fund will never return much more than the invested capital, no matter how strongly the market recovers subsequently. And one lesson of the recent financial crisis is that a guarantee is only as strong as the company that provides it.

10. Should I invest in equities or bonds?

Equities and bonds fulfil different roles in the world of investment, but they are complementary rather than mutually exclusive. Many investors feel most comfortable with a mix of both types of asset, either through a combination of bond or equity funds or through balanced funds that invest in both. Equities offer the potential to maximise capital growth, while bonds provide a fixed return over a set period of time.

The price of an equity fluctuates according to many different factors, including the general economic environment of a specific sector, an entire country or a region, as well as the strength and stability of the company offering the shares. Bond prices are affected by the creditworthiness of the issuer and the interest rate environment. These different characteristics mean that the proportion of bond and equity funds within an investor’s portfolio may change over time, depending on the economic climate and on the investor’s own needs and risk profile.

11. Is it possible to make money quickly?

The financial markets in general and funds in particular should not be seen as an opportunity for ‘get rich quick’ investment. Investments that offer the prospect of rapid gains also contain the potential for quick losses. Investors may decide to combine some solid, conservative investments that offer stable long-term growth with some more aggressive investments promising higher growth, but it is a strategy that should not be undertaken without expert advice. Investors should beware offers that hold out the promise of quick and easy gains. If it sounds too good to be true, it probably is!

12. How can I be sure that my portfolio is diversified?

A diversified portfolio of assets is one where it is not overwhelmingly invested in one particular country, region or sector, or in a particular type of asset. For example, investing only in investment funds focusing on equities from one region or sector would expose your capital to a high degree of risk since a fall in that region or sector could result in a significant loss to all your investments at the same time.

To create a diversified portfolio, you need to understand what financial goals you are trying to achieve and the degree of risk necessary to achieve them. A quest for maximum capital growth would require you to hold a larger proportion of your money in higher risk equity funds. But if preservation of capital is your main priority, you will prefer a larger proportion of fixed-income and other lower risk funds. However, the main point about a balanced portfolio is that it should strike the right balance between capital growth and preservation, risk and reward, for your individual circumstances. Financial advisors can help you identify a mix of assets that will best meet your needs.

13. How can I buy or sell fund units or shares?

The fund’s prospectus will tell you how often fund units or shares can be bought (subscription) and sold (redemption). Most UCITS offer daily subscription and redemption (although weekly or twice a month are also possible). Sometimes funds are closed for new subscription and therefore cannot be purchased by investors.

The way fund units and shares can be purchased and sold varies from country to country and may differ according to the distribution channels selected by the management company. The easiest way to find this out is to contact your financial advisor or the management company of the fund directly for the necessary information. You may also check the fund’s prospectus for details about distribution channels, paying agents and/or other agents that provide this information.

14. Where can I find information about Luxembourg-based UCITS funds?

Information about Luxembourg-based funds is generally available from the management companies of the funds in question and their distribution channels, such as banks, insurance companies and financial advisors. However, general and detailed information on all funds established in Luxembourg are available from the Finesti web site (www.finesti.com), which also allows you to examine how funds compare in different ways.

15. What happens if things go wrong?

Investment funds, financial advisors and fund management companies are all carefully regulated, and strict rules are in place to ensure professionalism and ‘best practice’ prevail. If a fund is not performing as you expected, it may be that market conditions have taken a downturn. Market fluctuations do happen, but it’s important to understand that the fund manager always has to act within the rules and regulations set out in the prospectus.

Therefore it is worth checking whether the fund is investing as promised in its prospectus. This can be done by studying the annual report, which will contain a statement by the independent auditor of the fund’s accounts. If you believe that investments in the fund do not correspond to the prospectus or the marketing material you received, or if you have any other complaint about the way the management company or the fund manager have fulfilled their duties, you should first contact your financial advisor, although you can also contact the company directly. If you are not happy with their response, you may contact your home country’s financial regulator, the financial regulator of the home country of the investment fund, or a consumer advocate such as an ombudsman. They can advise you of your position and what next steps, if any, are needed.

Financial advisors should provide guidance and investment recommendations based on your investment profile and attitude to risk. If you feel advice you acted upon has not been suitable for your investment needs, you may contact the financial institution the advisor is employed by, a professional organisation for financial advisors in your home country, which may have a procedure for bringing complaints against individuals or firms, or your local financial regulator.