​Investment - Providing Services to Retail Clients

The full range of services that are utilized by high-net-worth investors and institutional investors is often not required by retail investors like retail investors. Financial planners and brokers are typically the ones who provide retail clients with assistance and advise on investment management. This assistance and advice might include asset allocation, investment analysis, and portfolio construction activities.

It is possible for professionals who recommend trades and investment arrangements to collect commissions from the companies that sell the mutual funds and life insurance policies that clients purchase as a result of their recommendations. Others are professionals who only accept money from their clients and do not accept any other kind of payment.

In contrast to brokers and agents, who receive commissions on the trades and contracts they recommend, fee-only experts do not have any incentives to generate income by promoting particular items or making an excessive number of trades. Retail clients also have the option of putting their investing strategies into action by making passive investments in pooled investment vehicles, such as mutual funds, which are managed by professionals. 

​Investment - Passive and Active Investment Management 
When it comes to managing their clients' investments, investment managers often take either a passive or active approach. 

Managers of passive investments strive to achieve returns and risks that are comparable to those of an appropriate benchmark. There are three types of benchmarks: broad market indices, which cover an entire asset class; indices for a particular industry; and benchmarks that are tailored to meet the requirements of a particular client. 

Passive investing incorporates low-cost techniques due to the fact that it involves purchasing and holding securities solely on the basis of their characteristics in relation to a certain index, such as the S&P 500 in the United States, the FTSE 100 in Europe, or the S&P Asia 50, rather than on the basis of an appraisal of the potential returns that they would generate in the future. One of the most common types of passive investment strategies is index investing.

Investors who engage in active management of their investments attempt to forecast which securities and assets will outperform or underperform comparable securities and assets. Following this, the managers put their opinions into action by purchasing the securities and assets that they anticipate will perform better than expected, and by selling (or simply not purchasing) the securities and assets that they anticipate will perform worse than expected.

Investment methods that are active demand more resources than passive investment strategies, which is the reason why active investment strategies are more expensive. Therefore, clients will only choose active managers if they are confident that these managers possess the necessary expertise to surpass the market performance, taking into account all of the fees and commissions that are involved.

In order to forecast which securities and assets will outperform or underperform their peers in the future, active investment managers analyze as much pertinent information as they possibly can. When it comes to gathering the necessary information, they frequently require the assistance of investment information service providers.

​Investment - A Strategy for Investment Management Designed for High-Net-Worth and Institutional Clients

Individual investors and institutional investors alike are required to devise and put into action a plan for accomplishing their financial objectives after they have first identified their financial restrictions and goals. Investment management services, which include asset allocation, investment analysis, and portfolio design, are commonly required. These services are regularly required. The quantity of investable assets that an investor possesses is a significant factor in determining the scope of these services that they are able to access.

Certain high-net-worth and institutional clients require investment experts to handle the entirety of the investment process, beginning with the identification of suitable investments and continuing through the implementation of those investments and the evaluation of their performance. Other clients, on the other hand, utilize the services of investment professionals in a selective manner. A significant number of investment experts are granted permission by their clients to engage in dealings involving assets and securities on their behalf.

These individuals are frequently referred to as investment managers or asset managers since they possess such discretionary control. It is possible that these terms are referring to the individuals who are responsible for making decisions regarding investments or to the investment company for which they work, depending on the context.

Activities Relating to Investment Management
In the following paragraphs, we will discuss the three primary services that investment managers offer to their clients. 

An allocation of assets 
The term "asset allocation" refers to the proportion of a portfolio that ought to be invested in various asset classes and the rationale behind this decision. Cash, stock and debt securities, as well as alternative assets like private equity, real estate, and commodities are all examples of asset types within the financial market.

It is possible that both domestic and international securities are included in the optimal distribution of equity and debt. For the purpose of determining the optimal allocation, investment managers carefully consider the risk and return associated with the various asset classes.

Evaluation of Investments 
Investment analysis is the process of determining the worth of investments and locating securities and assets that are appealing financial instruments. According to one definition, the fundamental value of an investment, which is often referred to as its inherent value, is the price that investors would pay for the investment if they had a comprehensive understanding of the qualities of the investment.

When attempting to estimate the fundamental value of an investment, one typical method is to compute the value of all of the cash flows, such as dividends, that the investment will create in the future. It is expected that the topics of present value and securities valuation will be discussed in Course 3, Investment Instruments, as well as in Course 4, Investment Inputs and Tools. A financial investment is considered to be financially appealing when its price is lower than its estimated intrinsic value, provided that it satisfies the requirements of the client.

The Construction of Portfolios 
Everything is brought together through the building of a portfolio. Investment managers make investments in the attractive securities and assets that they discovered via their investment analysis. They do this while taking into account the requirements of the client and the suitable asset allocation.

The trading of securities and assets, the holding, management, and accounting of these securities and assets during the periods of investment, and the evaluation of the success of these investments are all necessary steps for them to do in order to accomplish this goal.

Generally speaking, investment firms are the employers of investment managers who provide assistance to high-net-worth individuals and institutional investors. Management fees are paid by customers. The magnitude of these fees is often determined by the total assets that are being managed; those fees are typically higher for investments that are larger in size. In addition, clients may be required to pay performance fees, which are determined by the success of the portfolio.

​Investment - Financial Institutions part of Financial Intermediaries 
Financial institutions are types of financial intermediaries.

They are responsible for collecting money from people who save money and investing it in various financial assets. Both banks and insurance companies are considered to be the two most important forms of financial institutions.

It is the responsibility of banks to take deposits from savers and then convert those savings into loans for borrowers. By doing so, they bridge the gap between savers and borrowers in a roundabout way. The saver does not have a direct claim on the borrower; rather, the saver has a claim on the bank through its deposit, which is the bank's liability. On the other hand, the bank has a claim on the borrower through the loan, which is the bank's asset.

Additionally, banks are frequently referred to as depository institutions or institutions that accept deposits. It is possible for banks to pay interest on deposits in addition to providing transaction services, such as the ability to write and cash checks, in exchange for the access to the money that is deposited by customers. Bonds and stocks can also be issued and sold by banks in order to raise capital for the purpose of making loans.

There is a wide range of borrowers and organizational structures among banks. The names that are used to refer to them may vary from country to country.

For the purpose of providing funding for long-term residential mortgages, building societies, which are also known as savings and loan associations in certain countries, are available.

Consumers and proprietors of small enterprises can take advantage of the banking products and services offered by retail banks. These goods and services consist of checking accounts, also known as current accounts, savings accounts, debit and credit cards, mortgages, and personal loans. Current accounts are also known as checking accounts. 

Online banking and automated teller machines (ATMs) are becoming increasingly popular methods for conducting retail banking transactions. This trend is expected to continue in the near future. Companies and other types of financial organizations can count on commercial banks to supply them with a diverse assortment of products and services.  

Mutual and cooperative banks are types of financial institutions that are owned by their members and are occasionally managed by those members. It is possible that they specialize in the provision of loans and mortgages to their members, and some of them actually provide a variety of products and services that are comparable to those that are provided by commercial banks. Depositors reap the benefits of earning a return on their capital in the form of interest (from dividends), from transaction services, or from appreciation on their capital without having to discover the borrowers, assess their credit, enter into a contract with them, or manage their loans.

Even in the event that borrowers default on their payments, banks are obligated to compensate their depositors. It will be necessary for the banks to use the capital that is owned by their owners in order to pay off their debts if they are unable to collect sufficient funds from their borrowers. 

The Bank of Penn Square
Penn Square Bank, a small bank in Oklahoma that was located in a shopping mall, was engaging in excessive risk-taking with borrowed funds in the year 1982.
Deposit insurance that is insured by the government is available to depositors in lots of different countries. Despite the fact that the amount that is guaranteed is typically capped, this insurance provides depositors with the peace of mind that their money are protecting them from potential loss. The possibility of losing capital ought to be the primary focus of the banks' attention in order to prevent them from providing loans in a careless manner that raises the possibility of not being paying it back. 

It is not uncommon for significant gaps to occur. For example, in the years leading up to the financial crisis of 2008, investors and regulators frequently failed to see the risks that banks were taking, or they chose to ignore them, or the dangers were beyond their ability to control.

During the years that followed, when oil prices were at their highest, Penn Square Bank had seen rapid expansion by providing high-risk loans to businesses operating in the oil and gas industry. Through the sale of 'participation' in these loans to other banks located all throughout the country, it had leveraged (that is, used borrowed capital) its lending.

When oil prices reached their highest point in 1981, they started falling. Penn Square Bank filed for bankruptcy in July of 1982, leaving uninsured depositors and institutions who had engaged in the bank's loans with losses that were often catastrophic.

Losses that were incurred as a result of the fall of Penn Square Bank were a contributing factor in the later collapse of Continental Illinois in 1984. Continental Illinois was formerly a leading commercial bank in the United States.

Without money from depositors and financial institutions that, in their pursuit of high returns, chose not to look closely at the dangers connected with the program, Penn Square Bank would not have been able to implement its aggressive lending program.

Insurance Service 

Insurance firms mitigate the risks they cover. Policies, which are also known as insurance contracts, are purchased by individuals and businesses in order to protect themselves against the possibility of suffering a loss. These policies give payouts in the event that a loss does occur. The payments that people make to insurance firms are known as premiums, and they are non-refundable. This is the case when they purchase insurance contracts. In the event that the risks that were insured materialize, the people or businesses that were insured will file a claim with the insurance company and then collect the insurance compensation.

Property and casualty insurers are responsible for protecting assets like homes, automobiles, and businesses. On the other hand, legal liability and life insurers are responsible for disbursing monetary compensation in the event that the insured individual suffers a fatal injury or passes away. Life insurance is a good example of how risk pooling is the foundation of the insurance company, which is also known as insurance underwriting. This concept can be illustrated using a simplified example.

Jonnas, who is 35 years old and married with two children, has settled on the conclusion that if he were to pass away unexpectedly, a sum of one million dollars would be sufficient to pay the costs of his family and compensate for the income he would have lost in the future.

Due to the fact that he does not possess one million dollars, he is unable to "self-insure," so he purchases life insurance. For the purpose of taking advantage of risk pooling, insurance companies make it possible for Jon to, in essence, join a group of individuals who are 35 years old and have health profiles that are comparable to his own.

When insurance firms have access to vast pools of individuals that are similar to one another, they are able to estimate with a high degree of certainty the number of deaths that will occur over a specific time period.

Because of this capability, the insurance firm is able to insure the entire group while charging each covered individual a reasonable amount. This ensures that the premiums paid by all of the members in the pool are sufficient to cover the payouts, also known as settlements, for the very small number of members who actually pass away. At the same time, the premiums are sufficient to cover the administrative costs of the insurers as well as the anticipated profits.

Insurance firms are vulnerable to a variety of risks, including fraud, moral hazard, and adverse selection, in addition to the risks that they take on, which are insurable. These risks include pricing competition from other insurers, the impact of market volatility on their invested reserves, and other business hazards.

Fraud 
When individuals intentionally cause losses or fraudulently declare losses in order to obtain insurance settlements, this is an example of deliberate fraud. 

Moral Hazards 
The phenomenon known as moral hazard happens when individuals, after purchasing insurance, reduce the amount of care they take to prevent losses. In the absence of insurance, moral hazard causes losses to occur more frequently than they would otherwise. 

Adverse Selection 
A situation known as adverse selection takes place when only those individuals who are most at risk get insurance, which results in insured losses that are higher than the average losses. 

Example of a Case 
Jonas has always been a little bit daring, but before to purchasing the one million dollar life insurance policy, what he enjoyed doing in his spare time was playing tennis and golf. In light of the fact that he is now covered by insurance, Jon has decided to forego those'safe' sports and instead pursue his lifelong passion for skydiving and scuba diving.

As Jonas' wife expresses concern about the change in activities and attitude, he reacts by saying, "Don't worry — we are insured!" She is concerned about the shift. In the event if other individuals who are part of Jon's insurance pool experienced similar shifts in their perspectives regarding the participation in risky hobbies, the insurance company would most likely be required to make bigger policy payouts.

In addition to their role as financial intermediaries, insurers also play a significant role as huge institutional investors. They typically invest a sizeable percentage of the premiums that they receive, and they oversee the management of these investments in order to cover the expenses that may be incurred in the future.

​Investment - What Leadership Titles Mean and What They Do

The chief executive officer (CEO) runs the business.


Chief Financial Officer (CFO): This person is in charge of getting the company money and filing its taxes.


Chief Operating Officer (COO): This person runs the business day-to-day.
This person is called the chief investment officer (CIO), and they are in charge of all of the company's investments and the help they give to clients. They also make decisions about investments for the company and for clients.


Head Trader: This person is in charge of all trading activities. In companies that do proprietary trading, they are also in charge of all positions, risks, and profits.


The chief accountant, who is also called the finance controller, is in charge of the accounting and money processes.


The treasurer is in charge of managing the money, which includes investing earnings and paying bills.


Chief Risk Officer (CRO): This person finds and handles the risks that the company and its clients face.


Chief Compliance Officer (CCO): This person is in charge of making sure that the company follows all laws and rules and treats clients properly.


The Chief Audit Executive is in charge of the internal audit department, whose job it is to give the company's operational systems an outside look and make ideas for how they can be made better.


The general counsel is in charge of the legal department, which reads and helps write contracts, files lawsuits or reacts to them, and explains rules.

Some people at many companies, especially smaller ones, have more than one title and job duty. One small investment management company may have a chief investment officer who is also the chief executive officer.

Staff for Investment


Many different types of investment professionals work for firms in the investment business.

At buy-side firms, portfolio managers choose how to spend money for one or more portfolios.

Investment research that portfolio managers use to make choices is made by buy-side, sell-side, and independent research analysts.

Research assistants help research experts gather and look over information about investments.

Traders on the buy side work with firms on the sell side to fill trade orders made by fund managers.

Sales traders work for firms on the sell side and help their buy-side clients set up trades.

They are in charge of sales for certain areas, goods, or types of customers.

Salespeople look for people who might buy from the company and then sell them its goods and services.

Assisting salespeople with paperwork is what sales assistants do.

Agents in customer service and their assistants help customers open, close, and handle their accounts and answer questions from customers.

At many companies, people who work with clients on investments are called account executives and account managers.

Work as a study assistant is a common first job for investment professionals who want to become portfolio managers. Assistants who become very good at a certain subject, are good with numbers, and can write well may be moved to research analysts. 

Analysts who are good at making decisions about investments often become fund managers. In the same way, financial professionals who want to start working in sales or account services can start as sales assistants or account services assistants.

Companies that offer financial management also hire people with skills in legal services, accounting, information technology, marketing, and information technology.

Investment- ​Front, Middle, and Back Office  

Most companies on the sell side organize their work in the same way. Things are put into groups based on whether they happen in the front office, the middle office, or the back office.

Front Office 
The front office is where actions that directly bring in money from customers take place. The most important front-office tasks are done by the sales, marketing, and customer service groups.

Some professionals think of the trading area as being in the front office, especially if the traders deal with clients all the time. Some people think of research as a front-office task because it brings in money from clients.  

Middle Office 
The main tasks of the business are done in the middle office. Risk management, research, corporate finance, portfolio management, and information technology (IT) are all middle-office tasks, especially if these areas don't deal directly with clients.

IT is especially important for investment firms because they need to quickly and correctly process and retrieve huge amounts of data. Risk management is also important because it makes sure that the company and its clients are not put at too much risk on purpose, by accident, or through scams.

Back Office 
The management and support tasks needed to run the business are located in the back office. Some of these tasks are operations, payroll, human resources, and accounting.

When it comes to trading firms and banks that hold money for people, the accounting department is very important because it clears and settles trades and keeps track of what people own.

There are some tasks that are hard to put in the front, middle, or back office. Compliance, for example, is important to the whole organization because it makes sure that the company and its clients follow the rules and laws that guide the investment business.

Many times, the words "front office," "middle office," and "back office" are not used to talk about buy-side firms. Though, the main parts of buy-side and sell-side investment management firms are the same. Some of these areas are trading, compliance, accounting, administration, sales and client relations, investment research and portfolio management, and trading.  

Investment - ​Firms on Both the Buy and Sell Sides

Many companies in the investment sector are categorized by practitioners as either sell-side or buy-side organizations.

Typical examples of sell-side firms are investment banks, brokers, and dealers, all of which mainly offer investment products and services. 

Portfolio management firms that work for either their clients or themselves are known as buy-side firms. A buy-side participant is someone who works with a buy-side firm to acquire investing products and services. On the other hand, the "buy side" consists of institutional investors including insurance firms, pension funds, endowment funds, foundations, and sovereign wealth funds. Consultants whose exclusive clientele are buy-side firms are sometimes referred to as "buy-side" by practitioners. For instance, a large number of consultants work with buy-side institutional investors to assess the performance of investments. 

Companies in the investing sector are not uniformly divided along buy-side or sell-side lines. Companies that offer investment information services, including credit rating organizations, data vendors, or investment research providers, do not find them relevant. 

It is difficult to apply the classifications to many large, integrated organizations since they are rather arbitrary. Despite being sell-side organizations, investment banks sometimes have divisions or totally owned subsidiaries that offer investment management.  

Investment - Investor Services 
Although every investor is unique and has specific requirements, there are a number of services that are essential for all of them. Financial planning, investment management, custodial, trading, and information regarding investments are all examples of such services.

In order to purchase or sell shares, investors must first locate another investor who is also interested in doing so. The trading process is made possible by the services of brokers and dealers. Instead than engaging in direct trading with investors, brokers facilitate transactions between buyers and sellers.

Dealers, on the other hand, engage in proprietary trading as principals, meaning that they trade with buyers and sellers using their own accounts and capital. 

 The benefits to investors and healthy markets from the services of brokers and dealers, who lower transaction costs and provide liquidity, have already been mentioned.

Settlement agents and clearing houses also offer trading services by confirming and settling agreed-upon trades. The services of custodians and depositories entail the safekeeping of client funds and assets.

Analysts are hired by institutional investors to assess investment opportunities. The term "buy-side analyst" describes these professionals since they are employed by the company that is purchasing the stocks. 

Investment information providers, including data vendors or investment research and report providers, are frequently relied upon by analysts to collect data regarding a firm and its respective markets.


A large number of individual investors turn to investment experts for guidance because they lack the knowledge, experience, or time to handle all aspects of the investing process independently. In order to meet their future demands, clients work with financial planners who assist them in defining their investing objectives. Professionals in the field of investment management, such as asset managers, assist their customers in reaching their financial objectives by making investment decisions with them or on their behalf.

Many people are eager to put money into the market, especially retail investors, but they just don't have the means to employ a professional investment manager. As an alternative, these savers may purchase investment vehicles provided by financial institutions like banks and insurance agencies. For instance, someone who is saving for retirement would want an easy and cheap approach to put money down on a monthly basis. A mutual fund, an investment vehicle that is professionally managed and holds a variety of securities, might be a good fit for her needs. 

Investment - Ways in Which Investors Assist Savers  in Putting Their Money to Work  

A variety of investors with different needs may purchase Penny's shares. People who hold investments on their own are considered individual investors, whereas organizations that invest for their own benefit or the benefit of others are known as institutional investors.

There is no one-size-fits-all method for categorizing individual investors; rather, differences exist according to country, currency, and investment firm. In general, high-net-worth individuals have a lot of investible assets, but regular investors typically have a lot less.

An individual's wealth, level of investment expertise, and the regulatory climate all play a role in the recommendations and assistance they receive. While wealthy investors typically receive individualized attention, retail investors are more likely to receive standardised services.

Pension Plan 
Investment Assets Held and Managed by Pension Plans for the Benefit of Retirees Both Present and Future

Endowment Funds 
Educational institutions, museums, theatres, opera houses, hospitals, and clinics are examples of non-profit organizations that hold endowment funds. (Beyond its usual use as a synonym for money or capital, the term "funds" here denotes specific types of formal financial entities that have established investing requirements.)

Foundation 
Donations and investment revenue allow foundations to operate as grant-making organizations.

​Soverign Wealth Funds 
The governments of the world keep an eye on sovereign wealth funds. It is possible for a government to amass wealth when its revenues exceed its expenditures. This typically occurs in nations that possess abundant natural resources, like oil, which can be utilized by the government for direct sales or taxing purposes. A sovereign wealth fund is a vehicle through which a government might invest its surplus funds for the benefit of its residents.