Any industry has two sets of prices, one for those ‘in the trade’ and another for the retail customer. The difference between the trade and retail price provides a mark-up, which enables a distribution network to function. With financial products by obtaining some knowledge and acquiring market access, will enable you to purchase lower cost institutional type collective financial products. Though this requires some effort on your part, it is within the grasp of just about everyone.
Obtaining market access is very straightforward and just involves opened a brokerage account, the procedure for which is roughly analogous to opening a bank account. Without a brokerage account, access to financial markets will only be available via an intermediary. Most intermediaries whether in banks or IFAs, are commission based which in my mind often leads to a conflict of interest. In particular, the sales person is only likely to suggest products for which they receive a sales commission, ignoring all other available options. Hence, listed collective products such as investment trusts and ETFs (Exchange Traded Funds), which typically have lower internal charges than unit trusts, will generally not be suggested by commission based IFAs and bank representatives.
From a very young age, I have always had an interested in finance, and since my student days have invested directly in stock markets. To this day, I have been continually educating myself via books, web sites and private conservations, on the workings of markets. This investment in my education turned out to be the best investment I ever made and I strongly recommend such an investment to others. In particular, if you do not feel comfortable buying financial products directly then why not invest in your own education and investigate further such topics as how brokerage accounts work, the mechanics of the stock market and available listed collective investment products such as ETFs and investment trusts.
After reading up, if you a still wish to use the services of a commission based financial advisor having a basic knowledge of the products available will put you in a much stronger position when judging the suitability of the products suggested to you. Please note that the financial advisory business is rife with conflicts of interest. In the UK, the FSA has tried to address this situation and now requires IFAs to disclose to customers the commissions paid on financial products purchased. They recently took a step back by scrapped the IDD Menu requirement, which required disclosure on commissions of similar products allowing the customer to transparently compare commissions. In the Isle of Man, the situation is much worse in that there is no requirement on intermediaries to disclose the commissions paid on financial products sold. So please take care.
Explanatory Notres on IDD Menu
IDD Menu is short for “initial disclosure documents (IDD) and the Menu of commission and other charges”. The IDD Menu requirement is an attempt by the FSA to implement parts of the Markets in Financial Instruments Directive (MiFID) which is due for implementation in November 2007. MiFID is new European wide legislation for financial products and services, from which it is hoped that a single European wide market for financial products will start to form.
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on Friday, July 6th, 2007 at 8:57 pm and is filed under Investment Technique, Fund Management.
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