CISI – Financial Products, Markets & Services Topic – The Financial Services Industry (1.1.1)The roles of institutions and individuals in the industry

? Key players within the financial services industry Who are the key institutions and individuals within the UK financial services industry? Key players within the financial services industry Insurance Companies Retail banks and building societies Investment banks Pension funds Typical high street banks for traditional deposit taking and lending Fund managers Custodians Stockbrokers Industry trade and professional bodies Platforms ?

Corporate finance and advisory work Investment management Investment Banks Even though they are known as banks, they do not take deposits or grant loans. Many of the larger independent investment banks disappeared after 2008, either taken over by other banks or converted into bank holding companies. Corporate finance and advisory work For companies wanting to go public and float on stock markets For companies wanting to raise additional finance from new share or bond issues For companies looking to merge, acquire businesses or takeover others Treasury Dealing For companies looking to trade in foreign currencies Using financial derivatives to protect them from interest rate and exchange rate fluctuations Investment management For large investors such as corporate pension funds, charities and private clients. Via direct investments or ‘investment funds’ Securities trading They may trade themselves in equities, bonds and derivatives and the provision of broking and distribution facilities. They may act as “market makers” in relevant markets

Pension Funds When it comes to the time when a person wants to retire and stop working, they will need an income. This is where pension schemes come in. They are the key planning method by which individuals can make provision for retirement. There are a range of schemes, from those provided by employers to those that are run by the individual, known as self-directed schemes. They are; Often large, long-term investors in shares, bonds and cash. Sometimes investors in physical assets, like property.

Insurance Companies Insurance is all about managing risk. Protection planning is a key area of financial advice. The Insurance industry offers a wide range of products to meet many potential scenarios. Common types of insurance include: Type of insurance Purpose Car paying out when in the event of a car accident Household replaces possessions the event of a burglary or flood Life assurance Pays out when the insured person dies Payment Protection Pays out if an individual is unable to repay loans and mortgages Fleet Protecting against the risk of air crashes Insurance companies also market investment products. Many have become large players in the ‘structured’ products market – offering guaranteed stock market related bonds. Premiums Insurance companies collect premiums in exchange for cover. Insurance companies use the income to buy investments e.g. shares and bonds. They realise these investments to pay any claims that may arise.

Fund Management This involves selecting the investments that make up the portfolios for pension funds, insurance companies and collective investment schemes. This is also known as asset management or investment management Individual fund managers (AKA investment or asset managers) buy and sell shares , bonds and other assets to increase the value of their clients’ portfolios: Institutional fund managers Private client fund managers Work on behalf of institutions (companies, charities and local government authorities: Investing money for a company’s pension fund Managing an insurance company’s fund Managing investments in a unit trust or OEICs Investing the money of wealthy individuals Investment management firms charge their clients for managing their money – charges are often based on a small percentage of the value of the fund being managed.

Stockbrokers Arrange stock market trades on behalf of their clients who are either ‘private clients’ or investment institutions and fund managers. They offer the following services: Investment advice Execution only services Provide advice to investors about which shares, bonds or funds they should buy. Offer wealth management services to their client – they are often known as wealth managers Simply arranging a trade that a client requests without providing any advice They can be independent companies Some are divisions of larger entities, such as investment banks. They charge fees for their advice They charge commissions on transactions. Stockbrokers can also look after a client’s assets – they charge custody and portfolio management fees.

Custodian Banks Specialise in keeping assets safe for others. Generally, they offer safe custody services looking after portfolios of shares and bonds on behalf of others (fund managers, pensions funds and insurance companies): Hold assets (equities and bonds) in safekeeping Arrange settlement – paying for purchases and collecting proceeds from any sale of securities Collect income from assets e.g. dividends and interest Provide information on the underlying companies in which shares are held e.g. Annual General Meetings Managing the cash held within portfolios Perform foreign exchange transactions Provide regular reporting on all of their activities to their clients. The custody business is now dominated by a small number of global custodians which are often divisions of large banks.

Trade and professional bodies Professional and trade bodies exist across the world’s financial markets to encourage greater co-operation and efficiency in a rapidly changing industry. They work to ensure that the views of industry sections are represented, especially to the government and regulators Examples: Name Market/Job role/Company type International Capital Market Association (ICMA) Bonds market FIA Europe International Swaps and Derivatives Associations (ISDA) Derivatives market The Investment Association Fund Managers Association of British Insurers (ABI) Insurance companies Wealth Management Association (WMA) Stockbrokers and investment managers providing private client investment management British Banker’s Association (BBA) Banks Tax Incentivised Savings Association (TISA) Industry-funded body working to improve savings and investment schemes for UK citizens

Platforms Fund Supermarkets Wraps Platforms are online services used by intermediaries such as independent financial advisers to view and administer their clients’ investment portfolios. Platforms allow advisers to see and analyse a client’s overall portfolio and to choose products for them. As well as providing facilities for investments to be bought and sold, platforms generally arrange custody for clients’ assets. The term platform refers to: Fund Supermarkets Offer a wide ranges of funds, such as unit trusts and OEICs Wraps Wrap accounts enable advisers to take a holistic view of the various assets that a client has in a variety of accounts. Advisers also benefit from using wrap accounts to simplify and bring some level of automation to their back-office using internet technology.

Platforms Platform providers also make their services available direct to investors. The advantage for fund management groups is the ability of the platform to distribute their products to financial advisers. Platforms earn their income by charging for their services: Source: The Telegraph, May 2015 If you wanted to pay a fund supermarket to administer a £1m Isa portfolio, who would you choose?