Investment

A Quiver full of arrows

Historically, archery has been used for hunting and combat, but in modern times its main use has become recreational. Despite the widespread enjoyment gained from archery, almost every culture that gained access to firearms has used them widely, to the relative neglect of their archery skills. In very much the same way, today’s financial advisor must adapt by ‘hunting’ for the appropriate financial products that will offer his/her client the best financial returns given the circumstances. Financial advisers should gather information about their clients to identify their needs and circumstances and then apply this information to recommend a course of action.

An archer uses a quiver as a container for his/her arrows. Similarly, financial advisors also need a ‘quiver’ or range of financial products to offer their clients. In an investment environment, these would include endowments, unit trusts, shares, exchange traded funds (ETFs) and derivatives like warrants and single stock futures (SSFs). If financial advisors do not provide a holistic range of financial products to their clients, they too will be rendered obsolete in the same way as the bow and arrow. The financial advisor gives advice in relation to financial matters, based on the results of a thorough fact-finding and analysis exercise. Many financial advisers also double-up as financial planners, because their function is crossed or overlap in many areas. Many financial advisers see their profession as complementary to other professions which give legal advice, tax advice or medical advice.

In the past, investors had to call up their brokers to place an order for shares over the telephone. The broker would then enter the order on a trading system which was linked to the trading floor on the Johannesburg Stock Exchange (JSE). With the advent of the internet, investors can now enter orders directly online through the JSE registered stock broker’s website, allowing agents to approve and monitor the trades. Investors must fully understand the potential risks of investing without the help of a trained stock broker or investment advisor. These professionals are experienced in both trade and education and foregoing their advice could be costly. Financial planners can assist clients in searching for a suitable stockbroker with the necessary support structures. For this reason, most online brokers offer a number of research and investment tools as it is almost impossible for a private investor to follow all the listed shares on the JSE. It is important for the investor to research the sector, and the business and financial statements of each company whose shares they plan to purchase. This, along with diversification and basic portfolio theory, will assist to mitigate some of the risks associated with the volatility in both the share and the share market. A reputable online brokerage will not only provide a trading platform to place orders, but also provide additional tools to track and monitor equities, including SSFs and CFDs. The client can then access his/her portfolio, and market indices, live prices and up-to-date Stock Exchange News Service (SENS) announcements, all of which are necessary to trade profitably. Some broking firms offer more robust online research tools such as a Value or Quality filter, which help to find undervalued and profitable financial and industrial shares. Others offer company analysis, which is usually a two or three page document that covers the nature of the business, the company’s results and prospects going forward, and a fundamental recommendation. The online order book allows clients to set a price watch, and a stop loss to minimize their losses should the share not go up as predicted. Novice traders have the opportunity to test their knowledge and see how a particular trading or investment strategy would work in a risk-free, simulated trading environment. They gain the practical experience of how to trade online, and the confidence in their stock-picking abilities.

Before investors choose to invest or trade online it is important to research the online broker that they plan to use, ensuring that they are members of the JSE. Online trading has resulted in improved transparency, security and audit trails, which greatly enhance protection for both the client and brokerage firm from unlawful or incorrect trades which could affect the client’s equity portfolio or the broker’s licence. In this regard, we firmly believe the financial adviser has a responsibility towards his/her client to assist in this investigation.







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