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March 2021

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Making the Right Choice

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Click here for the introduction to our “Investing in the Post-Covid Era” series of materials.

Choosing the right investment advisor is crucial. ChapmanCraig offers some advice

Once you have established your investment goals, you will find it much easier to choose the investment professional best suited to meet your objectives. It is not relevant whether it is local or foreign, as long as your needs are met with the quality of service you wish.  However, given the variety of investment advisors and products available, how does one choose?

Types of Financial Advisors

Banks

Choosing the right investment advisor is crucial. ChapmanCraig offers some advice

Once you have established your investment goals, you will find it much easier to choose the investment professional best suited to meet your objectives. It is not relevant whether it is local or foreign, as long as your needs are met with the quality of service you wish.  However, given the variety of investment advisors and products available, how does one choose?

Brokers

Brokers advise and make investment recommendations.  Upon your consent, they execute transactions on your behalf.  It is a shared responsibility; they do not manage your assets.  Generally, brokers or investment banks with private client departments charge commissions on transactions or ‘spreads’ on over-the-counter transactions.  Working with a broker is best for people who have the time, the interest and the knowledge to trade themselves.   Brokerage fees are set by exchanges in some cases and deregulated in others.   Your broker should be able to tell you the relevant commission rates.

Mutual Funds

These funds offer investors the advantage of diversification and professional management.  A mutual fund is operated by an investment company or a bank.  It raises money from shareholders or unit-holders and invests it in stocks, bonds, options, commodities, money-market securities and various other assets.

There are ‘open-end” and ‘closed-end’ funds.  ‘Open-end’ funds are the most common.  Open-end unit-holders buy the shares at net asset value and can redeem them at pre-determined times, usually daily, at the prevailing market price.  ‘Closed -end’ funds issue a limited number of shares, which are then traded on a stock exchange.

Mutual funds may be a good place to start investment programs because they require lower minimum investments (HK$10,000-80,000).  However, they can be extremely costly when associated fees are considered.

Discretionary Investment Management

Here, an investor determines the investment objectives under which the account will operate and an investment manager is given the authority to develop and implement the investment strategy in order to reach those objectives.  This category provides diversification and professional management like mutual funds, but it is more tailor-made to each individual’s objectives.

Fees for discretionary managers are lower than those for most mutual funds.  They generally charge an annual management fee with the rate decreasing as assets increase and sometimes a performance fee.  Unlike mutual funds, the investor actually owns the securities in their investment portfolio and they can be sold at any time.  The minimum investment in this category ranges from HK $2-10 million.

Hedge Fund and Commodity-trading Advisors

Here, an investor determines the investment objectives under which the account will operate and an investment manager is given the authority to develop and implement the investment strategy in order to reach those objectives.  This category provides diversification and professional management like mutual funds, but it is more tailor-made to each individual’s objectives.

Fees for discretionary managers are lower than those for most mutual funds.  They generally charge an annual management fee with the rate decreasing as assets increase and sometimes a performance fee.  Unlike mutual funds, the investor actually owns the securities in their investment portfolio and they can be sold at any time.  The minimum investment in this category ranges from HK $2-10 million.

 

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