Task 1

This Task requires you to demonstrate your knowledge of the different investment asset classes that the clients of investment advisers may be invested in, or want to invest in.  Each asset class is a group of investments with similar “characteristics”. Different asset classes respond in different ways to changes in the economic environment.

The five different asset classes are listed below:

1. Cash
2. Fixed interest – including government and non-government debt;

• Equities (shares);

1. Property investments, and
2. Alternative investments, such as derivatives, private equity, and hedge funds.

For each of the asset classes listed above, using the table below, in your own words:

1. provide a short explanation of the asset class;
2. describe four characteristics of the asset class, and

• explain how changes in the economic environment affect the performance of that asset class.

The characteristics of the asset class are:

• The benchmark and long-term expected return;
• The level of risk;
• Its liquidity (i.e. how liquid is it as an investment);
• How the return on the investment is made up of income and growth.

When describing how changes in the economic environment will affect the performance of each asset class, you must consider the impact of the following economic environmental factors

• The economic and business cycle – local and international
• Interest rates
• Exchange rates
• Inflation
• Government monetary and fiscal policy
• Regulatory and tax regimes

Task 2

A financial instrument is a monetary contract between parties that can be created, traded, modified, and settled. Common financial instruments are:

1. Direct bonds
2. Direct equities (shares)

• Managed investments, and

1. KiwiSaver

For each of these instrument types, explain in your own words using the table below:

• The fee structure – how are the fees typically calculated for the instrument
• How liquid are the instruments – could clients sell them, easily if they needed to?
• How are these instruments typically taxed – i.e. what sort of tax must they pay on the investment return, as a consequence of holding the investment, and how is it calculated?
• What the standard terms and conditions are for the instrument type? You should consider factors such as minimum investment periods and the minimum investment amount.

Task 3

Investment services can be used to help manage clients’ investment portfolios. Three investment services are:

1. Custodial (Refer to FNZ Disclosure Statement in the Resources section of your course material);
2. Wrap platforms (Refer to One Answer Portfolio Service Document in the Resources section of your course material), and

• Discretionary investment management service

For each of these services, explain in your own words using the table below:

• What the service is.
• The fee structure – how are the fees typically calculated for the service?
• How liquid are investments using the service – could clients sell them, easily if they needed to?
• How are returns generated by these services typically taxed?
• What the standard terms and conditions are for use of the investment service.