Money: Cold calls can get you into hot water

If you ever get a cold call from so-called "investment expert" offering a share tip, be very wary. How does he or she know what your investment goals are?

Professional stockbrokers only make recommendations after they have a clear picture of their clients' attitude to risk and their long-term investment aims.

"Before I can give advice it's important that I understand a client's overall financial circumstances," says Chris Ring, head of stockbroking at NatWest Stockbrokers. "Then I need to understand what that client's objectives are. The important thing when you're offering a personal service is to assess the personal circumstances, attitudes and objectives of your client, for example their personal preferences, such as if they don't want to invest in tobacco shares."

Most private client stockbrokers agree. Understanding the client is the key to building the right investment portfolio. In general terms, however, there are usually two key factors that drive the investment criteria decision: the age of the client and attitude to risk.

"In broad terms, clients fall into three categories. There are those requiring income, those wanting growth, and those wanting a balance of the two," says Michael MacDougall, head of private clients at Waters Lunniss, a firm of brokers. "Within that we have sorted the risk of different investment into low, medium or high. Most investments fall into low or medium."

Low-risk, says Mr MacDougall, includes gilts, good quality rated bonds and shares in the FT-SE 100 index. Medium risk includes other bonds and the share profile stretches to include stocks of companies in the FT-SE 250 index. High risk means: "In consultation with the client, anything goes," he says. "We keep a current list of stocks we like, tailoring the choice of particular shares to a client's individual requirement."

Whether you are seeking income or growth is likely to be influenced by your age, according to Matthew Orr, partner at Killik & Co, a firm of brokers in London. "In general, younger clients don't need to worry about [investment] income and so can take a higher risk," he says. "As they move towards middle age and retirement looms on the horizon, they become more of a medium risk person. When they near retirement age they want a blue chip investment and, later in life, they look for out-and-out income. We really want to know from clients whether they fit into that standard model."

"The stock market has a spectrum of risk," Mr Orr continued. "At one extreme there are index-linked gilts offering a large degree of safety, while at the other end there are tiny companies making no money now but with the potential to grow in the future. Depending on where you are in your life cycle, will decide the sort of risk you can take."

On that basis he suggests younger investors, a 30-year-old say, might be looking at the potential offered by technology stocks, or going for emerging markets, where the long-term trends remain potentially quite rewarding, but are clearly very high risk, witness the current market shake-out. By the time they reach 45 to 50, they need to start protecting capital. Then they are likely to want to move their investments into blue chips and quality names.

"When you retire, you're likely to want to move your portfolio into safer investments, such as gilt edged stock, as income will become an important element in the decision making. When you get into your 70s, you will be seeking to maximise the highest level of income that you can," says Mr Orr. One of the major determinants in constructing a portfolio for an investor is also the amount of cash available for investment, according to Stephen Vakil, director of Quilter & Co, a firm of brokers. "A stock market portfolio should represent only part of an investor's overall wealth, which would normally include property, pension provision, perhaps National Savings, and cash."

Arts & Entertainment
tvGrace Dent on TV
Voices
Actor Zac Efron
voicesTopless men? It's as bad as Page 3, says Howard Jacobson
Sport
Emmanuel Adebayor, Tim Sherwood and Hugo Rodellega
sportThe latest news and scores
News
Brand said he
people
VIDEO
Have you tried new the Independent Digital Edition iPad app?
Voices
For the Love of God (2007) The diamond-encrusted skull that divided the art world failed to sell for
its $100m asking price. It was eventually bought by a consortium
which included the artist himself.
voicesYou can shove it, Mr Webb – I'll be having fun until the day I die, says Janet Street-Porter
Sport
Mercedes driver Lewis Hamilton of Britain drives in the rain during the qualifying session of the Chinese Formula One Grand Prix in Shanghai
sport
Extras
indybestFake it with 10 best self-tanners
Arts & Entertainment
Madonna in her music video for 'Like A Virgin'
music... and other misheard song lyrics
News
Much of the colleges’ land is off-limits to locals in Cambridge, with tight security
educationAnd has the Cambridge I knew turned its back on me?
Sport
Steven Gerrard had to be talked into adopting a deeper role by his manager, Brendan Rodgers
sportThe city’s fight for justice after Hillsborough is embodied in Steven Gerrard, who's poised to lead his club to a remarkable triumph
News
peopleOrlando Bloom the pin-up hero is making a fresh start
News
Who makes you happy?
happy listSend your nominations now for the Independent on Sunday Happy List
Life & Style
The North Korean TV advert for Taedonggang beer, that became a YouTube hit
food + drinkAnd what did it take to set up a taste test back in Wiltshire?
Arts & Entertainment
filmLife for Leslie Mann's can be challenging sometimes
Voices
For music lovers: John Cusack with his vinyl collection in 'High Fidelity'
voices...but don't forget rest of the year
News
The energy drink MosKa was banned for containing a heavy dose of the popular erectile dysfunction Levitra
news
Finacial products from our partners
Property search
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    1st Line Helpdesk Engineer Apprentice

    £150.00 per week: QA Apprenticeships: This company has been providing on site ...

    Telesales & Sales Support Apprentice

    £221.25 per week: QA Apprenticeships: This company is a well established Inter...

    Client Relationship Manager - SQL, Python

    £40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

    **Financial Services Tax**

    £35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

    Day In a Page

    How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

    How I brokered a peace deal with Robert Mugabe

    Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
    Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

    British Muslims's Happy video attacked as 'sinful'

    The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
    Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

    Michael Williams: Do as I do, not as I pray

    Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
    A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

    A History of the First World War in 100 moments

    A visit to the Front Line by the Prime Minister's wife
    Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

    Jenny Collier: 'Sexism on stand-up circuit should be extinct'

    The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
    Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

    Cannes Film Festival

    Ken Loach and Mike Leigh to fight it out for the Palme d'Or
    The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

    The concept album makes surprise top ten return

    Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
    Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

    Lichen is surprise new ingredient on fine-dining menus

    Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
    10 best baking books

    10 best baking books

    Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
    Jury still out on Manchester City boss Manuel Pellegrini

    Jury still out on Pellegrini

    Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
    Ben Stokes: 'Punching lockers isn't way forward'

    Ben Stokes: 'Punching lockers isn't way forward'

    The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
    Mark Johnston: First £1 million jackpot spurs him on

    Mark Johnston: First £1 million jackpot spurs him on

    The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
    Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

    Ricky Gervais: 'People are waiting for me to fail'

    As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
    Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

    Mad Men returns for a final fling

    The suits are still sharp, but Don Draper has lost his edge
    Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

    Google finds a lift into space will never get off the ground

    Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit