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."

PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Finacial products from our partners
Property search
Sell it with flowers: competition is 'intense' for homes with outside spaces

Gardens add a tenth to the value of your home

A London estate agent yesterday put a price on having a garden. David Pollock of Greene & Co reckons it can increase a property's value by a tenth.

Spectators at the Isle of Wight music festival watch the World Cup on the big screen. Betting promotions were a feature of the tournament
Lenders have been accused of persuading vulnerable people to borrow expensive credit

Payday loan firms accused of bombarding vulnerable people with nuisance phone calls

Payday loan firms have been accused of bombarding financially vulnerable people with nuisance phone calls, after a debt charity reported that a third of its clients were plagued by the messages.

The foundation proposed that the Government sets up a scheme to help people avoid losing their homes

Mortgages: 'Homeowners could trade down to shared ownership to defuse rate rise timebomb'

A plan to defuse a “mortgage debt timebomb” when interest rates rise is published today amid warnings that 2.3m households could struggle with their repayments.

Current accounts are too costly and confusing, says CMA as it announces investigation into Britain's biggest banks

Competition regulator to investigate market where it's hard for customers to make comparisons and the big banks' charges can be set too high
All the signs have been pointing up for buy-to-let, but there are clouds on the horizon

Buy-to-let: is it a boom or a bubble fit to burst?

People borrowing to be landlords could face the same restrictions as homebuyers, with MPs voicing fears that property speculation may be overheating the market

Moment of truth for payday lenders: Watchdog plans to curb cost of short-term loans

The chief of the City watchdog, Martin Wheatley, spoke exclusively to The Independent's Simon Read about its attempts to control the worst excesses of unscrupulous high-cost credit companies

Consumers given power to choose a green deal

How would you like to be able to choose how your electricity is made and even where it come from? It may sound futuristic and fanciful but the independent supplier Co-operative Energy has made it a reality this week.

'Scrap the trap': calls for change grow as banks are told to play fair with loyal savers

City regulator says existing customers suffer worst rates

Motor insurers divided on proposals for whiplash ban

MPs want medical evidence for claims. Will this bring higher premiums?

British Gas repays £1m for mis-sold deals

British Gas was yesterday forced to pay back £1m to its customers after mis-selling them energy deals.

Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Training/Learning and Development Coordinator -London

    £28000 - £32000 per annum: Ashdown Group: Training/Learning and Development Co...

    Training Programme Manager (Learning and Development)-London

    £28000 - £32000 per annum + benefits: Ashdown Group: Training Programme Manage...

    .NET Software Developer (.NET, C#, ASP.NET, front-end)

    £30000 - £45000 per annum: Harrington Starr: A Global Financial Service Organi...

    C# Web developer (C#,MVC,ASP.NET,SQL)

    £30000 - £40000 per annum + Bonus+Benefits+Package: Harrington Starr: C# Web d...

    Day In a Page

    A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

    A new Russian revolution

    Cracks start to appear in Putin’s Kremlin power bloc
    Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

    Apartheid’s sadistic killer that his country cannot forgive

    The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
    Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

    Standing my ground

    If sitting is bad for your health, what happens when you stay on your feet for a whole month?
    Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

    Greene prays for chance to rebuild after injury agony

    Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
    Israel-Gaza conflict: Secret report helps Israelis to hide facts

    Patrick Cockburn: Secret report helps Israel to hide facts

    The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
    The man who dared to go on holiday

    The man who dared to go on holiday

    New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
    Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

    Best comedians: How the professionals go about their funny business

    For all those wanting to know how stand-ups keep standing, here are some of the best moments
    The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

    The Guest List 2014

    Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
    Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

    Jokes on Hollywood

    With comedy film audiences shrinking, it’s time to move on
    It's the best of British art... but not all is on display

    It's the best of British art... but not all is on display

    Voted for by the British public, the artworks on Art Everywhere posters may be the only place where they can be seen
    Critic claims 'I was the inspiration for Blanche DuBois'

    Critic claims 'I was the inspiration for Blanche DuBois'

    Blanche Marvin reveals how Tennessee Williams used her name and an off-the-cuff remark to create an iconic character
    Sometimes it's hard to be a literary novelist

    Sometimes it's hard to be a literary novelist

    Websites offering your ebooks for nothing is only the latest disrespect the modern writer is subjected to, says DJ Taylor
    Edinburgh Fringe 2014: The comedy highlights, from Bridget Christie to Jack Dee

    Edinburgh Fringe 2014

    The comedy highlights, from Bridget Christie to Jack Dee
    Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

    Dame Jenny Abramsky: 'We have to rethink. If not, museums and parks will close'

    The woman stepping down as chair of the Heritage Lottery Fund is worried