ELEGANT © er hy (4) or(v ICWIM- LEVEL-3 International Certificate in Wealth & Investment Management Exam Preparation Materials Edition 7, December 2024 Syllabus version 7.0 and will cover exams from 2 March 2025 to 1 March 2027 Office No 620, AB Centre, Al Barsha 1, Near ibis Hotel, Sheikh Zayed Road, Dubai, UAE Email: info@[Link], [Link], Tel: 04 399 7800, Mob/WhatsApp: 054 749 5664ICWIM-LEVEL 3-COURSE DETAILS & SESSION PLANS Topics Covered [The Purpose and Str of the [Link] Sector industry Regulation Incial Services Regulation Financial Crime Ethical Standards jAsset Classes and Fin. Mkis Cash Deposits and Money Markets | FX Market Commodities Digital Assets JOperations investment Funds JOther Investment Vehicles [Economics and Inv. Analysis Macroeconomic Theory ICentral Banks Microeconomic Theory Statistics Financial Mathematics Fundamental and Technical Analysis Investment Management Portfolio Construction Theories, Investment Strategies The Role of Asset Classes and Funds in PF Risk and Return Performance Measurement Advising Clients, Risk Profile Investment Objectives and Strategy Investment Recommendations Review Wealth Management Charges Taxation [Retirement Planning Protection Planning [Estate Planning, Trusts and Foundations [Total Sessions Hours each Session Total Hours of Training IMock tests at the end of each chapter-online google form |Over all Mock tests-online google formICWIM-Chapter 1 The Financial Services Sector “» The Purpose and Structure of the Financial services This syllabus area will provide approximately [fof the 100 examination questions. This chapter covers: CORE function/roles of the financial services industry in the economy: Main Institutions and Organisations/participants in Financial Services Sector: Wealth Management Financial planning is different from financial advice Financial Planning in Six Steps Wealth Management Providers Discretionary and non-discretionary portfolio management Page Lof 11The Purpose and Structure of the Financial Services Industry 4.1.1 Financial Services: are the economic services provided by the finance industry, which encompasses a broad range of businesses that manage money, including credit unions, banks, credit- card companies, insurance companies, accountancy companies, consumer-finance companies, stock brokerages, investment funds, individual managers and some government-sponsored enterprises. According to statistics from the Bank for International Settlements (BIS), daily turnover on the foreign ‘exchange (FX) market can be in excess of USS6 trillion, while the total value of shares quoted on the world’s stock exchanges exceeded US$109 trillion as at the end of 2020 according to the World Federation of Exchanges ‘The 3 CORE function/roles of the financial services industry in the economy: 4. Investment chain/management, 2. Managing Risks, 3. Payment systems. But competition is not a core function. Managing Risks-by derivatives, Insurance Managing payment systems - by SWIFT SWIFT (Society for Worldwide Interbank Financial Telecommunications) ‘SWIFT is a communications platform that enables its members to exchange financial information securely and reliably and, in so doing, standardise international financial transactions. Role of the Financial Services Sector in Economic Growth: «Improve the efficiency of financing decisions. * Better allocation of resources and © There by economic growth. For the effective running and development of a healthy economy and functioning of financial system, we need: Y Credit provision. Liquidity provision Risk management. Marketplace for both buyers and sellers of finance and financial securities. Efficient flow of savings and investment Facilitate the accumulation of capital and the production of goods and services. SAN 8 Page 2 of 11,1.2 Main Institutions and Organisations in Financial Services Sector: Banks (Retail & Commercial) Savings Institutions Finance Companies Investment banks (also called Merchant Bank) Private Banking Pension funds Insurance Companies Fund managers. Stockbrokers Wealth managers Custodians Global custodians Financial Services Sector engaged in Wholesale and retail financial m: Wholesale Markets Wholesale finanei Companies, Governments Domestic and international trade sector includ International banking Equity markets Bond markets Foreign exchange Derivatives — the trading of options, swaps, futures and forwards. Fund management. Insurance Investment banking jarkets focus on personal custom Retail banking Insurance Pensions Investment service: Execution-only stockbroking « Wealth management services and « Private banking. + Financial planning and financial advice * Client's financial future, taking into account mortgages, debts, insurance and pensions. 1.2.1 Banks and Savings Institutions * Retail and Commercial Banks ‘* Savings Institutions © Finance Companies © Others newly developed, like Challenger banks, P2P and Shadow Banking Retail and Commercial Banks Accept deposits and make loans. Operate through a network of branches. Page 3 of 11Provide internet and telephone banking, Asset management, pensions and insurance, and Execution-only and other broking services. Savings Institutions/Mutual Societies Jointly owned by individuals, called members They pool their deposits and lend to the needing members. Savings products to retail customers. Also offer range of services similar to those offered by banks. When the savings institutions: transform themselves into banks that are quoted on stock exchanges and where the members become the shareholders — a process known as ‘demutualisation’ Pres nes cy Credit unions in North Am rs ance Companies ¢ Provide loans to individuals to finance the purchase of items such as cars etc. © Other services such as factoring. * Cannot accept deposits-this what makes them different from banks. + Raise funds from shareholders, banks and the capital markets. Factoring-selling its accounts receivables (ie, its unpaid invoices) to the finance company at a discount. Challenger banks: 4 Small to a medium sized, recently created retail banks in the UK. + Compete directly with the longer-established banks and savings institutions. 4 Specialising in areas underserved by the big banks. ‘They are seen as quicker (nimble), with fewer products. + ° * Not encumbered by legacy issues They are more online, no heavy infrastructure. Use digital platforms with a focus on mobile banking. Some names of challenger banks in UK-Yolt, N26, Revolt, Starling Bank The challenger banks are not only in UK they are also worldwide. Peer-to-Peer (P2P) lending/Social lending = Online platform, P2P does not lend, they connect borrows and lenders, make profit via a fee = The borrowers and investors are listed/reaistered. = Borrowers get slightly lower rates, savers get far improved headline rates = Interest rates are calculated by an automated credit appraisal system Page 4 of 11* Then, the applicant is assigned with the appropriate interest rate, based on appraisal. * Borrowers and the investors will sign a loan agreement, * Borrower provides Post-Dated Cheques towards security and repayment of the first EMI * Both disbursals and loan repayment are done through an 6SGrOw @6sount, = The lender has to pre-fund his Escrow account with the amount he wishes to invest. ‘Some of the popular peer-to-peer lending online platform/websites [Link], Funding [Link], [Link], Zopa Bespoke service = Wealth management, - Estate planning, - Tax planning, - Insurance, - Lending and lines of credit Shadow banking Provide services again similar to the banks, but outside the baking regulations. Borrow not only from ultimate creditors (households), but also from each other. Do not accept deposits, often based in tax havens. They pose risks to the financial system; hence regulators are taking actions against them. They range from: Pawn broker and finance companies to money market funds and specialized investment vehicles. A pawnbroker An individual or business (pawnshop or pawn shop) Offers secured loans to people, with items of personal property used as collateral A pawn is another term for a collateral loan. tax haven is defined as a country or place with very low "effective" rates of taxation for foreign investors. ‘Some of the most common factors to identify tax haven are given below: ‘* No or nominal tax on relevant income ‘* Lack of effective exchange of information ‘© Lack of transparency ‘+ No substantial activities ‘Some names of Tax haven in the world Bermuda, Netherlands, Luxembourg, Cayman Island, Singapore, Isle of Man, Mauritius, ‘Switzerland 1.2.2 Investment Banks (different from deposit-taking commercial banks) What services they provide? Finance raising, and advisory work, new issues, takeovers, M&A. + Treasury dealing, Investment management, Securities-trading, Provide advice to and arrange finance for companies who want to float on stock market. + Banking for governments, institutions and companies. & They can be either a division of the bank or a separate company within a group: What is prohibited for Investment Banks? Proprietary trading, servicing hedge funds and or making private equity funds. Proprietary trading- when a trader trades stocks, bonds, currencies, commodities, their derivatives, or other financial instruments with the firm's own money, Page 5 of 111.2.3 Pension Funds Pension funds receive contributions from, or on behalf of, employees and then provide an income on retirement. Pension funds are large, long-term investors in shares, bonds and cash. Some also invest in physical assets such as property. Given their aim of providing a pension on retirement, the sums of money invested in pensions are substantial. 1.2.4 Fund Managers * Fund managers / asseVinvestment managers manage portfolios for different types of clients. Different types of Fund managers can be: 1) Institutional Fund Managers, 2) Retail Fund Managers, 3) Private Client Fund Managers ‘© Their clients can be- pension funds, insurance companies, high net worth individuals and others, * May be independent companies or divisions of larger entities such as insurance companies/banks. ‘* The fund management is also called asset management. Three main types of fund managers. Institutional Fund Managers Manage institutions (like insurance company’s fund, pension company’s funds. Mutual Fund Managers These fund managers operate mutual funds that are available to the general public to invest in, often with relatively low initial invest ment amounts. Mutual funds are known by various names in different countries including unit trusts and open-ended investment companies (OEICs) in the UK, and société d'investissement & capital variable (SICAV) in Europe. A more general term for mutual funds is collective investment schemes (CISs). Institutional Investors Institutional investors are the big quys on the block—the elephants. They are the pension funds, mutual funds, money managers, insurance companies, investment banks, commercial trusts, endowment funds, hedge funds, and also some private equity investors An institutional investor is a person ororganization that trades securities in large enough quantities that it qualifies for preferential treatment and lower fees. A retail investor is a non-professional investor who buys and sells securities through brokerage firms. 4.2.5 Custodians/Custodian Bank + Holding assets in safekeeping, such as equities and bonds. + Arranging settlement + Asset servicing - Collection of dividends and interest payments + Providing information on the underlying companies. + Managing cashtransactions. «Trade comparison and matching-but not with the counter party + Performing foreign exchange transactions + Providing regular reporting on the performance of the portfolios «+ Stock lending and borrowing They do not do = Trading, Advising, Investing Custodians can operate either domestically, regionally or globally: Page 6 of 11Global custodians, such as Bank of New York Mellon (BNY) and State Street, provide custody services in most markets by either having a branch in the market or using a local agent. A regional custodian provides specialist services across a region, as the global custodian HSBC Securities Services does, for example, in Asia and the Middle East. Local custodians focus on providing custody services within a specific market or country, offering expertise and support tailored to local regulatory requirements and market practices ‘Some Custodians licensed at the Dubai Financial Market (DFM): Citi Bank, Deutsche Bank, FAB, Standard Chartered Bank etc Insurance Companies * Receive premiums. + Pay-out on pre-determined event Life assurance General insurance ‘Structured products/guaranteed stock market-related bonds Re-insurance 1.3 Wealth Management Wealth management delivers a le range financial affairs and assets effectively: * Provision of financial services that have the goal of preserving and enhancing clients’ wealth. Financial Planning «Tailored banking products © Investment management Trusts and estate management «Asset protection & estate planning «Tax planning ‘* Secured lending against investment portfolios to allow them to be leveraged. Investment products in areas such as foreign exchange, structured investments, property and alternative investments 2 in li fi = + Mass affluent — investable assets over US$100,000. + High net worth individuals (HNWIs) — investable assets of over US$1 million. + Very high net worth individuals (VHNWIs)- investable assets of over US$5 million. + Ultra-high net worth individuals (UHNWIs) — investable assets of over US$30 million. ‘The 2020 World Wealth Report published by Capgemini estimated that the value of assets managed on behalf of HNWIs exceeded USD 86.8 trillion. HNWI wealth remains on course to reach US$100 trillion by 2025. 1.3.4 Financial planning is different from financial advice. Financial Planning (by the financial planner: It is an ongoing process, evolving plan of action. Helps make sensible decisions about money that can achieve goals. It is not just about buying products. Page 7 of 11Financial Planning may include: Selection of investments Investment management Protection products Estate planning Putting appropriate wills in place Planning how family will manage when you fall il or die immaturely. Spending money differently So, move in a sequential manner. Set your goals. Set the term, short, medium or long-term Set priorities considering the likely cost nancial advice It is a one-off recommendation at a single point in time. A financial plan may be very simple or very complex. Financial Planning in Six Steps followed by ti nancial Planning Standard Board) 1. Establish Client Relationship Collect clients’ information. Analyze clients’ financial status. Develop solutions. Implement Review of clients’ situation ECADIR-remember the sequence. PAREN What is The Financial Planning Standards Board (FPSB)? A non-profit organization that manages, develops and operates certification, education and related programs for financial planning organizations. Its professional qualification — Certified Financial Planner (CFP) —is used globally, including by the CISI. 4.3.2 Wealth Management Providers Financial Advisors Commercial Banks Wealth Managers Private Banking Family Offices Private Investment Offices Ares a Wealth Manager may get involved Financial planning, tax planning, investment management, asset protection and estate planning. So, financial planning is a part of wealth management services. See eee inancial Advisers Provides financial planning service. Look at a client's entire financial affairs from budgeting, savings, investments, mortgages to tax planning, When providing financial advice, a financial advisory firm may offer: Independent advice where they select products and solutions from the best available in the mkt, or Restricted advice, restricted to the products of one or just a few product providers. Page 8 of 11Typically, they do not manage investment portfolios for clients and instead select a discretionary fund manager or a series of mutual funds to meet their clients’ needs. Increased competition, cost pressures and the need to improve service offerings have, however, seen many financial advisory firms change their business model to operate more like a typical wealth manager and manage a client's assets themselves or using an investment platform. Commercial Banks ‘Commercial banks often offer wealth management services similar to financial advisers for mass market customers. They will often cover the same range of services and may be either independent advisers or be restricted in the advice they offer. Wealth Managers Apart from commercial banks, other firms stockbrokers and fund managers. A stockbroker, apart from providing execution services (buys and sells securities on a stock exchange for its clients), they also manage investment portfolios for clients Wealth managers manage portfolios on behalf of clients on either a discretionary or an advisory basis. Discretionary asset managers make investment decisions on behalf of their clients without needing prior approval for each transaction. Advisory managers provide recommendations but leave the final decision to the client Private Banking Focused on the wealthier end of the market and restricted their services to the wealthy or very wealthy Wealth advice and management to HNWIs This kind of service is usually offered to HNWIs on an individual, bespoke basis Estate planning, tax planning, insurance, lending and lines of credit. Private banking is offered both by domestic banks and by those operating offshore. Off-shore banking means banking in a different jurisdiction from the client's home country — usually one with a favorable tax regime. Eamily Offices: + Asingle-family office + Amutti-family office A single-family office: Acts as an advisory and wealth manager to a single ultrahigh net worth family A multi-family office: Acts as an advisory and wealth manager to multiple families and has become more popular recently as it allows for the cost sharing of investment and consulting expenses. A multi-family office will offer a range of services beyond investment advice and management, like: Philanthropic advice, Estate planning, Tax services, insurance, household management, private school arrangements and more. Philanthropic advisors: Are individuals or teams, hired by a donor or family to navigate how, what, and why of giving and to improve charitable outcomes. They also advise on issues such as governance and business management. Many major wealth management firms now offer a boutique service to international family offices and private investment offices. Private Investment Offices Page 9 of 11Independent firms, usually structured as a partnership, where partners invest their money alongside clients. Like multi-family offices, they tend to focus on the upper end of the wealth scale. However, as the name suggests, they deal solely with the investment affairs of clients. Manages the risks, conducts due diligence, prevents frauds, and monitors asset allocation. It seeks long-term investment results for the families and its individual members. Again, they tend to remain independent as they seek best-of-breed solutions for a client. 4.3.3 Portfolio Management (Investment Management). Portfolio management-management of an investment portfolio on behalf of a private client or institution with a primary focus on meeting their investment objectives. Portfolio Management (Investment Management) can be conducted on the following bases: 4-Discretionary basis: The manager makes investment decisions within the parameters agreed with the client 2-Non-discretionary or Advisory basis: Recommends to the client on investment strategy and changes, but the client decides, Client leads investment management. Client relies on the investment firm for: a) Investment advice, b) Execution and c) settlement. The advisory services again can be of two types. Dealing with advice — the firm advises on individual transactions, but does not have responsibility for the overall account or portfolio of the client. Advisory portfolio management ~ the firm acts as the investment manager for the client and accepts responsibility on 2 continuing basis for advising on the composition of the account or portfolio. This is more simitar to discretionary management. 3-Execution-only basis The firm does not give advice to the client about the suitability of the course of action or product, ‘simply carries out the transaction on the instructions of the customer. For discretionary and advisory management, the portfolio manager usually has the choice of investing directly in a range of asset classes and/or indirectly via collective investment funds. This is a simplified explanation, though ~ the provision of a wealth management service would include understanding what the client requires, fact-finding information, an understanding of the client's risk tolerance and expected returns to meet certain goals or future events, and taking account of their investment timeline/horizon. 1.3.4 Platforms/investment Platform vices used by intermediaries, to view and administer clients’ investment porttolios. They offer a range of tools which allow advisers to see and analyse a client's overall portfolio and to choose products for them. Provide facilities for investments to be bought and sold, online. Arrange (not provide) custody for clients’ assets. Charging for their services Page 10 of 11Fund platform or Investment platform is an online service that allows investments to be bought online, such platforms usually simplify the process of investing in investment funds and may provide them at a discounted rate. They do not provide any advice. 1.3.5 Wealth Management and Technology ‘© Communications Online Solutions Robo-Advice Communications Latest Apps including Digital purchase and sale Online Solutions The rise of digital wealth management has led clients to take their experience online, creating multiple contact points needing streamlining. The coronavirus (COVID-19) pandemic has resulted in an acceleration of this trend. In-person interactions and consistency remain crucial, as few are comfortable with a fully digital model. This calls for improved connectivity between the client and their adviser across all contact points. ‘Additionally, with the interaction between clients and wealth managers moving from voice conversations to messenger-based communications, this will require an unanticipated level of compliance to monitor all interactions between advisers and clients Robo-advice ‘An online wealth management service that provides automated, algorithm-based portfolio management advice without the use of human financial planners. Charges a monthly or annual fee based on the size of the portfolio (amount of assets under management). ‘They provide digital financial advice based on mathematical rules or algorithms. Rol idvisors le for 1 of investors: Beginners, who do not yet have the financial knowledge to make informed investment decisions. Professionals, who may not have the time to actively manage their own portfolio. Those who do not wish to hire a financial adviser, but at the same time have little desire in selecting their own investments This automated portfolio management solutions not ideal for investors who prefer human assistance or need a more tailored approach, as well as those with multiple investment accounts. Robo-advisors Must be registered with the appropriate financial regulatory authorities ‘Subject to the same rules and regulations as human advisers. End of the Chapter 1 Page 11 of 11