Category Archives: Investments

Legal Entity Identifiers – Why, What, When and How Much?

Legal Entity Identifier or LEI were introduced following the global financial crisis in 2008 so that all participants in the financial system would be identifiable to facilitate monitoring of worldwide financial transactions. A LEI is a unique 20-digit alphanumeric code which is specific to legal entities including investment firms, corporations, charities and Trusts.

Effective 3 January 2018, legal entities will be required to hold a LEI if transacting reportable instruments. Reportable instruments include:

  • Shares
  • Exchange Traded Funds – ETFs
  • Venture Capital Trusts – VCTs
  • Warrants
  • Gilts
  • Corporate Bonds
  • Structured Products

Bare Trusts are currently exempt from acquiring a LEI.

Natural persons are not required to hold a LEI although may be asked by Platform Providers to provide National Insurance, Passport Numbers and details of nationality (or dual nationality) to transact investments if the information has not been recorded.

LEIs must be obtained via an LEI issuer that has been accredited by the Global Legal Entity Identifier Foundation (GLEIF) or an entity endorsed by the LEI Regulatory Oversight Committee (LEI ROC). In the UK the designated LEI issuer is the London Stock Exchange (LSE)

The legal entity will provide to the designated LEI issuer the following information: Official name of the legal entity, Country of formation, legal form of the entity, current registered address and reference number of the legal entity e.g. company registration number. Supporting documentation may be submitted, including Articles of Incorporation, Trust Deed etc.

Registration does not come free of charge. The initial cost per LEI is £115 + VAT with annual renewal fees of £70 + VAT. Fee savings can be made if you batch requests (10) however this generally only reduces the initial fee by £25 per request.

It is anticipated that the expected volume of LEI requests during January 2018 could slow down the issue of LEI codes. Therefore we recommend that any affected legal entities register for a LEI code without delay.

In summary, act now and consider if you need to obtain a LEI code for your clients otherwise after 3 January 2018 you will not be able to buy or sell shares or ETFs.

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How Biases Affect Investor Behaviour

In February, we held a masterclass for professional contacts on the topic of risk. One of the areas we looked at during the CPD session was attitude to risk when investing; in particular, the different effects our existing biases can have on the way we approach financial planning decisions.

Behavioural finance is a rapidly growing area of interest within financial services. The simple fact is that investors do not always operate in a rational or logical manner and are very easily swayed by biases. Depending on the significance of the decision, biases can, and do, have a direct impact on the performance of an investor’s portfolio.

Generally speaking, there are two types of biases that affect our financial decision making process. These are:

  • Cognitive biases – Biases based on errors of perception, memory, judgment or reasoning.
  • Emotional biases – The tendency to believe things that give us a good feeling and disbelieve things that make us feel uncomfortable.

Here we look at some of the most common biases people hold and how these manifest themselves in financial decision making.

Confirmation bias

This is the tendency to interpret new evidence as confirmation of one’s existing beliefs or theories. Think about the last car you bought. After you initially made the decision which make and model you were interested in, did you suddenly start to notice that car every time you drove past it? This is confirmation bias in action. If we already have a certain view about a particular type of investment, any information we are presented with will work to confirm our decision in this regard.

Framing bias

Framing bias refers to how people react to a particular choice depending on how it is presented. Framing bias is exploited frequently as a marketing tool; with prices presented in a certain way to make us feel we are getting a good deal, or else encouraging us to spend more than we originally intended. The FCA conducted an interesting piece of research on framing in relation to retirement planning options. One finding from the paper was that potential losses appear more important than the potential gains to the retiree; in this particular scenario impacting on their choice of whether to take an annuity or access flexibly via drawdown. This is a finding that has been mirrored by other research into framing bias in investor behaviour.

Loss aversion

Loss aversion is linked very closely with framing bias and centres around our tendency to strongly prefer avoiding losses than acquiring gains. Some studies have suggested that losses are twice as powerful, psychologically, as gains. This is clearly an important bias in relation to investment behaviour as investing in stocks and shares always carries a risk of loss. Although the gains can be significant, some investors with a particularly strong bias for loss aversion will automatically lean towards a cautious portfolio. Establishing attitude to risk is one of the first steps we take when meeting with a potential client so that the portfolio suggestions we make are tailored correctly.


Overconfidence is a person’s tendency to overestimate their skills and abilities or predictions for success.

In investing, overconfidence can lead to rash decision making – such as selling stocks at the incorrect time, or favouring one particular asset type over another resulting in a poorly balanced portfolio.


Investing is more than just analysing numbers and making decisions to buy and sell. A large part of investing involves individual behaviour, preferences and emotions.

As financial advisers, it is our role to make recommendations for clients based on their personal circumstances and what they are aiming to achieve via their financial planning. Ultimately however, any investment decision must be made by the client, thus leaving the opportunity for investment biases to rear their head in place of rationality or good judgment.

Having an awareness of one’s own biases can help to reduce the extent of the impact expressed.  However, a bias is not always something we are aware about; it’s often an inherent inclination or prejudice existing in our subconscious.

As an evolving area, the advisers at Gresham will be keeping an eye on the research surrounding behavioural finance and how we can help steer clients in the right direction when making investment decisions.

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Ethical Investing – What do you Need to Know?

With issues such as global warming, recycling, the environment and cancer affecting so many of us in our everyday lives, the ethical and public health agenda is now far beyond being the domain of a small minority of ‘activists’, having become virtually mainstream in today’s society.

The proliferation of information surrounding these issues online and via social media has further brought them to the fore and as a result, there’s now a growing swathe of conscious consumers out there who actively seek out ways to make positive decisions about what to buy and where to buy it from.

In line with this, the financial advisers here at Gresham have certainly seen an upturn in the number of clients requesting a more ethical approach to their investments over the past couple of years.

Ethical investing is an investment strategy which seeks to consider both financial return and social good to bring about a social change. Specifically, it is a method of investing that considers the social impact on people and the sustainability of the environment and will discount stocks from industries such as alcohol, tobacco and oil production, animal testing and armament firms.

But is there a conflict between ethical investing and achieving healthy investment returns from your portfolio? Or does ethical investing just require a bit more thought and planning? Here we discuss some of the factors you need to consider in relation to ethical investments.

Choice of funds

One of the main things to consider in relation to ethical investments is the reduced choice of funds that will be available for investing into. Some ethical or ‘green’ funds take a very restrictive approach to investing and as such, clients going down this route may lose out on the gains seen in some potentially lucrative markets. For example, by choosing not invest in tobacco company stocks, which have shown strong investment returns over the last 12 months, it may be that your portfolio produces lower returns, compared to a portfolio that did. Whilst this may be a moral standpoint that you are happy to take any potential hit on, it is important to be aware of this from the outset so you can weigh up the strength of your feelings against your desire to see the best possible returns on your investment portfolio.

Exposure to market volatility

Whilst ethical investing does reduce the variety of funds available for investment, this doesn’t inherently mean that the outcome will be any less favourable. In fact, due to the volatility in the oil market over the past 18 months, some ‘ethical’ funds have actually outperformed other indices. For example, based on investment performance over the past 3 years, a typical ethical fund had returned circa 32%-35%, compared with 28% for the FTSE All-Share index and 24% for the AFI Balanced index, which is based on financial adviser fund recommendations. (NB These figures refer to the past and that past performance is not a reliable indicator of future results).

Are all ethical funds truly ethical?

One of the trickier aspects of planning an ethical investment portfolio is performing due diligence on the underlying companies held within a fund. Certain funds are ‘greener’ than others and even some financial institutions that you hold ISAs or bank accounts with, along with pension companies or even your workplace pension provider, could in fact be investing money into areas you would rather not support. Although controlling who you give your money to directly is easy to manage, matters become much harder when your money is put into the hands of third parties.Even so-called ‘ethical’ providers may not be as ethical as you might expect and there have been some instances brought to light in which customers are failing to get the green/responsible investment they thought they’d signed up for.

Short of spending hours of your time researching and contacting all of the financial institutions you are involved with, and thereafter moving your funds to those with a more favourable approach, there isn’t an easy way to address this. The financial advisers and technical research team at Gresham Wealth Management have a great deal of knowledge and insight into the ethical stance of funds and can therefore ensure that clients’ wishes in relation to ethical preferences are followed.

With a growing number of people taking a stance on environmental and other issues of public concern, it seems that ethical investing is only set to develop as a way of approaching stocks and shares investments.  Gresham Wealth Management have an ethical investing questionnaire that seeks to ascertain a client’s preferences in relation to investing, and in particular, the strength of their ethical stance on a number of key issues of concern.

For further advice or assistance in relation to ethical investing, Gresham Wealth Management’s team of IFA’s will be happy to assist. Contact us here.


NB The value of your investments can go down as well as up, so you could get back less than you invested.



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Financial Planning – Understanding Risk and Reward

When we first meet with a prospective client it is important to gain a complete understanding of their financial goals and what they hope to achieve through financial planning.  As part of this process, we will need to discuss a wide range of subjects with an individual/couple, covering their income requirements, what other objectives they may have and the extent to which they want to provide for other family members both during their lifetime and beyond.

One of the key aspects of financial planning is determining a client’s Attitude to Risk and Capacity for Loss. Attitude to risk is defined as a client’s willingness to tolerate swings in the value of their investments for the prospect of increased returns. Capacity for Loss indicates a client’s ability to absorb short term losses for the prospect of increased returns. Capacity for Loss is closely linked to a client’s ability to earn income and their overall asset position.

Whilst we would all like to greatly increase the value of our wealth with little or no risk, this isn’t a realistic possibility. When it comes to investments there will always be a level of risk involved – even in everyday savings vehicles such as pensions or ISAs.

Overall risk increases as you begin to look at stocks and shares investments. Here are four considerations that should be made in relation to risk when putting together an investment/wealth management plan.

Short vs long term approach

The stock market is an extremely volatile environment and the value of stocks and shares can increase or decrease dramatically overnight depending on an almost endless number of events and scenarios. Timing markets over a short period of time is very difficult and extremely risky.  A long term approach is preferable as over time the stock market tends to reflect the overall growth and productivity of the economy. Taking a long term approach to investing in the stock market is therefore something we would recommend to all clients – no matter their attitude towards risk.

Finding the balance

Part of the role of a financial adviser is to build an understanding of a client’s Attitude to Risk & Capacity for Loss such that they can create a portfolio that effectively balances the amount of risk the client is willing and able to take with their return aspirations. In general terms, there are four main investment asset types – cash, bonds, property and stocks and shares. Any investment portfolio will consist of a range of investments across some or all of these asset types.

Investors with an Adventurous Risk Profile (indicating a less averse Attitude to Risk and high Capacity for Loss) will likely end up with a portfolio that is more heavily weighted in stocks and shares than in cash. For clients with a Cautious Risk Profile (indicating a lesser Attitude to Risk and lower Capacity for Loss), advisers would propose a portfolio with a much lower level of associated risk.

Each and every client will have a slightly different combination of each depending on their risk profile and the various other variables that make up their overall attitude.

Realistic expectations

Whilst most clients understand the concept of ‘the greater the risk, the greater the potential reward’, the issue comes where there is discord between perceived risk and expectations.  From the outset, the financial advisers at Gresham will present a realistic set of scenarios, each with a different level of associated risk.

Review and monitoring

Attitude to risk and Capacity for loss can change over time – sometimes due to life events or simply a change in attitude as one gets older. As such, it is important that risk is reviewed on a periodic basis to ensure that portfolios stay aligned to clients’ attitudes and situations.

For more information about our approach to dealing with new clients or to arrange an initial conversation with one of our Independent Financial Advisers to discuss your wealth management strategy, please get in touch.


NB. The value of investment can fall as well as rise. You may not get back what you invest.




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What Does the Interest Rate Cut Mean for Savings and Investments?

In a highly anticipated move, last week the Bank of England (BoE) cut the base rate by a quarter of a per cent to 0.25%. Prompted by the outcome of the EU Referendum, the latest monthly meeting of the BoE’s Monetary Policy Committee resulted in the decision to make the rate cut – the first since 2009.

Here we look at the impact the rate cut will have and the long term prospects for savers and investors.

Depending on your position, last week’s announcement will likely have been met by one of two reactions – despair if you’re a saver with a large amount of cash reserves or perhaps a glimmer of hope if you have a large mortgage to pay or are looking to invest further in property over the coming months.

The rate cut was highly anticipated; in fact some commentators had predicted that the cut would come last month, immediately after the referendum result. What is clear from the BoE’s decision is that an environment of low interest rates is here to stay for at least the mid-term, and potentially for the long term. Some analysts are predicting that rates will fall further over the coming months and could remain at or close to zero, or perhaps even into the unchartered territory of negative base level rates, for the rest of the decade.

It is expected that the rate cut will filter through to banks and we will start to see a reduction in interest rates on savings accounts. This is particularly bad news for those savers with the majority of their investable funds in cash. Even prior to the base rate cut the average interest rate for ISA savers was below 1%, representing a poor potential return in anyone’s book, but particularly if you rely on income from savings.

It is for this reason that some financial analysts are predicting an increase in the number of savers moving their funds away from the low interest rate environment of the banks into the world of stocks and shares – an area that some savers have traditionally been wary of.

Stock market returns have vastly outweighed interest rates in recent times and the base rate cut signals the continuation of this position. Although the worlds’ stock markets can fluctuate off the back of political, business and economic news, it is still possible to achieve around 3% – 4% per annum of income from investment funds in the UK. In addition to the income (which is variable and not guaranteed) you also have the potential for capital growth from the investment value itself, although this can also go up and down.

If entering into the markets for the first time, we advise investors to consider diversifying their asset allocation across a variety of different low correlated asset classes and geographical regions to help reduce the overall level of risk. The right blend of assets means that over time, the peaks and troughs of their performance should balance out and effectively smooth the investment returns over the longer term.

One of the main reasons savers avoid stocks and shares investments is the risk to their capital. The value of the investment can fluctuate on a daily basis and is not guaranteed. For this reason alone, those investors with a particularly risk averse attitude might be better placed to leave their savings in other ‘less risky’ environments, such as cash based deposits.

However, the record low level of interest rates, along with the potential for charges being levied on balances held in bank accounts, which has recently been mooted, is understandably leading to a renewed interest in alternative financial planning strategies. Any change to the way you invest your money needs to be viewed alongside your wider financial circumstances as there are numerous factors that might affect the suitability of one investment vehicle over another.

For a review of your current financial planning strategy or to speak to us about putting a revised plan in place in light of the interest rate cut, please contact us.

Gresham Wealth Management is a chartered firm of independent financial advisers. The value of investments can fall as well as rise and you may not get back what you invest.


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