All You Need To Know About Portfolio Management

All You Need To Know About Portfolio Management

Investors can contract the portfolio management of their securities with an authorized entity that provides investment services.

Through the portfolio management service, the financial institution can adopt the investment decisions it deems most convenient. For this reason, when entering into a portfolio management contract, the investor must be clear that he is delegating investment decision-making. You are entrusting the entity to select products, make investment decisions and execute operations on your own. 

Therefore, you are placing a higher degree of trust than that which characterizes the other transactions. Therefore, it is necessary for the investor to feel confident that the company understands their specific needs and circumstances in order to buy or sell the right product or products for them.

  • In this case, as in advising, the entity must ensure that the investment service it is going to provide is appropriate to the knowledge, experience, objectives and financial situation of the investor. You must take the  suitability test . If the entity does not have the necessary data to complete this test, it will not be able to provide the service even if the client requests it. Regarding the suitability test, consult the Investment Decisions section .
  • The entity that has signed the portfolio management contract must send the client periodic information on the composition and valuation of its investments, the returns and their comparison with the benchmark indicator.
  •  In any case, it must inform you on a monthly basis when the managed portfolio shows losses at the end of the month with respect to the end of the previous month and when the nature of the operations or the risk inherent in them requires, for reasons of prudence, more information to the client .
  • The portfolio management investment service carries its own commission. It is advisable that the investor inquire about it before hiring this service.
  • In addition, the financial institution will pass on other commissions and expenses associated with the operations that it has carried out on its portfolio.
  •  You must inform him about them periodically and the investor can ask for their details.

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How To Make Investment Decisions?

  • When we buy a good that is defective or does not fit our needs, we usually have the option of returning it, but things do not work the same way with financial products.
  •  It is always better to choose well from the beginning and do not rush. Undoing an investment can be complicated and expensive. Therefore, it is advisable to maintain a responsible attitude and follow the necessary steps in making investment decisions:

Define Your Investment Objectives .

  •  It is important to define the objective of your savings, which implies, among other issues, determining the term of the investment and the risk you want to assume. 
  • It is convenient to choose a product that is suitable for your investment horizon, be it short, medium or long term. On the other hand, all financial products carry a certain dose of risk (low, medium, high or very high) that you should be aware of when making the decision to invest in them.

Find An Intermediary .

  •  Only entities authorized and registered in the public registries of the CNMV can offer investment services. If you receive an offer from an intermediary that you do not know, it is advisable that you check the official records to make sure that it is an authorized entity. 
  • Alternatively, you can check if it is an entity for which there is a warning for suspecting that it offers investment services without being authorized to do so. If the entity you are looking for is not in the official CNMV registry, it is advisable to consult the Investor Service Office before operating with it.

Choose A Product .

  •  It is not advisable to invest in products that are not understood. The degree of complexity of financial products often goes hand in hand with the risk they carry. 
  • The financial institution must explain the characteristics (and risks) of the product that it offers or that you request. You must provide written information to you in advance of your investment decision so that it can be made informed.

Keep An Eye On Investments .

  • The circumstances under which a certain investment is made may change over its time horizon. It is advisable to monitor the evolution of the investment and see if the profitability is as expected or if the risks remain. Financial entities are obliged to send information periodically in order to carry out this monitoring.

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