Investment and securities for beginners

Many customers come to you because they want their savings to grow, not just sit on an account. Investment advice is one of the disciplines in the financial field where the rules are strictest, because the customer — unlike regular savings — can lose money. Here you get an overview of the products and the rules designed to protect the customer along the way.

• 01Stocks — an ownership stake in a company where returns depend on the company's development
• 02Bonds—a loan to a state or company, typically with lower risk and lower expected return than stocks
• 03Mutual funds and ETFs – a collective portfolio of securities that gives the customer diversification without having to choose individual stocks
• 04Structured products — more complex products composed of several elements, which require extra thorough explanation

Investment advice is regulated by MiFID II rules, which the Financial Supervisory Authority oversees. The purpose is to protect investors – especially private customers – from receiving advice or products that don't suit them. The rules require you to investigate the customer's circumstances before advising and how you document your recommendation.

If you provide investment advice or portfolio management you must conduct a suitability test of the customer. You must uncover the customer's knowledge of and experience with the products the advice concerns the customer's financial situation and what the customer wants to achieve with the investment. Under MiFID II you must also uncover the customer's ability to bear losses and risk appetite and you must prepare a written suitability report that summarizes the advice and explains why it fits the customer.

Part of the advice is about matching the product's risk with the customer's risk profile — how much the customer can afford to lose and how long the money should be invested. Spreading across multiple types of securities, sectors and geographies is a fundamental principle because it reduces the risk of one bad choice upending the entire savings.

Your primary duty is honesty: explain costs, risks and commitment terms in language your customer understands, and never let your own sales targets override the customer's interest. Always document your basis, so a colleague — or a complaints body — can follow why you advised as you did.