Investment Firms - What You Need to Know

Investment Firms – Primer

Investment Firms - Primer

What is an investment firm? An investment firm, or company, is a company whose business focuses on holding securities, or financial instruments, of other companies for investment purposes. An investment firm can be a business trust, partnership, limited liability corporation, or corporation. The investment company invests the money it receives from the shareholders and each shareholder shares in the profits and losses. Investment companies are generalized into three types: open-end companies (mutual funds), close-end companies (close-end funds), and unit investment trusts (UITs).

A mutual fund is an investment company that collects money from several investors and invests the money in money-market instruments, stocks, bonds, cash, and other types of securities. A mutual fund is considered to be redeemable, meaning when the investors want to sell their shares, they can sell their shares back to the fund at current net asset value (NAV). A closed-end company sells a fixed number of assets at one time and then is often sold on a secondary market like Nasdaq Stock Market. Closed-end fund shares are generally considered to me unredeemable. Closed-end funds also use separate entities called investment advisors to manage the portfolios. A unit investment trust (UTI) is similar to a mutual fund and is redeemable, however, a UTI is also similar to closed-end funds as a fixed number of units is offered at a one-time public offering.

It is critical when deciding to choose an investment firm that a firm with credentials is chosen. Some of the desirable credentials are Certified Financial Planners (CFPs), Certified Investment Management Analysts (CIMAs), and Chartered Financial Analysts (CFAs). A Certified Financial Planner typically has to complete two to three years of course work and an arduous ten-hour exam. A broker obtains a license through coursework and a six-hour exam. A Chartered Financial Analyst must have three years of investment experience and pass through three levels of examinations.

Investment firms often offer the following services: financial planning, tax strategies, investment management, estate planning, and retirement plan consulting.
When selecting a firm, it is important to meet face to face to make sure personalities do not clash. Some useful questions to ask when hiring any professional handling financial aspects are:

Where did you go to school?
What licenses do you have?
What types of services do you offer?
How are you paid for the services you offer?

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