Saving and investing

Book-entry account

The book-entry account is a custodial account of digital securities.  The trading in the shares and certain other securities calls for the opening of a personal book-entry account. The book-entry account can be opened by signing a respective agreement with a bank or investment firm. To accompany the book-entry account, normally a management account is also opened for the money used for trading or obtained from sale of securities. If you wish to trade on your own in an online services, you can also make an agreement with the same service provider on the online service where you can give securities trading assignments within the terms and conditions of the service contract.

Traditionally, the securities trading assignment were given in the service provider’s physical office or through phone services. The service fees of online services are often inexpensive, compared to phone services or face-to-face services. On the other hand, when using the online services, the customer is responsible for the assignment meeting the intended purpose while in face-to-face services, the customer may receive more service and advice related to the trading procedure, if necessary.

Investment advice and marketing

Investment advice refers to activities where a customer receives an individual recommendation related to a certain financial instrument. Providing investment advice is subject to a licence, and the respective authority is the Financial Supervisory Authority. The provider of investment advice has the obligation to acquire sufficient information on the customer’s financial status, their experience and knowledge regarding the financial instrument in question as well as on the customer’s investment objectives.

Marketing is about the promotion of the sale of a particular product or service. The borderline between marketing and investment advice is often vague, but even in marketing, the service provider must learn about the customer’s investment experience and knowledge about the product or service in question, also verifying whether the customer understands the special features of the product or service. Marketing must no include misleading or untruthful information. From the marketing material the customer or investor should be able to identify the type of financial service or instrument in question and its most important characteristics.

Investment risks

Investing also comes with the risk of losing the invested capital in part or in full. Risk normally goes hand in hand with the expected return – the higher the expected return, the higher the risk. Sometimes,  investment products with a capital protection are also offered. The investor may be promised the return of the capital invested, for example, after a period of time following the investment, and the risk is mostly associated with the return, or more specifically the failure to have any return.

However, in case of products with capital protection, the customer should learn about the so-called issuer risk. The party offering capital protection, i.e., often the issuer will be responsible for the return of the capital. If the product issuer faces financial difficulties or bankruptcy, the investor may not have the promised capital protection since the party promising such protection is not sufficiently solvent to meet its promise. The prospectuses of investment products should be clear about the issuer of the product responsible for the capital protection if the product comes with a promise of this feature.