The Financial Services Act 1986 lays down rules for the conduct of investment business. There must be written agreement between the professional advisers and their clients, so that there is no doubt as to what is required and what is being offered.

There are three levels of service in relation to share dealing:

• Discretionary
  Under a discretionary management agreement, the stockbroker or professional adviser manages the client’s investments according to pre-arranged criteria. These would include the investor’s requirement for income of future outlays, risk levels and tax position. The client is not involved in the day-to-day management of his investments, but is kept informed of changes and developments.
  
  The service may be free or commission based, or a combination of the two. It is common for many professional advisers to charge a management fee based on the value of the capital under management and to charge dealing commissions, possibly at a reduced rate, when transactions are carried out.
  
• Advisory
  This is a service under which the adviser discusses or reviews the client’s investments, either on a regular basis or as required. The system handles both formal portfolio investment and trading on the stock market in individual shares. Regular contact between adviser and client frequently leads to a good working relationship.
  
  The client makes the final decision whether to buy and sell securities. It is normal for the adviser to supply research material giving background information on markets, sectors and companies. Portfolio valuations are provided on a regular basis.
  
  This service is usually commission-based, although some professional advisers make a charge for valuations and research material.
  
  Advisory services are becoming increasingly rare, as professional managers prefer full discretion, which is less labour intensive.
  
• Execution only
  This is a dealing-only service where no advice can be offered. All of the responsibility for investment decisions rests with the client. Instructions to buy and sell are generally given over the telephone. The service, which is commission based and much cheaper than either advisory or discretionary services, is suitable for investors who have the knowledge to conduct their own business affairs. It is offered by most stockbrokers.