5 Differences Between Securities Companies and Investment Managers That Investors Must Understand

 When investors want to enter the Indonesian capital market, there are two institutions they must be familiar with: Securities Companies and Investment Managers. While both are tasked with helping investors navigate the investment world, they have distinct roles. The differences between these two institutions also significantly impact an investor's investment activities and must be tailored to their needs and objectives.

Unfortunately, the differences between Securities Companies and Investment Managers are often overlooked by investors, especially beginners. Knowing this, as a savvy investor, it's crucial to understand the differences between Securities Companies and Investment Managers.

For a more detailed explanation of the five differences between Securities Companies and Investment Managers, please read the explanation below.

5 Differences Between Securities Companies and Investment Managers That Investors Must Understand

Definition and Types of Services

Based on their definitions, securities companies and investment managers have easily discernible differences. A securities company is defined as a securities intermediary, carrying out the activities of a securities underwriter (PEE), and a securities broker (PPE).

The services provided by a securities company, also known as a broker, include acting as an intermediary between investors and the stock issuing company to facilitate the buying and selling of securities. Securities companies also offer recommendations on stock options that meet the needs of their clients.

An investment manager, meanwhile, is a company responsible for managing funds collected from a group of investors in mutual fund portfolios or specific collectively managed funds. In other words, an investment manager is better known as a company that manages mutual fund products that investors can purchase according to their investment needs and objectives.

Investment managers typically operate under the auspices of a securities company, providing services under a separate legal entity or as a subsidiary. However, some investment managers operate independently.

Required Business Licenses

As institutions with a more comprehensive and extensive service capacity, Securities Companies hold more business licenses than Investment Managers. To become a Securities Company, the required licenses from the Financial Services Authority (OJK) cover Securities Brokerage (PPE), Securities Underwriter (Underwriter), and Investment Manager. These licenses are mandatory for Securities Companies to conduct their respective business activities.

For Investment Managers, however, the only business license required is for Investment Managers, with the primary focus being the management of mutual fund portfolios or collectively managed funds from a group of investors.

Scope of Activities

Depending on their business licenses, securities companies can operate in three main business areas, including:

Broker Dealer

Alternatively known as a Securities Trading Intermediary (PPE), one of the primary activities of a securities company is as a broker-dealer. The role of a broker-dealer (PPE) is to carry out the buying and selling of securities for their own benefit or that of others.

Investors wishing to purchase shares, whether in the primary or secondary market, are required to have a stock account with an official securities company that holds a PPE permit from the Financial Services Authority.

With a PPE permit, securities companies can also carry out stock or bond trading activities, whether processed on the Indonesia Stock Exchange (IDX) or through over-the-counter (OTC) transactions.

Underwriter

An underwriter is also known as a securities underwriter (PEE). As an underwriter, securities companies offer assistance to prospective issuers or public companies in conducting Initial Public Offerings (IPOs).

This underwriting role can be accompanied by an obligation to purchase unsold or unsold securities. Therefore, if there is an obligation to purchase the remaining unsold securities, the issuer can be assured of obtaining funding in accordance with expected requirements.

Investment Manager

As previously explained, an Investment Manager is a company licensed by the Financial Services Authority (OJK) to operate as an Investment Manager. For most investors, an Investment Manager is better known as a service or company that manages mutual fund portfolios from funds pooled from a group of investors. The Investment Manager's activities include managing investor or client securities portfolios according to individual and bilateral management contracts, and do not involve direct securities trading activities like a Securities Company.

A Securities Company can have one, two, or all three of the above scopes of activity, depending on its license.

Fund Management Structure

At a Securities Company, the fund management structure begins with investors opening a stock account or Customer Fund Account (RDN). This account is mandatory for investors who wish to buy and sell shares through the services of the relevant Securities Company.

With an Investment Manager, investor funds are collected through a special mutual fund product and then held in a separate Custodian Bank. The collected funds are then managed by a professional team, optimally aligning with the agreement and type of mutual fund.

For additional information, investors wishing to purchase mutual funds can visit a bank with Mutual Fund Selling Agent (APERD) status and apply for a purchase through a Mutual Fund Selling Agent Representative (WAPERD).

Profession and Certification

The difference between a Securities Company and an Investment Manager lies in the profession and certification required. Securities Companies employ Securities Broker-Dealer Representatives (WPPE) or Securities Underwriter Representatives (WPPE), who are required to obtain official licenses from the Financial Services Authority (OJK).

Meanwhile, professional Investment Managers must be certified as a WMI (Investment Manager Representative) or Investment Manager Representative to be able to manage funds obtained from the OJK.

Understand the Difference Between Securities Companies and Investment Managers to Understand Their Functions

Although both act as intermediaries for investors seeking to invest, Securities Companies and Investment Managers actually have different functions. By understanding the differences, investors can more wisely consider which service is best for their investment needs.