As the financial services sector continues to evolve, understanding the provisions of Investment Advice and Portfolio Management services has become increasingly important. With the ongoing regulatory updates under MiFID II, Cyprus Investment Firms (CIF) are facing greater scrutiny to ensure compliance with standards in suitability assessments, investment policies, and portfolio management agreements.
With this blog post, Nikolas Xenofontos, an expert instructor at the institute, explains what Investment Advice and Portfolio Management is under MiFID II and provides valuable insights into the area of suitability assessment. Additionally, a comprehensive online self-study course is offered through the IforPE platform, titled “Understand the services of Investment Advice and Portfolio Management in 2024”.
Towards the end of this blog post, you will find detailed information about the valuable skills and competencies acquired upon course completion and how they contribute to ensuring the complete understanding of the provision of Investment Advice and Portfolio Management services under MiFID.
What is Investment Advice?
As per Directive 2014/65/EU on Markets in Financial Instruments (MiFID II), investment advice refers to the provision of personal recommendations to clients. These recommendations can either be made at the client’s request or initiated by the investment firm, in respect of one or more transactions relating to financial instruments.
A recommendation shall be considered personal if it is made to a person in his capacity as an investor or potential investor, or agent for an investor or potential investor. It shall not be considered as personal if it is issued exclusively to the public. Messages sent to batches of clients are unlikely to amount to investment advice. However, the mere fact that a recommendation is made to multiple clients does not automatically disqualify it from being considered investment advice.
What is Portfolio Management?
A portfolio consists of various financial assets, such as stocks, bonds, or other investments, held by an individual or an institution. The purpose of a portfolio is to diversify risk and potentially achieve greater returns by investing in a range of different assets. As different assets may perform differently under various market conditions, rather than a single asset. As per MiFID II, portfolio management means managing portfolios in accordance with mandates given by clients on a discretionary client-by-client basis. Where such portfolios include one or more financial instruments.
Discretionary portfolio management is offered when the buy and sell decisions are made by the portfolio manager. The term discretionary refers to the fact that decisions are made at the portfolio at the portfolio manager’s discretion. Such transactions are executed without the explicit consent of the client. Therefore, the client should place complete trust in the manager's abilities.
Suitability Assessment
When providing investment advice or portfolio management, investment firms are required to obtain key information regarding the client’s:
- Knowledge and expertise – in the investment field relevant to the specific type of product or service.
- Financial
situation – including his ability to bear losses.
- Investment
objectives and risk tolerance – to enable the firm to recommend the investment
services and financial instruments suitable for them.
Based on the information available, if the investment firm considers that the product or service is not appropriate to the client or potential client it shall warn the client with a warning provided in a standardized format. Furthermore, when providing investment advice, firms must clearly explain how their recommendations align with the client’s investment needs and objectives.
Matching Clients with Suitable Products
To match clients with suitable investments, firms must establish policies and procedures to ensure that they consistently consider:
- Information available about the client that is necessary to assess whether an investment is suitable,
- The client’s current portfolio of investments and asset allocation within that portfolio,
- All material characteristics of the investments considered in the suitability assessment,
- All relevant risks and any direct or indirect costs to the clients.
Suitability assessment is not limited to recommendations to buy a financial instrument but to buy, hold, sell an instrument or not to do so.
Under MiFID, firms are allowed to collect the level of information appropriate to the products and services they offer. Therefore, firms offering access to complex or higher-risk financial instruments shall consider whether they need to collect more in-depth information about the client.
What is the “Understand the services of Investment Advice and Portfolio Management in 2024” course and what does it include?
- Understanding the services of Investment Advice & Portfolio Management
- What is Investment Advice?
- Investment Advice on an independent basis
- What is Portfolio Management?
- Copy trading
- Regulatory Obligations- The role of the Portfolio Manager
- The role of the Portfolio Manager
- Portfolio Valuation
- Suitability Assessment
- Reporting Requirements
- Inducements
- Suitability Assessment & Questionnaire
- Know Your Client
- Know Your Product
- Matching clients with suitable products
- Sustainability Preferences
- Features of the Questionnaire
- Good & Bad practices
- Understand the importance of the Investment Policy
- Introduction
- Investment Services
- Investment Objectives
- Investment Universe
- Investment Restrictions
- Risk Disclosure
- Acceptance of Policy and Risks
- Signatures
- The provisions of a Portfolio Management agreement
- Services
- Appointment of the Manager
- Rights and Obligations of the Manager
- Rights and Obligations of the Client
- Valuation Rules
- Fees
- Provision of periodical statements
The “Understand the services of Investment Advice and Portfolio Management” course offers materials in both PDF slides and online video recordings, allowing for flexible, self-paced learning. Enrolled learners can study anytime and anywhere at their convenience.
After completing the course, participants can assess their understanding of the material through a set of knowledge-based questions.
Professionals who complete this course will establish a solid understanding of the provision of Investment Advice and Portfolio Management services under MiFID in addition to acquiring knowledge of the characteristics and requirements of suitability assessment and a comprehensive investment policy.
The completion of this course counts toward Continuous Professional Development (CPD) annual requirements.
