Investment Advisory Services Under MiFID II

• Published date: 12 December 2023
• Subject Matter: Finance and Banking, Corporate/Commercial Law, Financial Services, M&A/Private Equity, Compliance, Corporate and Company Law
• Law Firm: Bergt & Partner AG
• Author: Mr Josef Bergt

Introduction

In the intricate domain of financial services, the legal framework governing investment advisory services plays a pivotal role. This analysis delves into the statutory definition of investment advice under Annex I Section A No. 5 MiFID II. The focus is on elucidating the nuances of this definition, its practical implications, and the best practices for compliance.

Definition of Investment Advice

Investment advice, involves providing personalized recommendations to clients or their representatives regarding transactions with specific financial instruments. These recommendations must be based on an assessment of the investor's personal circumstances or presented as suitable for them, and not solely disseminated through public information channels. Key elements include:

• Personalized Recommendations: Advising investors on actions deemed in their interest, regardless of whether these recommendations are implemented.
• Specific Financial Instruments: The advice must pertain to particular transferable securities respectively financial instruments, as defined in MiFID II, including equity and debt instruments as well as derivatives.
• Exclusion of General Advice: General advice on a type of financial instrument or sector (e.g., "technology stocks") does not constitute investment advice.

Distinction Between Investment Advice and Related Services

The distinction between investment advice and related financial services is critical:

• M&A Advisory Services: Certain activities in M&A advisory that are exclusively considered as "corporate finance advice" are not deemed as investment advice.
• Client and Representative Dynamics: The advisory contract can be established either directly with the client or with a representative. In both scenarios, the provision of investment advice is applicable when recommendations pertain to the assets of the represented party.

Legal and Practical Implications for Financial Service Providers

Financial service providers must navigate the complex legal provisions on investment advice:

• Compliance with Legal Definitions: Firms must ensure that their advisory services align with the statutory definition, focusing on personalized and specific financial instrument-based advice.
• Contractual Relationships: Understanding the nature of contractual relationships, whether with direct clients or representatives, is crucial for defining the scope of advisory services.
• Exclusion of General Recommendations: Providers must distinguish between...