How is investment advice regulated in Switzerland?

In recent years, the Swiss rules on investment advice have changed significantly. This is the result of the enactment of the Swiss Financial Institutions Act (FinIA) and the Swiss Financial Services Act (FinSA), together with related ordinances. Today, most of the transitional periods introduced in these acts and regulations have passed, so that the rules must now be fully complied with.

This is key for investment advisors who provide personal recommendations on transactions in financial instruments. These activities are not subject to an authorization from the Swiss Financial Market Supervisory Authority (FINMA), but investment advisers must still meet important regulatory requirements.

Portfolio managers, fund management companies and securities companies must obtain authorization from FINMA before starting their activities. Investment advice, unlike portfolio management, does not require authorization. However, investment advice is qualified as a financial service under the LSFr, with the consequence that certain regulatory requirements also apply to investment advisers.

Duties and obligations of investment advisers

Where a financial service is provided in or from Switzerland, financial service providers will be subject to certain obligations under the LSFr. Investment advisers that are commercially active in Switzerland or that provide certain services to clients in Switzerland qualify as financial service providers and have, among other things, the following functions:

Customer segmentation

An investment adviser must assign its clients to one of the following client segments:

  • retail customers;
  • professional clients; or
  • institutional clients.

Register of client advisors and ombudsman

Client advisors are natural persons acting for a financial service provider who provide investment advisory services to clients in Switzerland. Client advisers of Swiss financial service providers not subject to financial market supervision, as well as client advisers of foreign financial service providers, may exercise their activity in Switzerland if they are entered in a register of client advisers. Advisers to clients of prudentially supervised foreign financial service providers are generally exempt from the obligation to register, if the services they provide in Switzerland are provided exclusively to professional or institutional clients.

This means that (i) advisers to clients of Swiss investment advisers who are not subject to financial market supervision, (ii) advisers to clients of foreign investment advisers who are not prudentially supervised and (iii) advisers of clients of prudentially supervised foreign investment advisers providing services. retail investors are generally required to register on a register of client advisers.

Depending on the type of client being served, affiliation with an ombudsman may also be required.

Duty of client advisors to have sufficient knowledge and training

Regardless of whether client advisors are required to register in a register of client advisors or not, they must have sufficient knowledge of the rules of conduct established in the LSFer and have the necessary experience to carry out their activities .

Code of conduct and organizational measures

Depending on the type of client they serve, investment advisers are required to comply with certain code of conduct obligations and organizational measures when providing their services, some of which we discuss below.

Investment advisers have duties to provide information about the advice they provide (costs involved, potential risks, etc.). In addition, investment advisers must assess the adequacy and suitability of financial instruments to verify whether a product is a good fit for the client’s portfolio. If an investment adviser is of the opinion that a financial instrument is not suitable or suitable for its client, it will advise the client not to purchase it.

In general, financial service providers are also required to follow the principles of good faith and equal treatment when handling customer orders and ensure that the best possible result is achieved in terms of cost, time and quality .

Finally, they must ensure, through internal rules and an appropriate organization, that they are properly configured to provide their services. This includes, among other things, appropriate training of employees, as well as the implementation of internal rules to instruct and supervise the third parties involved, or to deal with potential conflicts of interest.

conclusion

In general, it can be said that although the activities of an investment adviser do not require an authorization from FINMA, a number of requirements of the LSFr must still be met. Failure to comply with these requirements may result in the imposition of fines.

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