Portfolio managers, fund management companies and securities firms must obtain an authorisation from FINMA before commencing their activities. Investment advice - as opposed to portfolio management - does not require an authorisation. Nevertheless, investment advice is qualified as a financial service under the FinSA 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 FinSA. Investment advisers that are active on a commercial basis in Switzerland or that provide certain services to clients in Switzerland qualify as financial service providers and have, among other things, the following duties:
An investment adviser is required to assign its clients to one of the following client segments:
- retail clients;
- professional clients; or
- institutional clients.
Client adviser registration & ombudsman
Client advisers are natural persons acting for a financial service provider who provide investment advice 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 carry out their activity in Switzerland if they are registered in a client adviser register. Client advisers of prudentially supervised foreign financial service providers are generally exempt from the duty to register, if the services they provide in Switzerland are exclusively provided to professional or institutional clients.
This means that (i) client advisers of Swiss investment advisers who are not subject to financial market supervision, (ii) client advisers of foreign investment advisers who are not prudentially supervised and (iii) client advisers of prudentially supervised foreign investment advisers who provide services to retail investors, are generally required to register with a client adviser register.
Depending on the type of client the service is provided to, an affiliation with an ombudsman may also be required.
Duty for client advisers to have sufficient knowledge and training
Regardless of whether client advisers are required to register with a client adviser register or not, they are required to have sufficient knowledge of the conduct rules set out in the FinSA and to have the necessary expertise to perform their activities.
Code of conduct and organisational measures
Depending on the type of client they serve, investment advisers are required to comply with certain code of conduct duties and organisational measures when providing their services, some of which we will discuss below.
Investment advisers have information duties regarding the advice they provide (costs involved, potential risks etc.). Furthermore, investment advisers must assess the appropriateness 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 appropriate or suitable for its client, it shall advise the client against acquiring it.
Financial service providers are also generally required to follow the principles of good faith and equal treatment when handling client orders and to ensure that the best possible outcome is achieved in terms of cost, timing and quality.
Finally, they must ensure, through internal rules and appropriate organisation, that they are adequately set-up to provide their services. This includes, among other things, appropriate training of employees as well as the implementation of internal rules for instructing and supervising third parties involved, or for dealing with potential conflicts of interest.
Overall, it can be said that even though the activities of an investment adviser do not require an authorisation from FINMA, a number of requirements under the FinSA still need to be complied with. Non-compliance with these requirements can lead to fines being imposed.
If you have any questions on the duties of investment advisers with activities in Switzerland, please do not hesitate to reach out to Judith Raijmakers or Sandra Zysset.