Over the years, Swiss regulations on investment advice have changed significantly. This is the result of the implementation of the Swiss Financial Institutions Act (FinIA) and the Swiss Financial Services Act (FinSA), together with the respective ordinances. Today, most of the transitional periods introduced in these Acts and Regulations have passed, meaning that the Regulations are now required to be fully complied with.
This is important for investment advisors who provide personalized recommendations on transactions with financial instruments. Such activities are not subject to authorization from the Swiss Financial Market Supervisory Authority (FINMA), but investment advisers are still required to comply with important regulatory requirements.
Portfolio managers, fund management companies and securities firms must obtain authorization from FINMA before starting their activities. Investment advice – unlike portfolio management – does not require authorization. However, investment advice qualifies as a financial service under FinSA as a result of which 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 FinSA. Investment advisers who are active in Switzerland on a professional basis or provide certain services to clients in Switzerland qualify as financial service providers and have, among other things, the following duties:
An investment advisor needs to assign its clients to one of the following client segments:
- retail customers;
- commercial customers; or
- Institutional customers.
Client Adviser Register and Ombudsman
Client advisors are natural persons working for a financial service provider who provide investment advisory services to clients in Switzerland. Client advisors of Swiss financial service providers are not subject to financial market supervision, and client advisors of foreign financial service providers can conduct their activities in Switzerland if they are registered in the client advisor 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 provided exclusively to commercial or institutional clients.
This means (i) client advisers of Swiss investment advisers not subject to financial market supervision, (ii) client advisers of non-prudentially supervised foreign investment advisers and (iii) client advisers of prudentially supervised foreign investment advisers providing services. Retail investors are generally required to register with the Client Adviser Register.
Depending on the type of client served, affiliation with an ombudsman may also be required.
Duty of adequate knowledge and training for client advisors
Regardless of whether or not client advisers are required to be registered on the Client Adviser Register, they need to have adequate knowledge of the rules of conduct set out in FinSA and the necessary expertise to perform their activities.
Code of Conduct and Organizational Measures
Depending on the type of client they serve, investment advisors are required to adhere to certain codes of conduct and organizational measures when providing their services, some of which we will discuss below.
Investment advisers have information duties about the advice they provide (costs, potential risks etc.). Furthermore, investment advisors must evaluate the appropriateness and suitability of financial instruments to verify whether the product is suitable for the client’s portfolio. If an investment adviser is of the opinion that a financial instrument is not suitable or suitable for a client, he will advise the client not to acquire it.
Financial service providers are also required to adhere to the principles of good faith and fair dealing when handling customer orders and to ensure that the best possible outcome is achieved in terms of cost, time and quality.
Finally, they must ensure through internal regulations and appropriate organization that they are adequately set-up to provide their services. This includes, among other things, the appropriate training of employees as well as the implementation of internal rules for directing and supervising third parties involved, or dealing with potential conflicts of interest.
Overall, it can be said that while the activities of investment advisers do not require authorization from FINMA, many requirements under FinSA still need to be complied with. Failure to comply with these requirements may result in fines.