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01 December 2011

Impact Red traffic light

High/medium impact - additional compliance obligations when providing services to professional clients and when providing investment advice.

Other areas to consider

Appropriateness; Reporting to clients; Best interests of clients; Risk disclosure

Current MiFID rules

When making a personal recommendation or providing portfolio management services to a client or potential client, a firm must obtain the necessary information regarding the client's knowledge and experience, his financial situation and his investment objectives so as to enable the firm to recommend to the client or potential client the investment services and financial instruments that are suitable for him.

MiFID Level 1 Directive Art: 19(4)

MiFID Level 2 Directive Arts: 35 and 37

FSA rules


Proposed changes
Draft Directive
Articles 24, 25

Investment advice

In light of recent debates on the quality of investment advice, the draft Directive provides that a firm, when giving investment advice to clients, is to report personally to the client as to how the advice meets the personal characteristics of the client.  The firm should also state whether the advice is given on an independent basis and whether it is based on a broad or on a more restricted analysis of the market.

Professional ClientsThe presumption that professional clients have the necessary level of experience and knowledge is to be limited to less complex financial instruments that do not embed a derivative or contain a structure that makes it difficult for a client to understand the risk involved in order to grant to Professional Clients a more rigorous assessment of suitability or appropriateness.

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