Financial advisory and broking services including robo advisory and auto-trading
FinTechs belonging to this category offer advisory and broking services for investments usually via an internet platform.
Robo advisory services usually offer an investment proposition following a series of questions concerning the personal financial background and the risk-bearing capacity of the user. Sometimes the respective platform also enables the user to directly execute the proposed investment.
Auto-trading concerns all services which automatically trade on behalf of the customer according to his or her specifications.
Apart from that some FinTechs collect and offer merely or as an ancillary service market information or operate comparison portals to increase the transparency of the capital markets and to help the investor with his decision-making.
There are also FinTech-advertising-services which advertise various financial services or products.
Attitude of the country towards modern financial advisory and broking services
Financial advisory services are largely based on the traditional market; hence this is also a sector that has the potential to grow in the near future. CMVM clearly mentions robo-advice as a new technology, recognising its importance. The investment banking sector has seen the emergence of white label outsourcing agreements with FinTechs (e.g. Alpima, hAPI, Tink etc.) for the deployment of platforms allowing aggregation of financial information and automatic advisory and wealth management.
Obligations and requirements to provide financial advisory and broking services, or ancillary services described above
Investment advice or ancillary services provided over financial instruments is deemed an investment service under the Portuguese Securities Code. The provision of investment services is subject to an authorisation from CMVM. Authorisation requirements rely on the company’s capital structure, information on the shareholders, corporate governance, material/technical and human means, internal control/compliance, and risk management mechanisms, among others.
The minimum share capital is currently divided into three (3) tiers – EUR 75,000, 150,000 and 750,000, depending on the services to be provided. Investment advice is included in the EUR 75,000 tier, but a case-to-case analysis is required. Further prudential requirements apply. Fees will be due for registration with CMVM. Due to comprehensive legislative change, prior contact with the regulator is advisable to confirm.
We note that advertising may itself trigger authorisation requirements and any advertising and client seeking aimed at the entry into financial brokerage contracts or gathering of elements from current or potential clients may only be made by a financial intermediary registered with CMVM authorised for the activity in question or by a tied agent.
Robo-advisers subject the entities operating them to general requirements applicable, including in relation to the suitability test provider in MIDIF II.
Additional comments regarding the legal situation for financial advisory and broking services, or adjacent services or what FinTech’s must be aware of in this business area
Investment advice is deemed regulated when performed over financial instruments and is only regulated where it amounts to a personalised advice over such instruments, hence FinTechs should assess the type of assets and advice at stake in order to confirm if it triggers the regulatory authorisation requirement.
Market size for financial advisory and broking services as well as adjacent services and biggest companies in this business area
A major part of the financial intermediaries’ license covers investment advice – around 10% of the registered financial intermediaries are registered as investment advice companies and the list includes the major traditional banks.
Additional comments regarding the economic situation for financial advisory and broking services as well as adjacent services or what FinTech’s must be aware of in this business area
Modern financial advisory services are an emerging market with space to grow in a competitive environment.