What Constitutes Professional Advice and How Do You Know You’re Receiving It?
The Felicitas Group was founded in 2014 with a single aim: to be recognised as the leading independent financial advisory business in Europe. We set about our goal by reviewing Europe’s existing financial regulatory framework and anticipating what important, legislative changes would be made in the future. The next step was to build a business that could thrive in this environment, to the benefit of our clients. Outside of the armaments and pharmaceutical industries, financial services is the most regulated industry in Europe, and rightly so.
How susceptible are you?
It still never ceases to amaze me how naive consumers can be when it comes to parting with their money. Consumers rarely ask for proof of a firm’s regulatory status or whether they are licensed to provide the services they are offering. Even more alarming is that consumers rarely ask to see supporting evidence that the person purporting to be a financial advisor is, in fact, professionally qualified, holds valid qualifications and is registered with, and licensed by, the relevant regulatory authority.
For too long, consumers have borne the brunt of industry failings. These have ranged from collapsing banks to incompetent professional advice, from poorly performing investments to the out-and-out mis-selling of financial products. The industry has, historically, been plagued by the consequences of having a relatively low barrier to entry. This has allowed unscrupulous, commission driven individuals and firms to profit by exploiting susceptible consumers, with little consequence for those perpetrators if, as is often sadly the case, their customers are financially damaged.
MiFID: the Consumer’s Champion
For the protection of consumers in Europe, any firm wishing to provide investment services must be licensed under the Markets in Financial Instruments Directive (MiFID). This valuable legislation governs the businesses, products, services and individuals within the industry, and is designed to protect the consumer.
In order to obtain a MiFID license, firms must first meet stringent criteria. In Cyprus, licenses are issued by the Cyprus Securities and Exchange Commission (CySEC). Furthermore, individuals working within that firm must be approved by the regulator. To achieve this, persons must prove themselves to be fit and proper, must have relevant qualifications and experience, and must undertake continuous professional development (CPD). It is also compulsory that all individuals who provide investment advice sit, and pass, the Cyprus Ministry of Finance Advanced Examination certificate. If both the firm and the individual have met these requirements, they will appear on the CySEC register of approved firms and individuals, which can be viewed at CySEC’s web site.
Financial Advisor verses Product Salesman
Perhaps unsurprisingly, few international advisory firms operating in Cyprus have opted to apply for a MiFID license. If they are regulated here at all, it is usually under the Insurance Mediation Directive (IMD), for which the barriers for entry remain comparatively low, for both the firm and the individual salesperson. IMD licensed firms and individuals can only offer insurance based products. However, these products can often prove expensive, owing to the high rates of non-disclosed commission payable to the insurance salesperson. In addition, recent changes to Cyprus tax laws, such as the removal of the Defence Tax Levy from dividend income, have further undermined the worth of these products.
Of course, we hold an IMD license too and will recommend the use of an insurance based solution, but only if it is in the best interest of our client. Unfortunately, firms and individuals that can only operate under the restrictions of an IMD license, have no choice other than to continue to solely promote these products, even if they are not always in the best interest of the investor.
We at Felicitas offer a simple promise, to seek the best outcome for our clients at all times. Fortunately for our clients, the scope of our regulatory licenses, combined with the professional expertise of our fully qualified advisors, means that we are able to fulfil our pledge.
Contact us if you would like the benefit of professional advice, or would value a second opinion on your existing arrangements. An initial consultation is free of charge and any fees for work subsequently conducted on your behalf, are fully disclosed at outset.