What means investment advice in Spain?

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In this entry, we analyze what is meant by investment advice, or financial advice, in Spain, a topic we've touched upon in other posts of this blog, such as with "Sociedades de inversión financiera, parte II sobre el tipo de servicios."

To understand what financial advice entails, we can refer to Directive 2014/65/EU of the European Parliament and Council, dated May 15, 2014, concerning markets in financial instruments, which amends Directive 2002/92/EC and Directive 2011/61/EU (known as "MiFID II"). Article 4 of MiFID II defines investment advice as the "provision of personal recommendations to a client, either upon its request or at the initiative of the investment firm, in respect of one or more transactions relating to financial instruments."

As can be seen, the concept of advice involves providing personalized recommendations regarding financial instruments, without including in such recommendations the activity of executing buy and sell orders, as occurs with management services. In Spain, this activity requires prior administrative authorization from the CNMV (Comisión Nacional del Mercado de Valores).

It is also important to note that while the aforementioned definition does not explicitly state it, financial advice that is not provided regularly or on a recurring basis does not require administrative authorization. In this case, the activity will still qualify as financial advice, but since it lacks regularity, no authorization will be necessary. In this regard, Royal Decree 813/2023 of November 8, on the legal framework for investment entities and other entities providing investment services (the "RD 813/2023") states: "For the purposes of Article 129 of Law 6/2023, of March 17, it shall be understood that the criterion of regularity is met when the activities are accompanied by commercial, advertising, or other actions aimed at establishing client relationships, or are based on the use of client relationships or other interests; and it shall be understood that the criterion of professionalism is met when the activities are carried out for clients in general and for remuneration."

For further details on what constitutes advice, you can refer to the "Guide on the Provision of Investment Advice" dated December 23, 2010. In this guide, the CNMV highlighted the following characteristics of investment advice:

(i) It must involve a recommendation, meaning it should include an opinion from the service provider, rather than merely providing information or explanations about the characteristics and risks of a financial transaction or service.

(ii) It must be related to one or more specific transactions involving financial instruments and not generically refer to a type of asset or financial product.

(iii) It must be personalized, meaning it should be presented explicitly or implicitly as suitable for that person, based on consideration of their personal circumstances.

(iv) It must be delivered through means that do not solely consist of channels directed at the general public (such as press, television, or radio).

(v) It must be individualized, meaning it is provided to a person in their capacity as an investor or potential investor or as an attorney or representative thereof.

An interesting characteristic of financial advice is that certain investment recommendations may not qualify as such if the recommendation is based solely on technical or industrial aspects, rather than economic or financial terms. For example, if an investment is recommended in a particular company due to mechanical improvements to certain machinery, without addressing economic aspects, the recommendation may be excluded from the concept of investment advice.

There are other reasons that may exclude financial advice from the specific regulatory regime, such as (i) providing advice to a company within the same group, or (ii) when the advice is ancillary to another main activity. This exclusion allows the service provider not to seek the corresponding administrative authorization from the CNMV. In this context, Article 4.1(b) of Royal Decree 813/2023 states: "Persons providing investment services exclusively to their parent companies, their subsidiaries, or other subsidiaries of their parent companies." On the other hand, Article 4.1(c) states: "Persons providing an investment service, when such service is provided as an ancillary activity within the framework of a professional activity, and provided that the latter is regulated by legal or regulatory provisions or a professional code of ethics that does not exclude the provision of such service, as provided in Commission Delegated Regulation (EU) No. 2017/565 of April 25, 2016."

Consequently, if the activity provided meets the aforementioned characteristics, including regularity, and none of the exclusion criteria apply, such activity must be authorized in advance in order to be provided in Spain.