How were investment advisors previously regulated?
Those who merely advised their clients on the purchase or sale of financial instruments and made personal recommendations did not have to comply with specific regulatory requirements. In particular, they were (and still are) only subject to the Anti-Money Laundering Act if they executed investment orders for third parties on the basis of a power of attorney issued to them (Art. 6 para. 1 let. b AMLA).
An exception to this principle existed where the advisory activity related to collective investment schemes. In this case, an investment advisor generally required a licence as a distributor unless he or she already held another licence from FINMA or was qualified as an independent asset manager pursuant to the CISA requirements (with AMLA subordination and affiliation to an industry organisation with rules of conduct recognised by FINMA cf. “distributors of collective investment schemes”).
Are investment advisors regulated under FinSA&FinIA?
Investment advisors who are not authorized to dispose of client assets based on a respective power of attorney are not considered financial institutions under the FinIA. Accordingly, they do not need FINMA approval and are not subject to ongoing supervision. However, investment advisors acting on a professional basis are financial service providers pursuant to Art. 3 let. d and Art. 3 let. c n. 4 FinSA. They must therefore fulfil all obligations imposed by FinSA on financial service providers, unless they are explicitly exempted. Such an exemption exists, for example, with regard to the obligation to conduct a suitability test if the advice relates to individual transactions only and not to the entire client portfolio (Art. 12 FinSA) (cf. “Rules of conduct“). Individuals working for an investment advisor and self-employed investment advisors must further, as so-called client advisors within the meaning of Art. 3 let. e FinSA, have sufficient knowledge of the rules of conduct and of the specialist knowledge required for their activities (Art. 6 FinSA).
How is it ensured that investment advisors meet their regulatory obligations?
Individuals who provide investment advisory services independently or non-independently pursuant to Art. 3 let. c n. 4 FinSA qualify as client advisors within the meaning of Art. 3 let. e FinSA. Since they, however, are not considered financial institutions within the meaning of the FinIA, client advisors are not subject to FINMA approval and are not prudentially supervised. If they are self-employed or work for an unregulated domestic or (with some exceptions) foreign financial service provider, they may only become active in Switzerland if entered in a register of advisors pursuant to Art. 28 et seq. FinSA (cf. “Advisor register”).
According to Art. 29 para. 2 let. a FinSA, registration presupposes, among other things, that an investment advisor has neither infringed certain FinSA rules of conduct (Art. 89 FinSA), nor breached the regulations governing prospectuses and key information documents (Art. 90 FinSA), nor offered financial instruments without authorisation (Art. 91 FinSA), nor infringed the Insurance Supervision Act (Art. 86 et seq. VAG) and was therefore entered in the criminal record. Additionally, FINMA may impose a temporary or permanent ban on client advisors who seriously violate financial market laws or relevant internal company regulations (new Art. 33a FIMAG). The existence of such ban again constitutes an obstacle to entry in the advisor register (Art. 29 para. 2 let. b FinSA). This ensures that investment advisors comply with the obligations under the FinSA (and other laws) despite a lack of ongoing supervision by a supervisory authority or, if they do not, are excluded from their activities in Switzerland.
When is an investment advisor considered an asset manager?
Art. 17 para. 1 FinSA suggests that an investment advisor who can dispose of client assets on the basis of a power of attorney is deemed to be an asset manager, even if, in accordance with the agreement with the client and the nature of the investment advice, he or she may contractually dispose of such assets only after consultation with the client.