Investing top tips: Who’s really advising you?

Why should you avoid being lured by unqualified ‘investment wealth managers’ who redirect you to other firms?

William Nattrass

Written by William Nattrass Published on 30.05.2024 17:00:00 (updated on 27.05.2024) Reading time: 4 minutes

This article was written in cooperation with Aisa International. Read more about our partner content policies here.

The financial sector is heavily regulated, for good reason. When companies are entrusted with protecting and growing clients’ wealth, it’s imperative that they act responsibly and with accountability. Unfortunately, the strictest regulations can’t prevent certain companies from trying to break the rules for their own benefit. Among the malpractices that expats should be particularly aware of, is investment advice provided by unlicensed advisers.

According to James Pearcy-Caldwell, founder of Aisa International, an investment company which focuses on helping expats in Czechia, this practice is “common across the whole of Europe” and leaves clients with “virtually no protections” if something goes wrong.

Aisa International’s experts have researched this troubling topic and created a white paper detailing what clients should know before taking investment advice. The white paper, which includes a Due Diligence Questionnaire with guidance, is available on request.

Why do dodgy advisers link clients to non-EU firms?

A common way in which clients are snared into accepting unlicensed advice is when an unlicensed adviser links them with a non-EU investment firm, including UK- and USA-based firms. These advisers typically only have an IDD license, allowing them to provide advice on insurance products, but not investments. By linking clients with a foreign entity which has the MiFID license required to provide investment advice, they aim to get around this regulatory obstacle.

Such questionable advisers often align themselves with firms in the UK and USA, aware that this association can enhance their reputation and credibility. Nevertheless, their actions are often illegal, leaving clients without the necessary regulatory protections.

Non-EU MiFID firms cannot legally promote their portfolios within the EU, and are unlikely to have PII insurance cover when providing advice to EU residents. Meanwhile, the IDD firm based in Czechia is acting outside its legal permissions, so its insurance provides no protections to the consumer.

“There is a misconception that IDD firms can market not only themselves, but also firms that are MiFID-regulated outside the EU, and that this gives them the right to describe themselves as ‘wealth managers’, or ‘investment managers’. But the EU rules are clear: if a client is receiving advice, they are receiving that advice from the adviser sitting in front of them,” explains Pearcy-Caldwell.

“If a firm is claiming to give advice from a non-EU MiFID firm, they’re not investment regulated in the EU, which means the adviser giving that advice is also not regulated. It’s a complete red flag.”

“Another major red flag is where a ‘wealth manager’ or ‘investment adviser’ can only offer investment advice within insurance products such as insurance bonds, or they claim that they are not giving the advice at all and ask you, as the client, to sign a form declaring that another investment firm in another country has given you the advice. These red flags should immediately put you on your guard,” Pearcy-Caldwell adds.

Being linked to an EU firm is risky too

You might assume that such issues don’t exist within the EU. But even when an IDD firm claims to be linking you with an EU MiFID firm, you face significant risks. For this to be legal, you have to be getting advice about investment products under contract directly with the EU MiFID firm.

It boils down to the same fundamental problem: an IDD firm cannot legally provide investment advice, and this can’t be avoided by simply claiming the advice comes from an EU MiFID firm. 

“In most cases, clients would experience the same issues as they would if they were linked with a non-EU MiFID firm. If there’s a problem, everyone in the chain would deny all responsibility. There’s no accountability,” explains Pearcy-Caldwell.

Watch to watch out for

Even if alarm bells aren’t ringing yet, Pearcy-Caldwell advises customers to walk away if an IDD adviser asks you to sign a document confirming that they provided you with no investment advice, or that you have received advice from another EU investment firm (despite never meeting or speaking with anyone from such a firm).

Another tell-tale sign is when IDD firms ask clients to sign a document declaring that they independently approached a non-EU investment firm for advice. “Reverse solicitation” – in which a client approaches a non-EU investment firm on their own initiative – is allowed, but by declaring that they have acted under their own steam, clients waive all their rights against all parties.

Not only do such clients lack a warranty fund or PII cover for their investments. The IDD adviser directing them is bound to lower levels of qualification, regulatory supervision and capital adequacy, leading to greater uncertainty regarding their expertise and commercial viability. 

MiFID + IDD in one firm = no headaches

Such unnecessary risks are avoided if clients opt for a firm such as Aisa International, which is both MiFID and IDD regulated.

“We offer clean share classes, with no commission, and we’re investment experts; we’ve been doing this for 25 years. If you choose us, you have loads of protections and all the right types of investment products. If you pick the wrong kind of adviser, you’ll have no consumer protections,” Pearcy-Caldwell warns.

Aisa International is one of the few investment companies in Czechia which has both MiFID and IDD licenses, and it focuses on serving American and British expats, employing financial planners and advisers who are fully qualified in both Britain and the USA. For those navigating the tricky waters of investment planning, this is a stark and welcome contrast to the shady players seeking to tempt investors into unregulated, unprotected solutions.

Disclaimer: Trading financial instruments carries risks. Always ensure that you understand these risks before trading.

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