ESMA Updates Instructions on Portfolio Management and Robo-Advice


November 7, 2018 | AtoZ Markets

The European Securities and Markets Authority (ESMA) has released a set of guidelines for investment advisory financial companies and portfolio management.

In its updated guidelines, ESMA provided clarification on robo-advisors and the “suitability assessment” pertaining MiFID II.

The new instructions advise companies to clearly inform their clients- in particular retail investors- about the suitability assessment, for the clients to better understand the necessity of providing certain, accurate, complete and up-to-date information.

According to ESMA’s new guidelines, the aforementioned procedure is especially necessary when clients give details about their investment knowledge, experience, risk tolerance, and financial situation, otherwise, ESMA will not be able to provide appropriate investment advice and portfolio management services.

Appropriate Advice Require Exact and Accurate Information

The guidelines clarified as well the conduct pertinent to robo-advisors, for addressing “potential gaps in clients’ understanding of the services provided through robo-advice.”

ESMA referred in its updated instructions as well, that companies should provide their customers with “a very clear explanation of the exact degree and extent of human involvement and if and how the client can ask for human interaction.”

ESMA stressed as well that companies should educate their clients that their answers to a robo-advisor will make have a direct effect on making investment decision.

Companies should inform their clients as well that the resources depended on for generating investment advice, or executing portfolio management can be the sole basis for the robo-advice, if this is the case.

ESMA referred to that the updated guidelines are not obligatory to comply with, however, they are highly recommended to follow.

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