“What’s in a name?” (William Shakespeare) In December 2018, the Single Register of Financial Advisors was enriched with two new figures: Independent Financial Advisors (CFA) and Financial Advisory Companies (SCF). These entities are authorized to provide investment advisory services while remaining independent from intermediaries and issuers. Since then, the term “independent” has acquired a particular value, and as always happens, various parties have tried to take advantage of it. In fact, there are ongoing notices, advertisements, and interviews in which intermediaries and issuers speak indiscriminately of independent advisors, independent advice, independent advice provided by intermediaries, generating enormous confusion. The aim here is not to oppose one service model to another. The intention is simply to clarify the meaning of the terms, strictly adhering to what is written in the regulations, convinced that avoiding confusion among savers is a value to be protected. The regulations allow individuals and legal entities possessing certain requirements of professionalism, integrity, and independence to carry out investment advisory activities. Among these requirements, one is of fundamental importance, as it unequivocally separates CFA and SCF from advisors linked to intermediaries and issuers. Here is an excerpt from the text (Ministerial Decree no. 206/2008): Those who have, directly, indirectly or on behalf of third parties, financial, professional or other relationships, including family relationships, with issuers and intermediaries, with companies controlled by them, controlling them or under common control, with the shareholder or group of shareholders controlling such companies, or with directors or managers of such companies, if such relationships may affect the independence of judgment in providing investment advice, cannot be registered in the Register.
Therefore, those registered in the Register as CFA or SCF must always demonstrate that they are independent from issuers and intermediaries, in order to guarantee independence of judgment.
Note that this requirement is mandatory only for CFA and SCF. It is obviously not so for advisors who operate on behalf of intermediaries and issuers (banks, SIM), i.e., advisors authorized to offer off-site (previously defined as financial promoters) and bank advisors. These professionals, in fact, operate under mandate, as agents, or as employees. As is known, the mandate provides that the agent “cannot exceed the limits set in the mandate” given to them, and the employee carries out their activity “under the direction of the employer.” In both cases, principals and employers are also issuers and distributors of financial instruments, or have relationships with issuers and distributors.
The objection often raised is that intermediaries can also provide independent advisory services. In reality, this statement contains a lexical flaw.
The regulations allow intermediaries to provide financial advisory services on an independent basis. Let’s now read the definition given by the TUF (art. 24-bis):
“In providing investment advisory services on an independent basis, the following rules apply:
a) an adequate range of financial instruments available on the market is assessed, which are sufficiently diversified in terms of type and issuers or product providers so as to ensure that the client’s investment objectives are appropriately met and are not limited to financial instruments issued or provided:
i) by the service provider or by entities that have close ties with it, or ii) by other entities that have close ties or legal or economic relationships with the service provider, such as a contractual relationship so close as to entail the risk of compromising the independence of the advice provided;
b) fees, commissions or other monetary or non-monetary benefits paid or provided by third parties or by a person acting on behalf of third parties are not accepted or retained, except for minor non-monetary benefits that may improve the quality of the service offered to clients and that, by their scope and nature, cannot be considered such as to prejudice compliance with the duty to act in the best interests of clients. Such minor non-monetary benefits are clearly communicated to clients.”
By carefully reading the regulation, two fundamental points emerge:
1. Independent advice can be provided even by entities that have close ties with the service provider such as to entail the risk of compromising the independence of the advice provided (whereas CFAs, as seen before, cannot carry out the activity if they have relationships that may affect independence of judgment).
2. Independent advice may also concern even financial instruments produced or provided by parties with whom there are close ties that undermine independence, provided that others are also recommended (whereas CFAs cannot recommend such products, as they cannot have such ties).
Anyone can notice the substantial difference. This is not to diminish the value of independent advice, but only to emphasize that providing such a service is not equivalent to being independent from intermediaries and issuers. Therefore, those savers who recognize value in independence of judgment in the provision of advisory services and wish to benefit from it, can do so by turning to CFAs and SCFs, knowing that only these professionals meet the independence requirement both by law and by code of ethics.