On February 14, 2023, the Brazilian Securities and Exchange Commission (CVM) published Resolution No. 178, the new regulatory framework for the activity of investment advisors (the new nomenclature for “autonomous agents”), which will replace Resolution No. 16 of 2012.
The Resolution in question brought about a number of changes in relation to the repealed Resolution, in particular: Possibility for the advisor to provide services to more than one intermediary, putting an end to the obligation of exclusivity; Flexibility as to the type of company adopted by legal entity investment advisors, who may adopt other types, in addition to the simple company form.
The name of the legal entity, as well as any fantasy names used, must include the expression “investment advisor” or the acronym “AI”, and the use of acronyms and words or expressions that could mislead investors as to the company’s purpose is prohibited; Obligation for the investment advisor to identify all intermediaries on whose behalf it acts in prospecting and attracting clients; Obligation for the investment advisor to identify on behalf of which intermediary he is providing that service; Explicit possibility of carrying out complementary activities related to the financial, capital, insurance and pension and capitalization markets, as long as they do not conflict with his activities; The need to inform investors with whom the advisor already has a previous relationship if the advisor starts acting on behalf of a new intermediary, under the conditions established in the Resolution, with a specific warning about potential conflicts of interest to which the investment advisor may be subject as a result of entering into the new contract, including those arising from differences in the investment advisor’s remuneration for offering products and services and financial incentives associated with prospecting and attracting, for the new intermediary, investors with a previous business relationship with the original intermediary; e When the investment advisor is a legal entity, it is necessary to appoint a responsible director, who must provide all the information required by capital market legislation and regulations; respond to requests for information made by the CVM and the accrediting entity; and verify compatibility between the policies, rules, procedures and internal controls of the different intermediaries.
It is worth remembering that the investment advisor is responsible for the following activities:
(i) prospecting and attracting clients;
(ii) receiving and registering orders and transmitting these orders to the appropriate trading or registration systems; and
(iii) providing information on the products offered and the services provided by the intermediaries on whose behalf they act.
According to the new standard, the provision of information referred to in item “iii” includes the activities of support, guidance and investment recommendations inherent in the commercial relationship with clients, and the investment advisor must ensure that the recommendations he makes are compatible with the specific policies, rules and procedures of the intermediaries regarding the duty to verify the suitability of the investment to the client’s profile.
The investment recommendation mentioned, therefore, is linked to providing the information that the intermediary provides, i.e. it must conform to and be limited to the products and services recommended by the intermediaries themselves.
Thus, the investment advisor is not allowed to manage funds, act as a consultant or carry out analysis of investors’ securities, but is only responsible for selecting and offering investments, with the final decision being made by the client.
Finally, it is important to clarify that the intermediary is responsible to its clients and to any third parties for the actions carried out by the investment advisor it hires.
The Resolution will come into force on June 1, 2023.
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