Financial services relating to the distribution of financial instruments | FinTech online course #15

Distribution of financial instruments| PayTechLaw | FinTech online course | sutthinon602

Today, we want to look at several financial services that may be eligible in connection with the distribution of financial instruments. These services include investment broking, investment advice, contract broking and portfolio management. The above-mentioned financial services are defined in Section 1 (1a) of the German Banking Act (KWG).

What is investment broking as distinct from contract broking?

Section 1 (1a) sentence 2 no. 1 KWG defines investment broking as the brokering of business involving the purchase and sale of financial instruments. An intermediary activity is required here. The brokerage services are provided by the person who, as a messenger, passes on the investor’s declaration of intent to the person with whom the investor wishes to conclude a contract on financial instruments. Furthermore, brokerage is also the targeted promotion of the investor’s willingness to conclude a contract. Accordingly, investment broking is also provided by anyone who consciously and finally acts on an investor so that the investor concludes a contract on the purchase or sale of financial instruments.

Investment broking is to be distinguished from contract broking. Section 1 (1a) sentence 2 no. 2 KWG defines contract broking as the purchase and sale of financial instruments on behalf of and for the account of others. Whereas in investment broking, the broker forwards a declaration of intent from the investor, in contract broking the broker makes his own declaration of intent on behalf of the investor. The broker acts in open representation for the investor

What is investment advice as distinct from financial portfolio management?

Section 1 (1a) sentence 2 no. 1a KWG defines investment advice as the provision of customers or their representatives with personal recommendations in respect of transactions relating to certain financial instruments where the recommendation is based on an evaluation of the investor’s personal circumstances or is presented as being suitable for the investor and is not provided exclusively via information distribution channels or for the general public. In other words, investment advice is given when a bank’s relationship manager recommends a particular share to his client based on an examination of the investor’s personal circumstances. Personal circumstances such as previous experience, risk tolerance and investment horizon are regularly queried by the bank in a WpHG questionnaire. However, no investment advice is given if, for example, a certain share is recommended on Youtube.

Investment advice must be distinguished from portfolio management. Section 1 (1a) sentence 2 no. 3 KWG defines portfolio management as the management of individual portfolios of financial instruments for others on a discretionary basis. While in the case of investment advice the investor himself – supported by the adviser’s recommendation – makes the investment decision, the asset manager makes the investment decision in the case of portfolio management. His discretion may be limited by investment guidelines.




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