One of the main day-to-day activities of financial and banking companies is to disseminate a wealth of information to their clients to inform them or indicate the strategies to follow in relation to short-term conditions and medium-term market forces.
How this information is disseminated to clients is of major importance, both to the firms and to the recipient clients, i.e., investors and traders.
Above all, however, the way information is disseminated of decisive importance for economies, credit and financial markets. The determining importance is due to the fact that information in the form of a recommendation or advice about a type of product to a critical set of customers is likely to create a trend in the economy and markets and, therefore, systemic market risk. Remember the information that was given in the form of recommendations to a critical mass of clients in cases such as dot.com companies, securitized loans, government bonds, etc., where all these cases led to financial and market crises.
The difference between information and recommendations or advice is subtle
The big issue with disseminating information to the public and clients centres on the fact that the distinction between information and recommendations or advice is blurred. The point is that when financial companies or banks inform their customers about market conditions or the products they provide, they are indirectly or directly dictating this information in a way that suggests a personal recommendation or advice to the customers. In fact, it is common practice when providing information to their clients to suggest courses of action with specific recommendation guidelines, which are personal advice.
According to MiFID, investment advice means the provision of personal recommendations to a client, either at his request or at the initiative of the investment firm, regarding one or more transactions relating to financial instruments. A recommendation requires an element of opinion on the part of the adviser. In effect, the advice includes a recommendation as to a course of action that may be presented as being in the investor's best interest.
If the information given were available without discrimination directly and easily to all customers, it would not constitute a personal recommendation or advice. But in most cases, financial companies provide specific information to a specific type of customer whose profile they know is affected by that information. The goal is to direct these customers to specific strategic options for investing or trading financial products that are usually satisfied by the products provided by these financial companies. Essentially, the companies provide personal recommendations and advice to customers.
The investment profile and distribution channels
While a company may not intend to provide a recommendation to a customer, it can be found to do so if it allows the information it provides to become subjective so as to lead the customer to a particular product over others. Information is not a recommendation if it includes statements of facts or figures and the information is provided objectively without any comment or value judgment regarding an investor's decisions.
However, if a company knows the investment profile of a specific investor and uses it to determine a specific set of products to present as a portfolio suitable for that investor, then the service provided is equivalent to an investment recommendation or advice.
Everyone must be aware of the risks
When banks and financial firms have a deep understanding of the investment profile of their customers, then they have a powerful tool to indicate the investment products that are suitable for their customers. In this case, they make recommendations and advice to their customers. Knowing the client's investment profile is not negative action from a financial company, nor the recommendation and advice to clients.
However, they should know that if investment profiles use them en masse through specific channels, then given that they provide recommendations and advice to a critical mass of clients, they ultimately influence them en masse and, therefore, potentially participate in creating trends in the economy and markets. This means that they can potentially generate systemic risks such as market risk. And this is something that should not be ignored either by traders and investors or by companies. Mainly, however, it cannot be ignored by the institutions that supervise the proper functioning of the advisory service so that the systemic risk that is produced is manageable.
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. The Article/Information available on this website is for informational purposes only, you should not construe any such information or other material as investment advice or any other research recommendation. Nothing contained on this Article/ Information in this website constitutes a solicitation, recommendation, endorsement, or offer by LegacyFX and A.N. ALLNEW INVESTMENTS LIMITED in Cyprus or any affiliate Company, XE PRIME VENTURES LTD in Cayman Islands, AN All New Investments BY LLC in Belarus and AN All New Investments (VA) Ltd in Vanuatu to buy or sell any securities or other financial instruments in this or in in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. LegacyFX and A.N. ALLNEW INVESTMENTS LIMITED in Cyprus or any affiliate Company, XE PRIME VENTURES LTD in Cayman Islands, AN All New Investments BY LLC in Belarus and AN All New Investments (VA) Ltd in Vanuatu are not liable for any possible claim for damages arising from any decision you make based on information or other Content made available to you through the website, but investors themselves assume the sole responsibility of evaluating the merits and risks associated with the use of any information or other Article/ Information on the website before making any decisions based on such information or other Article.
Editors’ Picks
USD/JPY holds positive ground around 151.50 following Japanese CPI data
The USD/JPY pair holds positive ground for the second consecutive day near 151.45 on Friday during the early Asian trading hours. The cautious approach from the Bank of Japan to keep monetary conditions accommodative exerts some selling pressure on the Japanese Yen.
AUD/USD depreciates on risk aversion amid a stronger US Dollar
AUD/USD extends its losses for the second successive session on Friday. However, market activity is expected to be subdued due to light trading on Good Friday. Meanwhile, the US Dollar strengthens as recent data indicates annualized economic expansion in the United States, driven by consumer spending.
Gold price finishes Thursday’s session set to reach new all-time highs
Gold price rallied during the North American session on Thursday and hit a new all-time high of $2,225 in the mid-North American session. Precious metal prices are trending higher even though US Treasury yields are advancing, underpinning the Greenback.
Top 3 Price Prediction BTC, ETH, XRP: Retail watches from the sidelines with a bias for shorts
Bitcoin is showing strength as markets head into the Easter holidays. As it rises, altcoins are following suit, with Ethereum and Ripple posting almost similar gains. Meanwhile, there remains an unfilled CME Gap, with a lot of liquidity also resting above and below BTC price.
Bears have been standing before a steamroller so far this year
Despite a pushback on rate cuts from Christopher Waller, and what was supposed to be cautious trading sentiment ahead of critical US inflation data released later on Friday, the S&P 500 rose on Thursday, marking its best first-quarter performance in five years.
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