SGC
Portfolio management company
“The investment firm specialized in portfolio management and advice, with lighter capital requirements, but which cannot hold client funds or instruments.”
Discretionary Portfolio Management in Spain: Rules, Requirements and Authorization
We help you provide (or contract with proper safeguards) discretionary, client-by-client portfolio management under MiFID II and Law 6/2023: investment firm (ESI) authorization, the management agreement and mandate, the suitability test, the inducements ban and periodic client reporting.
Free consultation
We reply within 24 h
- Depreciation alert
- 10%
- Minimum periodic report
- Quarterly
- Key legislation
- Law 6/2023
- Legal regime of investment firms
- Royal Decree 813/2023
Services
How we handle portfolio management
Six building blocks to launch and run a discretionary portfolio management service under MiFID II, from investment firm authorization to the agreement, suitability, inducements and client reporting.
Authorization
Investment firm authorization for portfolio management
We handle the CNMV authorization of the investment firm that will provide discretionary portfolio management, with its program of activities and organizational requirements.
Learn more →
CNMVInvestment firmLaw 6/2023Royal Decree 813/2023
Agreement
Management agreement and client mandate
We draft the discretionary management agreement with the client’s mandate and investment profile, setting out the objectives, risk limits and the criteria the manager must follow.
Learn more →
MandateProfileStandard agreement
Suitability
Suitability test
We design the mandatory suitability test that assesses the client’s knowledge, financial situation and objectives before their portfolio is managed.
Learn more →
SuitabilityProfiling
Clients
Client classification
We classify the client as retail or professional, with the protection that this entails. In portfolio management, the client cannot be treated as an eligible counterparty.
Learn more →
RetailProfessional
Inducements
Inducements ban
We adapt the fee model to the ban on receiving or retaining inducements (retrocessions) in portfolio management, avoiding conflicts of interest.
Learn more →
RetrocessionsConflicts
Reporting
Best execution and periodic reporting
We implement the best execution policy and periodic client reports, including the notice when the portfolio depreciates by 10%.
Learn more →
Best execution10% threshold
Who provides it
Who can manage portfolios
Discretionary portfolio management is reserved to authorized entities: broker-dealers and securities brokers, portfolio management companies, collective investment scheme management companies and credit institutions. Financial advisory firms (EAFs), by contrast, can only advise.
SV / AV
Broker-dealer and securities broker
“The most comprehensive investment firms: they can provide portfolio management alongside other investment services, with higher capital and organizational requirements.”
SGIIC
Collective investment scheme manager
“Collective investment scheme management companies can provide discretionary portfolio management, including for pension funds, as an additional service.”
Banking
Credit institutions
“Banks provide discretionary portfolio management through their private banking arms, subject to the same MiFID II conduct rules.”
Why it matters
Why are the portfolio management rules so demanding?
In discretionary management the manager decides for the client, so the rules raise the level of protection: prior authorization, a suitability test, an inducements ban and enhanced reporting. Failing to comply exposes the firm to action by the CNMV.
The original mistake: providing the service without authorization. Discretionary portfolio management is an investment service reserved to entities authorized by the CNMV.
No suitability, no management: the suitability test is mandatory before providing the service. Managing without assessing the client breaches the conduct rules.
Inducements are prohibited: in portfolio management, the firm cannot receive or retain retrocessions from third parties, to avoid conflicts of interest.
MiFID II
10% threshold
You must inform the client when the overall value of the portfolio depreciates by 10% compared with the last report.
Classification
No eligible counterparty
In portfolio management, the client cannot be treated as an eligible counterparty; retail or professional protection still applies.
Royal Decree 813/2023
Mandate
The manager may only operate within the agreed mandate and profile. Going beyond the mandate gives rise to liability.
Planning to offer portfolio management?
Whether you want to get an investment firm authorized to manage portfolios or need to put the agreement, suitability, inducements and client reporting in order, it pays to design the service properly from the start.
Frequently asked questions
Portfolio management: common questions
What is discretionary portfolio management?
It is the investment service in which the firm manages the client’s investments under a mandate set out in a management agreement: the client entrusts it with selecting products, making decisions and executing transactions. It is also called discretionary portfolio administration.
How does it differ from investment advice?
In investment advice, the firm recommends and the client decides on each transaction. In discretionary management, the manager decides and executes for the client, within the agreed mandate and profile, without consulting the client on each transaction.
Who can provide portfolio management?
Authorized entities:
- Broker-dealers and securities brokers.
- Portfolio management companies (SGC).
- Collective investment scheme management companies (SGIIC), as an additional service.
- Credit institutions.
EAFs cannot manage portfolios: they can only advise.
Is the suitability test mandatory?
Yes. Before providing discretionary portfolio management, the firm must carry out the suitability test, which assesses the client’s knowledge and experience, financial situation and investment objectives.
Can you collect retrocessions or inducements?
No. A firm that provides discretionary portfolio management cannot receive or retain inducements (retrocessions) from third parties in connection with the service, so that it keeps acting in the client’s best interest.
What information does the client receive?
Periodic information on the service (as a general rule, at least a quarterly report on the state of the portfolio) and a specific notice when the overall value of the portfolio depreciates by 10% compared with the last report.
Can the manager operate without consulting the client?
Yes, that is the essence of discretionary management: the manager decides and executes without consulting the client on each transaction, but always within the mandate and the risk profile agreed with the client.
Which rules govern it?
Law 6/2023 on Securities Markets and Investment Services, Royal Decree 813/2023 on the legal regime of investment firms (ESIs) and the EU rules in MiFID II (Directive 2014/65/EU) and MiFIR (Regulation (EU) 600/2014), under the supervision of the CNMV.
People also ask
Entity types, capital and types of management
What is a portfolio management company (SGC)?
It is the specialized investment firm whose main activity is discretionary portfolio management and investment advice. It has lower capital requirements, but it cannot hold client funds or financial instruments.
Can an EAF manage portfolios?
No. A financial advisory firm (EAF) is only authorized to provide investment advice. To manage portfolios, you need another type of investment firm (a broker-dealer, a securities broker or a portfolio management company).
Can the client be classified as an eligible counterparty?
Not for portfolio management. The eligible counterparty category only applies to services such as reception and transmission of orders, execution of orders or dealing on own account. In portfolio management and investment advice, the client is retail or professional.
How much capital does an investment firm need to manage portfolios?
It depends on the type of investment firm: broker-dealers (sociedades de valores) face the strictest requirements, securities brokers (agencias de valores) somewhat lower ones, and portfolio management companies the lightest. The exact figure follows from Royal Decree 813/2023, depending on the services authorized.
Does portfolio management include pension funds?
SGIICs are authorized to provide discretionary, client-by-client management of investment portfolios, including those belonging to pension funds, under their own regime.
What is the difference between discretionary and advisory management?
In discretionary management, the manager decides and executes for the client. In so-called advisory management (which is in fact investment advice), the firm proposes and the client approves each transaction. The information and suitability rules differ in each case.
Entity types and scope
Which entity can manage portfolios: a comparison
Not all investment firms are equal when it comes to managing portfolios. We help you choose the right entity type and set up the service with suitability, inducements and reporting already sorted out.
What determines the scope (and cost) of the project
Launching portfolio management depends on the entity type chosen, the client profile and the fee model. An SGC is not the same as a broker-dealer offering every service.
- Entity type
- SGC, securities broker or broker-dealer, SGIIC or credit institution.
- Suitability
- Design of the test and of client profiling.
- Inducements
- A fee model compatible with the retrocessions ban.
- Reporting
- Periodic reports and the 10% depreciation alert.
How we run the project
We start from the entity type and the business model, handle the authorization and leave the agreement, suitability and client reporting in place.
- Choice of investment firm type and program of activities.
- CNMV authorization and organizational requirements.
- Management agreement, suitability, inducements and periodic reporting.
| Entity type | Portfolio management company | Securities broker | Broker-dealer | SGIIC |
|---|---|---|---|---|
| Portfolio management | Yes (main activity) | Yes | Yes | Yes (additional service) |
| Other investment services | Limited (management and advice) | Broad (on behalf of third parties) | All (incl. own account) | Own collective investment scheme regime |
| Holding client funds | No | Depends on authorization | Yes | Depends on its regime |
| Capital (indicative) | The lowest | Intermediate | The highest | Under the collective investment scheme regime |
| Suitability test | Mandatory | Mandatory | Mandatory | Mandatory |
Indicative table. The scope of each entity type and its capital requirements follow from Law 6/2023 and Royal Decree 813/2023, depending on the services authorized. The most suitable entity type should be analyzed case by case.
Practical guide
How to launch a portfolio management service: a practical guide
Managing portfolios is not just about investing well: it requires an authorized entity, a clear mandate, a properly profiled client and flawless reporting. The legal architecture of the service protects both the client and the firm.
Get authorized and define the mandate
The service requires an authorized investment firm and a management agreement setting out the client’s mandate and risk profile. Without authorization and a mandate, you cannot manage on a discretionary basis.
Suitability and inducements
Suitability is assessed before managing, and the fee model is adapted to the retrocessions ban, avoiding conflicts of interest in product selection.
Report and monitor
The portfolio is managed within the profile and reported on periodically, with an alert if it depreciates by 10%. Compliance with the mandate is monitored continuously.
10-step checklist for a portfolio management service
- Entity type: choose the right investment firm (SGC, securities broker or broker-dealer) or the applicable regime.
- Authorization: file the authorization application and the program of activities with the CNMV.
- Organization: requirements on resources, control functions and conflict-of-interest management.
- Agreement: draft the management agreement with the client’s mandate.
- Profile: set the portfolio’s objectives, time horizon and risk limits.
- Suitability: carry out the suitability test before providing the service.
- Classification: classify the client as retail or professional.
- Inducements: set up fees without receiving or retaining retrocessions.
- Execution: apply the best execution policy to transactions.
- Reporting: send periodic reports and give notice of a 10% depreciation.
If you want to set up or review your portfolio management service, see our securities market regulation practice or our page on investment firm authorization.
Portfolio management in practice
From mandate to periodic reporting
Discretionary portfolio management rests on four pieces: authorizing the entity, contracting the mandate, profiling through suitability, and managing and reporting. Here is a visual overview of how it works in practice.
1) AuthorizeAuthorize: the investment firm type
The starting point is an entity authorized by the CNMV to provide portfolio management, with its program of activities.
- Choice of entity type
- Program of activities
- Organizational requirements
2) ContractContract: the mandate
The management agreement sets out the mandate, the objectives and the risk limits within which the manager will act.
- Client mandate
- Risk profile
- Standard agreement
3) ProfileProfile: suitability and the client
Before managing, suitability is assessed and the client is classified, with the protection that applies to them.
- Suitability test
- Client classification
- Consistency with the profile
4) Manage and reportManage and report: day to day
The manager makes decisions within the mandate, applies best execution, receives no inducements and reports periodically, with an alert if the portfolio depreciates by 10%.
Tip: documenting that each transaction fits the mandate and the profile is the best defense against a complaint or a CNMV review.
Quick decisionPractical map: management or advice?
You decide for the client
It is discretionary management: you need an authorized entity, a mandate and a suitability assessment.
You recommend and the client decides
It is investment advice, with its own regime.
You only execute orders
It is reception/execution of orders, with a lower level of assessment.
Portfolio management playbook
The portfolio management service, phase by phase
Authorization
Choosing the type of investment firm and filing the program of activities with the CNMV.
Authorization decision and registration with the CNMV.
Contracting
Signing the management agreement with the mandate, the objectives and the risk limits.
Management agreement and documented mandate.
Profiling
Carrying out the suitability test and classifying the client before managing.
Suitability test and client file.
Management
Investment decisions within the mandate, with best execution and no inducements.
Transaction records and execution policy.
Reporting and control
Periodic client reports and the 10% depreciation alert, with monitoring of the mandate.
Periodic reports and threshold alerts.
Common mistakes in portfolio management
Spot them before the CNMV does.
- Providing the service without the required authorization.
- Managing without having carried out the suitability test.
- Receiving or retaining third-party retrocessions in portfolio management.
- Operating outside the agreed mandate or risk profile.
- Not sending the periodic reports or the 10% depreciation alert.
Working glossary
Key concepts in portfolio management
If you are going to provide or contract discretionary portfolio management, these terms appear in the agreement and in dealings with the CNMV. Understanding them helps you set up the service with sound judgment.
Discretionary managementBasics
Investment service
Management of the client’s investments in which the firm decides and executes on the client’s behalf, within a mandate. Also called discretionary portfolio administration.
A service reserved to authorized entities.
MandateAgreement
Management mandate
The client’s instruction, set out in the management agreement, that fixes the portfolio’s objectives, time horizon and risk limits.
It sets the boundaries of the manager’s actions.
SuitabilityConduct
Suitability test
A mandatory assessment, before managing, of the client’s knowledge and experience, financial situation and investment objectives.
Art. 116 of Royal Decree 813/2023.
ESIEntity type
Investment firm (empresa de servicios de inversión)
An entity authorized to provide investment services: broker-dealers and securities brokers, portfolio management companies and EAFs.
Governed by Law 6/2023 and Royal Decree 813/2023.
SGCInvestment firm
Portfolio management company
An investment firm specialized in portfolio management and advice, with lower capital and no holding of client funds or instruments.
A specific type of investment firm.
InducementsConflicts
Retrocessions
Payments from third parties for placing products. In portfolio management, receiving or retaining them is prohibited.
Art. 121 of Royal Decree 813/2023.
ReportingClient
Periodic reporting
A report on the state of the portfolio, as a general rule at least quarterly, that keeps the client informed about the service.
MiFID II reporting rules.
10% thresholdAlert
10% depreciation
The obligation to inform the client when the overall value of the portfolio depreciates by 10% compared with the last report.
A specific MiFID II notice.
Best executionOperations
Execution policy
The obligation to obtain the best possible result for the client when executing portfolio transactions.
MiFID II best execution.
Contact
Book a call
Tell us about your portfolio management project and we will help you choose the entity type, get the investment firm authorized and set up the agreement, suitability and client reporting.
Regulatory framework for discretionary portfolio management: MiFID II and Law 6/2023
Discretionary, client-by-client portfolio management is an investment service governed by Law 6/2023 on Securities Markets and Investment Services and Royal Decree 813/2023 on the legal regime of investment firms (ESIs), which transpose the EU rules in MiFID II (Directive 2014/65/EU) and MiFIR (Regulation (EU) 600/2014), under the supervision of the CNMV. The firm manages the investments under a mandate from the client, deciding on and executing transactions on the client’s behalf.
Who may provide it
It is reserved to authorized entities: investment firms (broker-dealers, securities brokers and portfolio management companies), collective investment scheme management companies (which may manage portfolios, including those belonging to pension funds, as an additional service) and credit institutions. Financial advisory firms (EAFs), by contrast, can only advise.
Suitability, inducements and reporting
The suitability test is mandatory before providing the service (Article 116 of Royal Decree 813/2023). The firm cannot receive or retain inducements (retrocessions) in portfolio management (Article 121 of Royal Decree 813/2023). It must send the client periodic information (as a general rule, at least quarterly) and notify the client when the overall value of the portfolio depreciates by 10% compared with the last report.
Client classification and mandate
In portfolio management, the client is classified as retail or professional and cannot be treated as an eligible counterparty. The manager may only operate within the agreed mandate and risk profile. Going beyond the mandate gives rise to liability toward the client and the supervisor.
Securities market services
MiFID II and conduct rules
Resources and blog
Official sources
Key legislation, linked to the official text:
- Royal Decree 813/2023 of November 8 on the legal regime of investment firms and other entities providing investment servicesBOE · consolidated text
- Law 6/2023 of March 17 on Securities Markets and Investment ServicesBOE · consolidated text
- Directive 2014/65/EU of May 15, 2014 on markets in financial instruments (MiFID II)EUR-Lex · Official Journal of the EU
Legislation and links reviewed in .