Frequently Asked Questions about Investment Advisors

1. What is an Investment Advisor?

Investment Advisors are natural and legal persons who, without being securities market intermediaries, habitually and professionally provide securities portfolio administration services by making investment decisions on behalf of and for the account of third parties, habitually and professionally providing investment advice on securities, and individually analyzing and issuing investment recommendations.

2. Are Investment Advisors required to be registered with the National Banking and Securities Commission?

Yes. Article 225 of the Securities Market Law establishes that to be an Investment Advisor, one must register with the Commission. To do so, natural persons must demonstrate honorability and a satisfactory credit history, in accordance with the general provisions issued by the Commission itself, as well as hold certification from an self-regulatory organization for natural persons. On the other hand, legal persons must be joint-stock companies under the terms of the General Law of Commercial Societies and comply with requirements such as having their corporate purpose and bylaws provide for the performance of these activities, having physical establishments dedicated exclusively to the performance of their corporate purpose, among others.

From the date on which Investment Advisors carry out the registration with the Commission referred to in the second paragraph of Article 225 of the Securities Market Law, the Commission will exercise exclusively the supervisory powers over Investment Advisors in matters of prevention and detection of acts, omissions, or operations that could favor, assist, aid, or cooperate in any manner for the commission of the crimes provided for in Articles 139 or 148 Bis of the Federal Penal Code, or that could fall under the circumstances of Article 400 Bis of the same Code.

3. What aspects should I consider when hiring the services of an Investment Advisor?

To hire the services of an Investment Advisor, the client must have an account or brokerage intermediary contract with an intermediary authorized to carry out operations on the Mexican Stock Exchange and provide the Investment Advisor with a mandate authorizing them to issue instructions on behalf of their clients, or be authorized to do so in the brokerage intermediary contract. Operations with securities ordered by the advisor must be documented in the client's name.

Advisors are prohibited from receiving in deposit, administration, custody, or as collateral, money or securities belonging to their clients, except for remuneration for the provision of their services.

The obligations and prohibitions of Investment Advisors are established in Articles 226 and 227 of the Securities Market Law.

4. What is the difference between a Representative to Conduct Operations with the Public and an Investment Advisor?

The Representative attends to the public on behalf of a financial institution, which grants them the corresponding power to conduct securities operations with the public in compliance with brokerage intermediary contracts, and the financial institution pays remuneration to the representative.

An Investment Advisor (natural or legal person) establishes a direct link with the investor, who grants them a special power of attorney or mandate to order the execution of securities operations in their name. In this case, the investor pays the advisor a remuneration for their services.

5. What questions should I ask when choosing an Investment Advisor?

Before hiring the professional services of an Investment Advisor, you must know exactly what services you need, what services the professional can offer, what services you are paying for, how much the services cost, and how the investment advisor is remunerated. These are some of the questions recommended when hiring any Investment Advisor:

• What experience do you have, especially with people who have the same investment horizon as I do?
• What technical preparation do you have? What is your recent employment history? Are you certified by the Mexican Association of Securities Intermediaries (AMIB) and authorized by the National Banking and Securities Commission? What products and services do you offer? Are you limited to recommending only a specific number of products or services? If so, why?
• How are you paid for your services? What is your usual hourly rate, flat fee, or commission?
• Have you ever been sanctioned by any financial regulator for unethical or improper conduct, or have you been sued by a client who was not satisfied with the work you performed?

6. How are Investment Advisors remunerated?

Before hiring an investment advisor, you must ensure you understand how that person is remunerated for their services. Investment advisors generally charge for their services by determining a monthly percentage of the value of the assets they manage for you. However, an investment advisor could charge for their services in any of the following ways:

• An hourly rate for the time they dedicate to working for you;
• A fixed fee;
• A commission on the securities traded as a result of their advice;
• A combination of the above.

Each compensation method has possible benefits and disadvantages, depending on your individual needs. Ask the investment advisors you interview to explain the differences before doing business with them, and obtain several opinions before making your decision.

7. Where can you verify if an Investment Advisor or any of their employees has been sanctioned by the National Banking and Securities Commission?

The National Banking and Securities Commission publishes through the internet the sanctions it imposes on natural and legal persons. If you wish to consult, please click on the following link.