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Investor Profile

People are not all the same. And neither are investments.

Some like to wear tighter clothing, others baggy clothing.

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MiFID II — Markets In Financial Instruments Directive

Promote greater transparency | Increase investor protection | Adapt investment decisions to investor characteristics.

  • Transparency
  • Protection
  • Suitability
    • Transparency when trading financial instruments

    MiFID II enhances the transparency of transactions in financial instrument markets, in both the pre-trade and post-trade periods, as well as the reporting of information to the competent authorities. To this end, it introduced a set of measures for financial intermediation activity:

    Reporting to the competent authorities, namely to the Comissão do Mercado de Valores Mobiliários (Securities and Exchange Commission — CMVM) in Portugal, on transactions carried out with regard to the various financial instruments, within or outside the regulated market, including information such as the traded instrument, traded quantities and prices and the parties (buyer and seller) involved in each trade.

    Adoption of a specific policy to ensure better reception and transmission of orders for financial instruments when banks or other finance companies act on behalf of their customers. Please see the Best Bank Order Reception and Transmission Policy and the 2020 report.

    Provision of information on costs and charges associated with the various products and services, whether ex-ante or ex-post to the relevant trade or transaction.

    Provision of information on the nature, operation and risks of the various financial products and services, as well as their fiscal framework and target market.

    Disclosure of information on financial compensation, or compensation of another nature, received by financial intermediaries and their employees from third parties.

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    Investor protection in the provision of investment activities and services.

    MiFID II has introduced a set of measures aimed at enhancing investor protection, which include:

    Classification of customers as different types of investors: retail, professional and eligible counterparty. This classification has implications for investor protection, with regard to the various products and services purchased, since it corresponds to greater or lesser protection. The degree of protection set out by MiFID II is greater the lesser the Customer's knowledge and experience with regard to financial markets and instruments is estimated to be, with retail Customers therefore benefiting from greater protection.

    Recording of evidence of all contact with Customers prior to executing transactions on financial instruments. Recording telephone conversations or electronic communications involving Customer orders is justified in order to enhance investor protection, improve market surveillance and increase legal certainty for investment firms and their Customers. Such records should ensure that there is evidence to prove the terms of any orders given by Customers and their correspondence with transactions executed by investment firms, as well as to detect any behavior that may be relevant in terms of market abuse, namely when firms trade on their own account.

    Provision of information on costs and charges associated with the various products and services, whether ex-ante or ex-post to the relevant trade or transaction.

    Provision of information on the nature, operation and risks of the various financial products and services, as well as their fiscal framework and target market.

    Disclosure of information on financial compensation, or compensation of another nature, received by financial intermediaries and their employees from third parties.

    Where orders are communicated by Customers through channels other than by telephone, such communications must be made through a durable medium such as mail, email or documentation of Customer orders made at meetings. For example, the content of a face-to-face conversation with a Customer may be recorded by minutes.

    Adoption of a policy for managing conflicts of interest in financial intermediation activities. Please see the Best Bank Conflict of Interest Policy.

    Reinforcement of training for employees who provide information about financial products and services or who provide investment advice services.

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    Adapting investment decisions to investor characteristics

    In order to adapt products and services to investor characteristics, in particular to their knowledge and experience, ability to bear losses, risk tolerance and objectives and needs, MiFID II sets forth that producers (creators of financial products) should define a target market for each product or service.

    This target market can be subdivided into:

    Positive target market: Identifies the characteristics of investors for whom the product in question is particularly suitable.

    Negative target market: Identifies the characteristics of investors for whom the product in question is not suitable, and investors with these characteristics are even advised not to buy said product.

    By completing the investor profile questionnaire, we will help you identify your characteristics in terms of your knowledge and experience, ability to bear losses, risk tolerance and objectives and needs, and thus, depending on the information about the target market for a particular product, you can easily see whether or not it is suitable for you.



    For this classification, we will assess the investor's level of knowledge and experience of different financial products and services, with the aim being to determine whether the investor has the ability to understand their characteristics and the risk and return profile. This assessment takes into consideration, among other aspects, the investor's previous experience with the different products and services, their academic qualifications, and their proven level of knowledge on these products, evaluated based on their answers to a number of questions in the knowledge assessment.

    Under MiFID II, except in situations where the acquisition of a specific non-complex product or service occurs at the Customer's sole initiative and the Customer does not resort to loans to acquire said product or service, Best Bank will always assess the proper character of the operation. In other words, it will assess whether the investor's knowledge and experience is sufficient to understand the characteristics of the product or service in question and the risk and return profile. Therefore, if you receive a warning when purchasing or subscribing to a product or service that such product or service is not appropriate for your investor profile, this means that Best Bank considers that your knowledge and experience is insufficient to understand the characteristics and risk and return profile of that product or service. You may, however, continue with the operation if you disagree with the assessment carried out by Best Bank, thus waiving the protection associated with the suitability assessment, and if you consider that you have sufficient and necessary experience to understand the inherent risks.

    According to the answers given in the investor profile questionnaire, investors can be classified as:

    Level of knowledge Investor experience
    Beginner Investor with basic knowledge who does not necessarily have previous knowledge or experience of similar financial products, but does have the ability to understand the product and its risk and return profile, and to make an informed investment decision based on the information available in the documentation of the approved and authorized offer.
    Informed Investor with intermediate knowledge of the financial products in question who is able to make an informed investment decision based on the documentation of the approved and authorized offer, and also has the knowledge and ability to understand the specific risks identified in the offer documentation that may result from previous experience of investing in similar financial instruments.
    Advanced Investor with advanced knowledge and a comprehensive understanding of the financial product, its risk and return profile, likely resulting from significant experience in the financial sector and/or frequent trading of financial instruments of a similar nature, risk and complexity.
    Expert Investor with expert knowledge and extensive understanding of the financial product and its risk and return profile, associated with experience in highly specialized financial products such as CFDs, Forex, Options, Warrants or Futures.

    For this classification, we will assess the financial situation of the investor, or their household where relevant, and determine the investor's ability to bear losses. This assessment takes into account several factors, including but not limited to the savings rate, net worth, age and family situation. The ability to bear losses will be greater the greater the investor's ability to recover from these losses within a reasonable period of time and restore the previous assets.

    According to the answers given in the investor profile questionnaire, investors' ability to bear losses can be classified as:

    Investor's ability to bear losses
    Capital guarantee An investor whose financial, personal and family situation does not allow them to bear losses, or who is not prepared to bear losses. Small losses arising from costs are permissible.
    Capital loss of up to 10% An investor whose financial, personal and family situation only allows them to bear partial capital losses up to an indicative value of 10% of their total net financial assets. The 10% loss of capital can be interpreted as the indicative maximum exposure of the investment portfolio, which should be allocated to investment with no capital guarantee.
    Capital loss of up to 25% An investor whose financial, personal and family situation only allows them to bear partial capital losses up to an indicative value of 25% of their total net financial assets. The 25% loss of capital can be interpreted as the indicative maximum exposure of the investment portfolio, which should be allocated to investment with no capital guarantee.
    Capital loss of up to 50% An investor whose financial, personal and family situation only allows them to bear partial capital losses up to an indicative value of 50% of their total net financial assets. The 50% loss of capital can be interpreted as the indicative maximum exposure of the investment portfolio, which should be allocated to investment with no capital guarantee.
    No capital guarantee An investor whose financial, personal and family situation allows them to invest with no capital guarantee, i.e., they can bear the total loss of the capital invested.
    Loss beyond capital An investor whose financial, personal and family situation allows them to bear losses in excess of the capital invested.

    For this classification, we will assess the investor's general attitude toward investment risk. An investor with low risk tolerance, or who is risk-averse, is an investor who prefers investments with a more certain expected return to investments with a significantly higher expected return and consequently a more uncertain outcome. Conversely, for an investor with high risk tolerance, it is sufficient that the expected return on the most uncertain investment is only marginally higher than the expected return on the least risky investment (with a less uncertain outcome), meaning that this investor prefers a riskier investment.

    In the case of collective investment bodies established under the European Directive on Undertakings for the Collective Investment in Transferable Securities (UCITS), a fund's risk level is shown as the Synthetic Risk and Reward Indicator (SRRI), which varies between 1 (lowest risk) and 7 (highest risk).

    Under new European regulations on Packaged Retail and Insurance-based Investment Products (PRIIPs), there is also a Summary Risk Indicator (SRI) for these products, which also ranges from 1 (lowest risk) to 7 (highest risk).

    In order to simplify the analysis for the investor, and according to the answers given in the investor profile questionnaire, Best Bank assesses the risk tolerance of its Customers on a scale from 1 (very low risk tolerance) to 7 (very high risk tolerance).

    Risk tolerance
    1 to 2 Low Low risk tolerance, i.e. prepared to accept a low level of price fluctuation.
    3 to 4 Medium Medium risk tolerance, i.e. prepared to accept a medium level of price fluctuation.
    5 to 7 High High risk tolerance, i.e. prepared to accept a high level of price fluctuation.

    For this classification, we will assess what the objectives and need for investment are, including the expected investment time horizon.

    Depending on the answers given in the investor profile questionnaire, the main investment objective may be:

    Objective
    Preservation Investors whose main concern is to preserve the invested capital.
    Return Investors seeking to obtain regular sources of return, including interest or similar, through their investments.
    Growth Investors seeking to obtain value for assets and are prepared to put capital at risk to achieve it.
    Options or leverage Investors seeking to obtain value for assets through loans or leveraged instruments in order to try to maximize value.

     

    The investment time horizon takes into account future expenses planned by the investor, such as real estate acquisitions, vehicle purchases or debt repayment.

    When making investment decisions, the investor should consider the recommended holding period envisioned for each product or service, as well as the existence of immobilization periods that prevent redemption or repayment or the existence of redemption fees. They should also take into account the possibility that the product may terminate early at the issuer's discretion, at the investor's discretion or due to automatic refund mechanisms (autocallables).

    According to the answers given in the investor profile questionnaire, the various different time horizons can be grouped as:

    Time horizon
    Very short-term Investment up to one year
    Short-term Investment between one and three years
    Medium-term Investment between three and five years
    Long-term Investment longer than five years
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