CGP and CIF: What's the Difference?

In a June 2019 ruling, the Versailles Court of Appeals addressed the difference between the activities of wealth management advisors (CGP) and the status of financial investment advisors (CIF).

Preparing for retirement or wanting to grow an inheritance or a gift often leads people to consult a wealth advisor.

However, the generic term “wealth advisor” encompasses very different roles and activities.

Thus, the term “wealth advisor” encompasses both the activities of wealth management advisors (hereinafter referred to as CMAs) and the duties performed by financial investment advisors (hereinafter referred to as FIAs), who are subject to a regulated status.

However, the practice of wealth management advisors (WMAs) and the status of financial investment advisors (FIAs) have different implications for private investors.

For this reason, the legal classification of a wealth management advisor is a critical issue, as it determines the obligations of the advisor in question toward their clients.

This legal classification is determined both by the Monetary and Financial Code, which defined the status of CIFs, and by case law, which has clarified both the scope of a CIF’s activities and the role of a CGP.

First, CGP advisors do not have a regulated status and are therefore considered to be engaged in a specific professional activity.

Furthermore, according to the French Financial Markets Authority (AMF): “ Wealth management consulting is a generic, unregulated activity—without a legal definition or legal status—which generally encompasses, for professionals who claim to practice it, a dual set of expertise serving both individuals and legal entities: advice on wealth strategy and advice on investment, financial, and real estate strategies.”

“The rights and obligations of wealth management advisors toward their clients are governed by the general provisions of the Civil Code.”

As a result, a wide variety of professionals (bankers, insurance agents, notaries, attorneys, certified public accountants, and real estate agents) may provide wealth management advice, to the extent that their respective activities lead them to guide their clients on investments made.

As a result of this lack of a specific professional status, their rights and obligations toward their clients are governed by the general provisions of the Civil Code.

However, among wealth management advisors, a special status is accorded to professionals holding the title of Financial Investment Advisor.

In fact, since 2003, Financial Investment Advisors have had a specific status and definition established by Article 541-1 of the Monetary and Financial Code.

Furthermore, “Financial investment advisors are individuals who, as their regular profession, engage in the following activities:

– Investment advice as referred to in paragraph 5 of Article L. 321-1;

– Advice regarding the provision of investment services referred to in Article L. 321-1;

– Advice regarding transactions involving various assets as defined in Article L. 551-1.

Financial investment advisors may also receive, for the purpose of transmission, orders on behalf of a client to whom they have provided advisory services, subject to the conditions and limitations set forth in the General Regulations of the French Financial Markets Authority (AMF), and may engage in other wealth management advisory activities.”

As a result of this special status, the rights and obligations of financial investment advisors (CIFs) are governed not only by general law (insofar as, in most cases, they operate as wealth management advisors), but also by the special—and more restrictive—rules set forth in Articles 541-8-1 et seq. of the Monetary and Financial Code.

Case law may therefore take a broader view of the definition of a CIF and impose stricter rules regarding their status, which benefits private investors.

Thus, the courts consider that the profession of CIF is practiced not only by those who provide advice on the acquisition of real estate interests conferring equity interests in companies, but also by those who advise on investments in more complex transactions. For example, the acquisition of rights in an undivided estate intended to finance the purchase of electricity-generating equipment (Versailles Court of Appeal, 12th Chamber, June 25, 2019, No. 18/03928).

This expansion of the definition of a CIF naturally benefits private investors, as the CIF’s obligations toward them are more stringent—and therefore more protective—than the obligations arising from their activities as wealth management advisors (particularly regarding the CIF’s obligation to provide clear and non-misleading information about the proposed investment).

More generally, the strengthening of wealth management advisors’ obligations as established by case law counterbalances the fact that, increasingly, the financial risk of the investment transactions sold is being shifted to the private investor.