Portfolio management company (SGC)

A portfolio management company (SGC) is an investment services company (ESIs) that has the power to provide investment portfolio management services for its clients in Spain.

First of all, it must be taken into account that a portfolio management company cannot act on its own behalf. They can only carry out operations on behalf of their clients. Therefore, the powers of the portfolio management company are limited compared to those of the securities companies .

Furthermore, the SGC can only provide investment services related to discretionary management, administration of investment portfolios and financial advice. In the case of discretionary management, the investor delegates his own powers to the company, which makes investment decisions on its assets. In advice, it is the investor himself who makes the final decision on the proposed securities and other financial assets, such as structured product .  

Portfolio management companies were created with the purpose of offering a specialized service. In principle, they try to be an alternative to credit institutions that provide investment services. In addition, in order to authorize a QMS for the provision of investment services, it is required, by regulation, that the board members have a recognized professional honor in the sector. For this reason, the degree of specialization of this type of companies is usually quite high.

Supervision of portfolio management companies (SGC) in Spain

According to the regulations, the CNMV supervises all those entities authorized to provide investment services:

  • Investment services companies
    • Securities company (SV)
    • Securities agency (AV)
    • Portfolio management company (SGC)
  • Management companies of collective investment institutions (SGIIC)
  • National credit institutions (investment services providers)
  • Foreign credit institutions (authorized to operate in Spain)

Furthermore, the investor can check in the official records of the CNMV which portfolio management companies are actually authorized. The National Securities Market Commission (CNMV)  is the competent supervisory body that authorizes these investment proposal services to companies and individuals.

Under the Spanish legislative framework, the EAF, formerly known as EAFI (financial advisory companies) do not fall within the list of investment services companies.

Types of investment service companies

They appear regulated in the Securities Market Law and in RD 217/2008, of February 15, on the legal regime of Investment Service Companies:

  • Securities company (SV):They are legitimized to offer all kinds of investment services both for others and for their own account.
  • Securities agency (AV):They are only authorized to operate on behalf of others.
  • Portfolio management company (SGC):Its functions are limited to the discretionary management and advice of investment portfolios.

Representatives of the portfolio management companies

Portfolio management companies can carry out their activity through the head office or through branches. In addition, they have the possibility of granting powers to representatives to market the services of the SGC. Said representatives maintain a commercial relationship with the SGC. In other words, the representatives are not salaried workers of the SGC but rather provide certain services in exchange for a variable remuneration or commission. Payments are formalized with invoices, not through a payroll.

On the other hand, the representatives are not authorized to provide all the services of the SGC. In no case can they act on their own behalf, but all their activities are carried out in the name and on behalf of the portfolio management company.

The following table shows the activities and services that, in any case, the SGC (parent company and branches) of which the representatives may be empowered:

Activities and services (SV) Authorized representatives
Financial advice to companies and investors Yes
Discretionary portfolio management Do not

 

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