Dear Sir,

We don’t know if you can help or if you deal with these sorts of queries, but we moved to France a little while ago and have had meetings with several advisers from both in the UK before moving here and here since moving with both French and English speakers (our French is pretty good) to sort out our investments left from moving. The problem is that we have seen advisers in the UK who tell us their investments bonds can be used in France, but our French bank says this is not the case, and then a euro adviser here in France told us that he can give us contracts from Ireland as these are the best. We are not only confused as to which of these options is best as they are all so different, but how it is that they can be so different, and we have tried to see on the internet what the differences are in the advice but have found nothing we understand, and one friend told us that he was told that France is now worse than the UK for regulation. As we have quite a lot to invest and are desperate to get some information to make no mistakes, are you able to us help us, anything, please?

Name withheld

Answer:

Thanks for your question and, yes, a big question, which, whilst it is a very important one, does not alter the fact that the answer is quite involved.

Above all, the first and most important issue must be to ensure that the people giving you advice are appropriately licensed to do so, as the provision of financial advice is regulated throughout Europe – although still to different degrees depending on the country concerned.

In respect of the UK, and taking the UK as a first example since you are moving from there, this is set out in the Financial Services and Markets Act, the Financial Services Authority (FSA) being the organisation that acts as Regulator. In the FSA’s Handbook, it states that a person needs to be regulated if they have a business and, through this business, will be conducting the provision of ‘regulated activities’, or including these in any other business activity they may have. The Handbook then goes on to list what the law (section 22 of the Act) considers these ‘regulated activities’ to be, there being some forty separate activities listed (excluding the sub-classes), but including the ones probably most relevant to your enquiry: acting as agent in arranging insurance contracts, or contracts of investment for you. The law then continues to detail the rules that are applicable not only to the adviser, but also the advice, and the products themselves.

However, when people such as yourselves decide to live permanently abroad this creates a slight dilemma. To understand this, a little knowledge of the past is required in that until fairly recently, in the UK for example, due to the fact that the FSA regulations only apply to the UK, a regulated UK broker could only give advice from the UK, and to a UK permanent resident, and using UK regulated products. As a result, if the client was temporarily overseas, or moved overseas, the adviser was usually always bound to advise an overseas client in writing otherwise the client had to return to UK soil.  The point here is that, in this way, the adviser could clearly show that the advice he had given had come from the same country in which it, the advice, and he, the adviser, and any products recommended, were regulated. However, over the last few years, the European Union has been extending the rights of brokers and advisers in one country to displace themselves within the EU so as to be able to continue dealing with their clients who have moved broad, requiring the rules to be changed and, as a result, creating new ‘rights’. This new situation is generally referred to as “passporting” where brokerage is concerned, but is then complicated by the fact that one country’s definition of an adviser may not be the same as another country’s. Nonetheless, it is quite a move because, until the changes, regulated advice was always considered to be given from the physical place in which the adviser was situated at the time the advice was given, often requiring the adviser to obtain proof of the location from where the advice was given if this was not the client’s home or office, or the adviser’s own office.

Under the new EU rules, regulated advice is now considered to be given from where the adviser’s business is registered with the regulatory authority, so allowing the adviser greater mobility throughout the European Union to deal with his clients.  Notwithstanding this, it is nevertheless important to remember that even though the advice/brokerage may actually be provided in a country other than the UK by the UK regulated adviser/broker, the advice/brokerage are still UK-based activities that are regulated by the FSA – given to UK permanent residents (even though now abroad) and, where appropriate, favouring FSA regulated contracts.  

Indeed, the French “Organisme pour le Registre des Intermédiaires en Assurance” (ORIAS) which retains the list of regulated French and foreign life assurance financial intermediaries in France confirms this rather succinctly, stating on their register that “passporting” registrations are to enable a foreign adviser to carry out their foreign-regulated business activity in France.  And there is also a comment on the UK Ombudsman’s web site to the same effect.

The other side to all of this “passporting” of course is that under the new rules a financial advisory/brokerage firm of one country can now seek full regulation in another country by “exporting” their home country’s regulatory rights into another EU country.  As a result of having established a new regulated business in the other country, the adviser can then advise and sell to that other country’s permanent residents irrespective of their nationality, only their is a practical ‘but’ – professional indemnity insurance and licensing rights are still a huge hurdle to overcome despite the apparent flexibility in the regulatory law.

Crossing the channel to look at the position in France, the situation is similar although, yes, your friend is probably correct in that regulatory requirements are now more cumbersome in France than in the UK due to France’s ‘penchant’ for being administratively heavy, but let us not forget that the new rules stem from the EU. 

However, one reason for which France is definitely more cumbersome than the UK is that France has several regulatory mechanisms and organisations, with each one being dependant on the nature of the advice or of the product area being provided.

Essentially, therefore, there are probably only two of these French regulatory mechanisms that would seem to apply to you:

• the first is the ‘Code des Assurances’ (CdA for short) which covers everything relating to the activity of broking ‘insurance’ and ‘assurance’ (in UK parlance), the French only using the one word to cover the two areas : « assurance ». With regards to French “assurance” brokers, article L511-1-I of this Code confirms that anyone involved in presenting, proposing or aiding to conclude “assurance” contracts, or involved in any work leading to a contract being concluded, comes under the rules of the Code, with article L512-1-I then confirming that such persons (other than employees) need to appear on a central Register.
• The second regulatory scheme probably applicable to you is comes from the ‘Code Monétaire et Financier’ (CMeF) which, although partly covering « assurance » activities such as handling transactions and effecting fund swithces, does also deal with the provision of all other forms of financial advice. The CMeF will specifically include, amongst other things, investment advice which, per article L541-5, requires the advisers to regulated through membership of a professional association. 

As always, though, the application of the rules leaves many grey areas, resulting in French advisers having to take extreme care in what they do - and how they do it practically – because, for example, the above CdA article L511-1-I does seem to really restrict a broker to only “... presenting, proposing or aiding to conclude... ” contracts, and so excludes the broker from all other forms of advice or intervention in their clients’ financial affairs.

As a result, contrary to the UK where the advice and the brokerage activity are regulated by the same Regulator, not so in France: so whilst a French assurance broker can only comment on the products he is broking and explain their impact, that broker cannot advise on the fiscal issues or then deal with the contract once it is subscribed. Similarly, whilst a French life assurance broker has a duty to inform a client about the funds available through any investment contracts, he cannot advise the client about these funds: in other words, a regulated broker can only carry out the activity of broking.

All other advisory activities would come under the CMeF regulations, requiring the broker to then additionally be appropriately regulated and professionally insured under one or more other different regulatory systems. Whilst this is what the law states, the issue is nonetheless very confused as the French Regulator, contrary to what the law (and CMeF professional association lawyers) say, has stated verbally that some ‘advice’ can be provided by a broker, although only in matters leading up to the subscription. 

So, the bottom line is that it the written law is the written law, and it is up to you to chose on the degree of correctness of the advisers or brokers with which you propose dealing.

As CMeF professional associations are free to establish their own code of conduct and requirements although adhering to the law overall, its difficult to list the individual requirements for them all, but this is easier for the broker as, under the ‘Code des Assurances’ rules since the beginning of the year, a broker must, for example and amongst other requirements, and on first dealing with a client:

• provide details as to his identity, his regulatory registration, the means of making claims, and of any financial links with financial firms or entities (art L.520-1-I Codes des Assurances)
• and, then, before each act of sale:
  • if the case, the broker has to inform the client that he is contractually required to work with a certain number of life assurance providers and that the client has the right to request details of these assurance companies  (art L.520-1-II-1°-A Codes des Assurances), or
  • if he is not able to base his analysis on a sufficiently large section of the market (some several hundred contracts), he has to inform the client that he can request the names of the companies which the adviser has actually considered in making his recommendations (art L.520-1-II-1°-B Codes des Assurances),
  • and, if he is able to objectively base his analysis on a sufficiently large number of contracts available in the market (again, some several hundred), he is bound to analyse a sufficient number of these contracts to be able to meet the client’s requirements (art L.520-1-II-1°-C Codes des Assurances),
  • and the broker also has to state the needs and requirements of the applicant, as well as the reasons which led to the advice being sought in the first place (art L.520-1-II-2° Codes des Assurances),

Until the end of last year, only the brokerage firm here in France was required to be formally listed on the official list of brokers: the ’Liste des Courtiers d’Assurances’ – ALCA. From the beginning of this year, a new system has been put in place by the “Organisme pour le Registre des Intermédiaires en Assurance” (ORIAS) (www.orias.fr) where not only the firm, but the adviser (unless an employee), individually, is listed - and one other advantage of this system is that the degree of independence of the broker is also to be mentioned. Unfortunately, however, as with many new systems, it seems it has been snowed under by some four times the expected number of listing applications (plus receiving inscriptions from car dealers and funeral parlours) that the system is yet to function totally correctly. Still, perhaps all the more reason to ensure that an adviser certainly shows you his credentials, his professional indemnity insurance cover – ‘Responsabilité Civile et Professionnelle’ in France – and his financial guarantee.

And, lest we not forget the “passporting” rights, these being a European facility, which are likewise available to the French broker to be able to continue advising his clients abroad on matters for which the French adviser is regulated in his home country.

Interestingly enough, although the “EU passport” to the UK is requested through ORIAS, the French brokerage regulator, it seems that it can also cover the advisory element required under French CMeF as in the UK the “passport” is registered with the FSA who combine both the brokerage and the advisory elements. This does however does raise the peculiar question of a French ORIAS-only regulated broker who could “passport” to the UK and so be unregulated to ‘advise’ in the UK even though having a financial passport. Clearly an issue the governing authorities of both countries need to reconsider!

So, as a crude summary of what a French « assurance vie » broker seems to be able to do, but where this broker is... :

• based in one country:  he is regulated to act as broker for clients of that same country, in that same country, being bound by that country’s laws, and using that country’s regulated products where relevant,
• through “passporting”, by visiting abroad:  is regulated to act as broker for the clients of his same original country but now abroad, or foreign clients looking to move to his home country, but only on that same original country’s laws, and using that same original country’s regulated products where relevant,
• and, a broker could perhaps be regulated to act as broker to another country’s clients, on that other country’s laws, using that other country’s regulated products, but only whilst physically based in that other country and covered by that other country’s regulatory system (if having obtained licensing and professional insurance cover, etc).

However, and this is a big ‘however’, all the above comments on regulations do not prevent a regulated financial adviser giving advice or recommending products that are in fact UNREGULATED. In these circumstances, and for your protection, you, the client, need to be formally informed in writing that you are being given this UNregulated advice and/or being recommended UNregulated products. You also need to be aware that in these cases there are other declarations required by the new laws that the adviser has to make to you about your level of protection – or, more to the point, the lack of it – and there are other specific choices (eg: jurisdiction) that you would have to make or elect for, too. As this in another separate and complicated area, and seemingly irrelevant to your particular situation, the issue is probably best left without further development – although it should be well noted for reference. 

So, having established the general rules of who can give advice, where, and concerning what, we can now look more closely at your particular dilemma.

Given your choice to live permanently in France, I’m sure you will realise further to my above comments that you would need to chose very carefully who provides you with financial advice and/or acts as a broker for you. In addition, if using a UK-based adviser there is also the matter that if you do take their UK-based advice about your finances whilst living permanently in France, what do you do if you later find that the product recommendation or advice has been lacking in some area and was perhaps even incorrect, needing you to start formal claims – perhaps through the Financial Ombudsman or even the courts: would you be prepared to do so cross-border? 

Also, is there not the issue of suitable professional indemnity insurance, as a UK adviser advising clients possibly resident in several another countries, which clients will be exposed to different laws, and where investments, income and assets will in all probability be treated differently, can surely not be considered to engaged in a UK ‘regulated activity’? Consequently, is a UK broker – even though UK regulated – professionally insured for giving advice on matters relating to you living abroad, or the tax and legal suitability of UK contracts (regulated or unregulated) in a French or other foreign environment?

By contrast, the evident advantage of using a French regulated adviser is that you will be able to better know that your broker and/or adviser is correctly regulated and well-placed to give you advice relative to the country in which you are living. But using French advisers such as a bank can perhaps be slightly daunting, if only (although increasingly less so) because of having to communicate in a foreign language, but more importantly because of their lack of provider, contract and investment independence, and the inability to formally provide professional fee-based advice.

And then there is the matter of the investment product itself that may be recommended to you.  A regulated adviser of one country should recommend the regulated products of that same country so as to ensure that the advice – and the products recommended – are both regulated, and, therefore, that you are fully protected not only against bad advice, but against the products themselves.

However, there are claims as you mention that the product of another country may be better – one reason perhaps being on the basis that the other country’s financial protection of the products themselves may be greater. However, perhaps despite the apparent better foreign ‘product’ protection, in accepting a recommendation for what would be an unregulated product (i.e. a product of another country), are you not ceding your right to the regulatory protection to which you are entitled concerning BOTH the provision of the advice and the product? In essence, do you want protection against the advice that is given to you, or the product recommended to you, both... or neither? And in which country?

With regard to the actual statements made to you, sadly without knowing the companies or contracts you are referring to it is impossible to provide an answer. However, it has to generally be the case that each country markets products that are suitable for, and aimed at, its home clientele, and under its own home regulatory and tax systems. So, yes, one country’s particular contract could appear to be better but may in fact be totally inappropriate for use in another country and, conversely, there are foreign contracts than can work here (subject to the above point on the regulation of the product and the advice itself). As a result, your French bank is wrong in saying that the foreign contract cannot be used here, as it may be fine, but the Bank may well be right in the sense that the French legal and tax framework could work against the foreign contract, possibly not respecting such things as tax concessions (etc) available in the UK, causing the foreign contract to be rather tax ineffective if used whilst you are French tax residents.

And likewise with your Euro adviser, in which country is he actually regulated to advise as we have seen above that effectively to be able to both act as broker and advise you in France (as French tax residents), the practice needs to be regulated in France both as a broker and as a financial adviser?

As to what you should do, possibly the best solution is to be logical, but not forgetting that exceptions can prove the rules. So, as you are moving to France, it has to be the case that a French-regulated adviser in France will not only better know the French laws and regulations, but will further have the advantage of a more ‘hands-on’ practical experience. In addition, as seems to be evident from the relevant regulatory rules, an appropriately regulated French-based adviser is surely the only way to ensure that advice provided, and the products recommended to you as French residents, can both be fully regulated themselves and that, in consequence, you would be financially protected against both, and under the same legal jurisdiction under which you live.

Just don’t forget that, as stated above, French regulation is fragmented so requiring you to find not only a regulated life assurance broker to find the best life assurance contract and, if that is what you are also seeking, one regulated under the CMeF rules to deal with your contract once it is effected and give you any other advice and, specifically investment advice, that you may need.

In conclusion, whilst it is possible to carry on discussing the advantages or disadvantages of using advice and/or contracts regulated in one country or another, I hope the above comments will have been of use.

Notwithstanding all of the legal and regulatory issues, one overall point remains: whether there is advantage in forgoing the security of fully regulated advice and products on one hand, for non-regulated advice or products on the other, is something that you – and only you – can decide, hopefully making a more informed decision in light of the above general explanation of what is a very, very complicated subject.