At inbestme we have always been pioneers in adapting our circuits to regulatory changes to ensure that our clients receive the best financial service.
In our latest revision of the risk profile test, technically called the Suitability Test (see more details on this in the appendix below), the client’s knowledge and experience with the different financial instruments becomes more important in assessing the risk profile.
InbestMe: Pioneers in Adapting to Profile Tests
At inbestMe, we have always been ahead of the curve in adapting our Risk Profile Tests to new regulations. As a good example of this and because of our sensitivity to sustainability issues, we were among the first entities to incorporate a section on sustainability in our profile tests. We have aligned our practices with the regulatory guidelines in this regard, while many other entities still have this task pending or incomplete.
Financial Literacy: A Fundamental Building Block
In the new revision of our Risk Profile Tests, we have given more weight to knowledge, experience and the number of transactions carried out with the main financial assets. Until now, elements such as investment horizon, target return, loss aversion and financial and asset situation were the main factors considered and continue to be so. But with these changes, knowledge, experience and frequency in financial instruments become more important than in the past.
Beyond the fact that regulation requires the correct identification of these parameters, at inbestMe we have observed that clients with greater understanding and experience of financial markets and products are better equipped to handle market fluctuations and challenges and, therefore, it is a qualitative element that allows us to associate a potentially higher level of risk. Many of our clients have already been through two major bear markets, the Covid-19 crisis with market declines of up to 35% and the 2022 crisis with declines also close to 30% due to rising inflation with an exceptional impact on fixed income. Understanding these events and what are the potential interactions between the different asset classes are fundamental to navigate through so many vicissitudes.
At inbestMe, we value the continuing education and experience that our customers gain over time. We are very active in creating content and much of it is aimed at educating our clients and followers. Every post on our blog, every analysis and every activity on our platform contributes to greater financial literacy. We recommend that you frequently read the information we publish in this regard.
It is essential that our clients make a correct assessment in their next reviews of this aspect and that, on the other hand, they do not forget to recognize and value the experience acquired also on our platform: it is important that they take it into account to compute it and self-assess periodically, as this may affect or even limit the recommended risk profile.
Adaptation to Different Types of Portfolios
At inbestMe, we have also adapted our review of risk profile tests for target portfolios. In the case of target portfolios, due to the nature of these portfolios (with a very specific maturity and generally short maturities), we have lengthened the deadline for the review which will take place one month before maturity where the client will be able to choose from different options. You can read more about this topic here.
The Profile Test is a key tool
The Profile Test is a key tool on which the delegated portfolio management service (which is the main service provided by inbestMe) is based.
Beyond the fact that it is a regulatory requirement (it is part of the so-called MIFID tests), at inbestMe, we are convinced that risk profile tests are a key element in order to provide an adequate and personalized portfolio management service. These tests allow us to better understand the needs and capabilities of our clients, ensuring that each client receives the portfolio management and overall investment solutions that best suit their needs.
If you would like to learn more about what a Profile Test is, please see the attachment below.
APPENDIX: Profile Test, MIFID Test, Suitability Test and Suitability Test
In the previous text, we have used the name Profile Test because it is closer to the user.
Let’s try to shed some light on all these names that try to refer to more or less the same thing with certain nuances.
If you have ever gone to your bank or an investment service to contract investment products, you will have had to answer a questionnaire about your knowledge and experience in financial markets, as well as your financial situation and investment objectives. This questionnaire, known as the MiFID test, has been mandatory since November 1, 2007 for any entity offering investment products or services.
What is MiFID?
MiFID (European Markets in Financial Instruments Directive translation from English: Markets in Financial Instruments Directive) harmonizes the regulation of securities markets and the relationship with customers of financial institutions. Since 2018, MiFID II is particularly designed to strengthen the protection of investors, especially retail investors.
Objective of the Profile Tests
Profile tests allow the financial institution to know in detail the knowledge and experience of its clients, their financial situation, their capacity to take risks and their investment objectives, in order to offer them suitable products. In the case of inbestMe the most suitable portfolio.
The Risk Profile Test is a Suitability Test and part of the MIFID Tests.
At inbestMe, when we refer to the Risk Profile Test, we are talking about the Suitability Test according to the current regulation. This test is one of those required by the MIFID regulations, designed to protect the retail investor. In order to offer our main service, portfolio management, it is mandatory to perform this test, which also applies to the investment advisory service.
What is a Suitability Test?
The Suitability Test collects data on the client’s financial situation and investment objectives. It includes questions about the client’s experience and knowledge, which we have recently reinforced in our Risk Profile Test.
For other services, such as marketing or trading (Order Taking and Order Processing, RTO), it is necessary to pass the Suitability Test, another MIFID test.
What is a Convenience Test?
This test evaluates the client’s educational level, professional activity and familiarity with financial products. It determines whether the client understands the risks associated with the product offered. If the product is not suitable, the financial institution must warn the client. The Suitability Test is oriented to the marketing of financial products or trading (buying/selling of shares).
In summary, what inbestMe calls Risk Profile Test is, from a technical and regulatory point of view, a Suitability Test regulated by the MIFID II Law, also known as MIFID Test.
Obligation to respond and update
We are aware that these types of tests are sometimes lengthy and have a certain complexity. But all clients who want to contract investment products must respond to these tests. This is valid for any financial service in Spain and the EU (similar regulations exist in other jurisdictions).
In the case of inbestMe, the profile test or suitability test is essential and is performed when you register or contract a new portfolio and without this test we cannot offer discretionary portfolio management services. You can choose to do a simulation beforehand.
Additionally, we are obliged to establish a periodicity in the revision of these, which is generally every year.
If you have any doubts while performing this test, please contact our customer service department:
- By email: cs@inbestMe.com
- By chat: during office hours (Monday to Friday, 9:30 a.m. to 5:30 p.m.)
- By phone: 931 575 633 (Monday to Friday 9:30 to 17:30).
