Investment Services, Client Categorisation and Suitability
MiFID II investment services include reception and transmission of orders, execution on behalf of clients, dealing on own account, portfolio management, investment advice, underwriting and placing, and operation of MTFs/OTFs. Ancillary services include custody, safekeeping, research, and foreign-exchange services connected to investment services. Candidates must know which services require authorisation and which are ancillary.
Client categorisation is central: retail, professional (per se or elective) and eligible counterparties. Elective professional status requires a request, a minimum portfolio or experience threshold, and a written warning about reduced protections. Suitability applies to investment advice and portfolio management: the firm must obtain information on knowledge, experience, financial situation, and investment objectives, and recommend only suitable products. Appropriateness applies to non-advised services and tests knowledge and experience only. Trap: applying suitability to execution-only business, or assuming eligible counterparty status removes all protections.
Rule of thumb: advice or management means suitability; execution-only means appropriateness; eligible counterparties sit at the top with least protection.
Worked example: a retail client asks for a complex product on an execution-only basis. The firm must perform an appropriateness test; if the client fails, it must warn and may proceed only if the client instructs, documenting the warning.