Advising vs Arranging Investments: Understanding the Difference

In the AIFC, “Advising on Investments” and “Arranging Deals in Investments” are separate regulated activities and often require separate licences. If a firm provides a regulated service for which it does not hold a specific licence, it exposes itself to the risk of significant fines, public enforcement measures, and suspension of its operations. Beyond regulatory sanctions, agreements entered into outside the permitted regulatory perimeter may be legally unenforceable. In such cases, a firm may lose the right to collect fees or to require clients to perform their contractual obligations.

This creates a material risk for firms that do not draw a clear line between two distinct regulated activities that require separate licences: merely facilitating an investment transaction and providing an investment recommendation. This article examines that distinction — in particular, the difference between the licences Arranging Deals in Investments and Advising on Investments.

What this means in practice

1

The regulatory framework imposes a higher standard on firms that provide investment advice (falling under the Advising on Investments licence). Because advising involves forming and expressing a view on the merits of a transaction, such firms are required to conduct a comprehensive assessment of the client’s financial situation. This may also include the preparation of a formalised report explaining why a particular investment is suitable for that specific client.

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For firms whose activities are limited to organising transactions and assisting with the execution of investment operations (falling under the Arranging Deals in Investments licence), the scope of obligations is narrower. As a rule, it consists of verifying that the client understands the risks of a particular product, without assessing its suitability for the client’s overall financial circumstances.

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A common source of error in practice is crossing this boundary, where a firm unintentionally expresses evaluative views on an investment in the course of providing its services. In such cases, a regulator may retrospectively reclassify the firm’s activity as Advising on Investments.

The distinction between arranging deals and providing investment advice often turns on minor factual details. Regulation typically states that "advice" includes any statement that could reasonably be regarded as intended to influence an investor's decision. As a result, a firm's subjective intent is less important than how its communications would be perceived by an objective observer.

Similarly, whether a platform is merely providing information or actively arranging a transaction depends on the specific steps the firm takes to facilitate the conclusion of a contract. If the platform’s involvement is considered a necessary element for the transaction to proceed, its activity may be classified as arranging deals and trigger the requirement to hold the relevant licence, even if the firm presents itself as passive. Small differences in deal structure or in the language used by sales staff can fundamentally change the firm’s regulatory classification and the requirements applicable to its business.

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