MiFID II Luxembourg Portfolio Management and Investment Advice: Essential Guide

Articles 24-4 and 24-5 of the Luxembourg law of 5 April 1993 on the financial sector, as amended (the “LFS”) set two core private-banking routes. Article 24-4 covers portfolio management. Article 24-5 covers investment advice. Both shape the client relationship.

Directive 2014/65/EU of 15 May 2014 on markets in financial instruments (“MiFID II”) was transposed into Luxembourg law. The law of 30 May 2018 on markets in financial instruments amended the LFS directly.

Private banking under MiFID II: three practical checks

Before analysing documentation or suitability, private banks should first determine precisely which regulated service they are providing. Three questions usually determine the correct MiFID II classification and the applicable compliance framework.

• Article 24-4 of the LFS covers portfolio management. The client gives the firm authority to make investment decisions on the client’s behalf. The firm does not seek prior approval for each transaction. The service is tailored to the individual client’s circumstances, objectives and risk profile. It relates to assets held for that specific client rather than assets pooled with those of other investors. As reflected in Section A(4) of Annex I to Directive 2014/65/EU (MiFID II), portfolio management involves the management of portfolios under mandates granted by clients. The mandate gives the firm discretionary authority to take investment decisions. Those decisions are made on a client-by-client basis rather than for a collective pool of investors. The portfolio must include one or more instruments that qualify as “financial instruments” under MiFID II, such as shares, bonds, units in investment funds or derivatives, rather than only non-financial assets such as real estate, art, wine or other collectibles. The focus is therefore on the ongoing management of an individual client’s portfolio within the limits set by the mandate.

• Article 24-5 of the LFS covers investment advice. The key distinction is whether the communication amounts to a personal recommendation addressed to a specific client or presented as suitable for that client’s circumstances. A recommendation may concern the purchase, sale, subscription, exchange, redemption, holding or disposal of a financial instrument. Once a personal recommendation is made, the activity falls within the investment-advice perimeter and triggers the corresponding MiFID II obligations, including suitability requirements. This distinction is particularly relevant in private banking because relationship managers regularly discuss investment opportunities with clients. The legal classification of those discussions determines whether the institution is merely providing information or is delivering a regulated investment service requiring specific controls, documentation and client-protection measures. By contrast, generic market commentary, factual product descriptions, investment research distributed to a broad audience, or purely educational information do not in themselves constitute investment advice. Mere information remains outside the perimeter.

• The client category affects the protection level. MiFID II is not limited to retail clients. Professional clients also remain within the framework. The service still needs classification, licensing and documentation.

The service model drives the compliance file. In practice, discretionary portfolio management must be documented through a management mandate, while investment advice must be supported by a process for making and recording personal recommendations. Both require suitability discipline.

A fund-management aside helps avoid confusion. Collective portfolio management is not private-banking portfolio management. A fund manager may obtain additional MiFID-type permissions. This is not limited to UCITS management companies. Authorised Alternative Investment Fund Managers may also be concerned. Practitioners often call this a “MiFID top-up”. That top-up does not create full MiFID investment-firm status.

The Commission de Surveillance du Secteur Financier (the “CSSF”) supervises this framework. In private banking, the key practical issue is identifying which service the bank is actually providing. Is the bank making investment decisions on behalf of the client (portfolio management), giving personalised recommendations (investment advice), or simply supplying information without making recommendations?

Classify the service. Confirm the licence. Keep appropriate records and documentation. In private banking, Articles 24-4 and 24-5 of the LFS are the starting point.

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References:

• Articles 24-4 and 24-5 of the Luxembourg law of 5 April 1993 on the financial sector, as amended (https://www.cssf.lu/wp-content/uploads/L_050493_lfs.pdf)

• Law of 30 May 2018 on markets in financial instruments (https://www.cssf.lu/wp-content/uploads/L_300518_MiFID_eng.pdf)

• Directive 2014/65/EU of 15 May 2014 on markets in financial instruments (MiFID II) (https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:32014L0065)

• CSSF investment firms page (https://www.cssf.lu/en/investment-firms/)

• CSSF authorisation of a management company — Chapter 15 (https://www.cssf.lu/en/authorisation-of-a-management-company-chapter-15/)

• FAQ AIFMD 20 May 2025 Version 24 (https://www.cssf.lu/wp-content/uploads/FAQ-AIFMD_200525.pdf)

• Law of 12 July 2013 on alternative investment fund managers (https://www.cssf.lu/wp-content/uploads/L_120713_AIFM_eng.pdf)

• CSSF MiFID II — MiFIR — PRIIPs page (https://www.cssf.lu/en/mifid-ii-mifir-priips/)