“Long-range planning does not deal with the future decisions, but with the future of present decisions.”–Peter F. Drucker
Andorra has a structured financial system that operates according the solids financial European standards.
Law 8/2013, of 9th May, on the administrative requirements and operating conditions for entities working with the financial system, investor protection, market abuse and financial collateral arrangements provides the Andorran financial system with the community Directive 2004/39/EC from the European Parliament and the Council of the 21st April 2004 known as the MiFID.
Complying with regulations and Universal Gestió S.A.’s quality standards a performance framework is established with clients that is divided into three phases:
The Pre contractual Phase consists of providing the investor with information on the business and its protection policies:
The Contractual Phase consists of obtaining information on the financial situation, the investment objectives, and to evaluate the financial knowledge of the investor, in order to classify, protect, and formalize the conditions of providing the service:
In the Service Phase information mechanisms are established on the carrying out of instructions and the state of executing portfolio management, as a periodic review of the Suitability Test:
Andorra regulations relating to MiFID and protection of the investor (Chapter 3. Article 31 of Law 8/2013 of 9th May) require that clients to whom services are provided be classified into three categories based on their level of information, training and investor experience, according to the following list:
The retail investor client is entitled to ask for a change in classification to professional client, subject to fulfilment of at least two or three criteria required by the regulation:
Universal Gestió bases its activity mostly on two types of service or a combination of the two:
A. Discretionary management and/or customised portfolio management
B. Financial consultancy
Prior to service provision a Suitability Test is carried out.
If Universal Gestió wanted to invest on behalf of the client in complex financial products that are not included in the client’s suitability test, a specific suitability Test would be carried out.
In accordance with MiFID products that are considered complex which require a prior suitability test are the following:
Profit/risk ratio (relationship)
– Profitability is the yield of an investment measured by relevant financial factors
Of course, profitability is a positive for the investor. As such, the greater the profitability, the better it is for the rational investor.
– Risk relates to the variability of profitability. It is a negative that the investor will try to keep to a minimum.
With basic analysis of these two variables it is possible to see the basic two outcomes, which will be relevant to the investor: profitability-risk. Therefore it is necessary to choose the option, which best combines or links both variables according to the decision maker.
Any investment is characterised by risk and anticipated yield. The general rule for all of them is the greater the risk, the better the anticipated yield and vice versa.
As mentioned in the previous section, it is vital to know their investment profile in order to say which type of investment suits their sensitivity to risk and their yield objectives.
So, prior to providing the services mentioned in part 2 of this document, the company carries out a Suitability Test to classify them, according to their investor profile.
The investor profile is defined as follows:
Although it is impossible to completely avoid risk when managing a portfolio of financial products, specific risk can be reduced through diversification.
Possible diversification in financial instruments which can help reduce specific risks are as follows:
Net investment yields will no longer be gross when tax deductions or another form of imposition (taxation) are deducted. The tax burden can vary depending on the investment and the tax framework of their country of residency. We recommend taking investment decisions based on the tax system.
In order to determine and analyse tax obligations for an investor, the company can carry out a Tax Test.
The price of a financial asset depends on profitability expectations and its associated risks.
Variations in price of a share arise as a result in changes in the expectations for profitability or its risk, as follows:
Credit risk or insolvency
Credit risk or insolvency is the risk that the issuer or counterparty cannot or does not want to pay interest in the term they had originally agreed to when the issue took place.
Market liquidity risk
This consists of the possibility for the investor to sell off his investment as quickly as possible without having to accept a small drop in its price.
In general, an issue will be more liquid the bigger they are as this will make it possible to spread between more investors, which always facilitates a greater volume of transactions.
In general, shares that are listed in established markets are more liquid than those that are not.
Exchange or currency risk
Currency risk affects all shares equally; it doesn’t matter if these instruments are money market shares, obligations or derivatives.
The purchase of an asset in the denomination of a currency other than that of their home economy exposes the investor to currency risk, meaning the risk that this money depreciates compared with the national currency.
Interest rate risk and reinvestment risk
Interest rate risk is the risk that an investor faces with a variety of interest rates that are different than expected.
Interest rate risk is then divided in two: market risk and reinvestment risk. In the first, capital is lost due to interest rate rise. Greater or lesser price sensitivity, which interest rates can produce will depend on the characteristics of the asset. Reinvestment risk happens when reinvestment of the asset or cash flow have to be carried out at worse rates than anticipated and like the previous case, the greater or lesser outcome will depend on the specific characteristics of the asset.
Market or price risk
This is the risk of a fall in value of financial assets due to changes in risk factors, which adverse movements relating to the price have had.
Market risk is the main risk of organised liquidity markets such as the variable income market of currency market or raw materials.
This is where political and State problems prevent them from meeting their payment agreements. Their causes are various and of different natures for example political, social, religious and the economic situation.
Specific risk linked to financing an investment in financial assets using credit
The purchase of transferable securities financed with credit carry additional risk. In the case of a overflow of credit, it is possible to carry out complementary guarantees due to the unfavourable evolution of quotes for insured assets. If the investor is not in a position to replace these guarantees, the Company can be considered obliged to sell the deposited securities at an inconvenient point in time.
Specific risk linked to the investment in derivatives
Warrants and options react with increasing effect on the variations in listing of the underlying asset. When purchased, the instrument loses all value if on expiry of the period for option to buy, the underlying price is lower than the price forecast in the contract for the period, or if, on the expiry of the period to sell the option, it is higher.
When selling derivatives or futures, which are not covered by underlying assets, the risk of loss is a priori unlimited.
There are two types of product in terms of complexity and risk:
The following products are excluded by the MiFID:
This can be divided into complex and non-complex:
Non complex products
Complex products which require Suitability Test in advance:
Description of principal MiFID products, risks and characteristics:
a) Convertible bonds
They are bonds that are issued with the option for the underwriter can exchange them for shares or another type of bond from the issuer, who enable them to be listed on the market.
It will be profitable to convert bonds into shares when the profit from the dividends is greater than those of the coupon or if greater liquidity of the asset is required if the share is *quotable on the secondary market.
b) Perpetual bonds
This bond does not expire. Perpetual bonds pay out coupons perpetually and the issuer cannot redeem it.
c) Subordinated debenture
These are fixed income shares with a stated yield that are normally issued by credit institutions that offer greater profitability than other debt assets. However, this higher profit is achieved if you forego earnings if the company closes and subsequently liquidates, since it is subordinate in payment priority compared with general creditors.
The purchase of an option gives the right but no obligation to buy (call) or sell (put) an underlying asset, at a predetermined price, called financial year price and at a date in the future. Either way, the contract seller has to accept the decision of the buyer.
The buyer of a CALL gains at the expiry of the contract if the price of the underlying asset is higher than the price for the financial year, and the opposite for the buyer of a PUT.
The combination of options can result in very complex strategies and consequently high risk, especially when options are sold. An option can be used to cover a portfolio, limiting the risk of loss to the price paid for the purchase of the option.
This is a form of option, which is listed, giving the buyer the right but not the obligation to buy/sell an underlying asset (share, future etc.) at a set price also on a predetermined date. In terms of operation, warrants are treated as options.
Warrants are financial products that have a lifting effect, that’s to say, they are exposed to variations in price of the underlying asset which is a multiple of the initial investment. They are mostly used to speculate on the rise or drop in price of the underlying asset but the investor can confront total loss of original investment when it expires. They also serve to cover a portfolio against unfavourable movement. The PUT warrant (option to sell) is regularly used as an instrument to protect a portfolio against variations in the market.
Andorran regulations relating to MiFID and protection of the investor require measures under Article 12 of Law 8/2013 of 9th May to protect the safeguarding of assets, avoiding improper use and allowing identification at any time of the positions and operations in process for each client.
Universal Gestió is an independent financial investment institution. Its very nature does not authorise it to carry out stocks operations using its own account or act as depositary, which guarantees its independence and stops improper use of financial assets for its own benefit.
Universal Gestió uses policies, processes, records and security systems to safeguard the integrity, availability and confidentiality of information on its clients’ assets, including:
4.1 Distinguishing clients’ assets
Universal Gestió identifies the detail of positions and operations in process for each client.
Therefore the positions in omnibus accounts to financial institutions are identified with a sub account for each client.
The deposit taking institution is chosen by the client itself from the Principality’s banking institutions and institutions known for their prestige, experience and international solvency, in keeping with the following table, which may be changed in the future so that deposit taking banks who fulfil the requirements have a suitable profile:
|Andorran Institutions||International Institutions|
|Andbank||Banque Privée Edmond de Rothschild|
|Banco de Sabadell d’Andorra||Credit Suisse|
|Crèdit Andorrà||Banque de la Suisse Italienne|
|Banque de Patrimoines Privés (Lux)|
These institutions also use their methods for protection and evaluation of the subcustodis of international markets.
The chosen Trust institutions are subject to change based on their merits.
Reconciling of movements relative to carrying out orders takes place daily and reconciling positions with the institutions takes place on a monthly basis.
The annual external audit also reconciles positions with responses from institutions where funds have been deposited.
4.4 Contingency plans
Universal Gestió has contingency plans to guarantee service provision if IT systems fail or when this is not possible, the recovery of positions and order records.
4.5 Use of clients’ financial instruments
Universal Gestió doesn’t act for itself and therefore guarantees not to use clients’ assets to finance its own activity.
4.6 Continuous improvement
The review and evaluation of safeguarding policy for assets is carried out periodically by the company and annually by external audit, which are submitted to AFA
Universal Gestió makes its policy for safeguarding assets available to clients and this is also available on the web www.universalgestio.com
The investment service that Universal Gestió offers can make it possible for conflict of interest situations to arise between the company and its clients, and between clients themselves.
With the aim of protecting the client, the company has established suitable policies, processes and organizational measures to prevent and eliminate potential conflicts of interest that may arise at the time of the provision of services or if these cannot be avoided or eliminated, advising the client.
Article 13 of Law 8/2013, of 9th May, on the administrative requirements and operating conditions for entities working with the financial system, investor protection, market abuse and financial collateral arrangements establishes that companies operating in the Andorran financial system have to set out in writing the policy and system for the prevention and resolution of conflicts of interest according to their size, organization, volume and the complexity of their transactions.
In addition to the CIP (Conflict of Interest Policy), the company uses a Code of Ethics based on the AFA’s binding communiqué no. 163/2005 of 23rd February 2006, regarding the rules of ethics and behaviour for financial entities operating in Andorra
This policy is revised annually, provided that there are no circumstances or regulations that require it to be revised.
This policy and any changes are available on Universal Gestión’s web page: www.universalgestio.com
Conflicts of interest are those situations that can arise when providing investment or ancillary services, or a combination of these. Where these exist it can lead to impact the client interests or between the clients themselves.
They can include, but are not limited to the following:
The following does not constitute a conflict of interest; the Institution’s perception of commission or delivered fees directly by the client as a consequence of providing investment services in keeping with the price list and/or the management or financial assessment.
People involved in CIP (Conflict of Interest Policy) are:
These are fees, commission or non-monetary benefits paid or received from third parties involved in the provision of an investment service to clients relating to financial instruments as applied by MiFID
Incentives must always increase quality of service provided to the client and cannot have a negative effect on acting in the optimal interest of the client.
The business model for Universal Gestió makes it an independent investment services company. The very independence is a differentiating factor to avoid conflict of interest situations with the company itself or with other businesses in the Group.
Therefore, Universal Gestió has taken various organisational and administrative measures, which will be revised at least annually and increased as is seen necessary:
The institution uses various measures to prevent conflicts of interest amongst which, the following stand out:
126.96.36.199 Internal control processes
188.8.131.52 With the company’s shareholders, administrators, directors and staff
184.108.40.206 With financial agents who provide investment services
220.127.116.11 With clients
Any person involved is required to communicate in writing the existence of a potential situation of conflict of interest, however insignificant it may be, to the email address firstname.lastname@example.org
The General Manager and Supervision will analyse the situation and will proceed to include in the register of potential situations or if applicable, take the steps to remove or reveal it.
In its introductory programme for new co-workers Universal Gestió includes training on the identification, prevention and management of conflicts of interest. Training takes place periodically to act as a reminder, which also includes any changes that have resulted from reviews.
When it has not been possible to avoid a conflict of interest action will be taken in accordance with the following rules:
Management of the resolution of the conflict of interest will be resolved by the General Manager and Supervision or in the absence of this, by general management directly.
If the measures taken are not sufficient, the nature and origin of the conflict will be communicated to relevant parties, including the services or operations where the conflict came about, subject to the client’s written consent.
Revealing the existence of a conflict of interest does not exempt the company from adopting and applying effective organisational and administrative measures to avoid it.
The company includes General Policy for Conflicts of Interest in its pre contractual information before providing its services.
The General Management and Supervision will provide an up to date record of possible conflicts of interest depending on the phase that it is in:
5.4.1 Identification phase
5.4.2 Management phase
5.4.3 Resolution phase
5.4.4 Disclosure phase
Through the regular review of potential situations for conflict of interests and its own experience of management and resolution, Universal Gestió will apply continuous improvements in its policies for conflict of interest, to ensure the protection of the investor and honest behaviour, impartiality and professionalism of those involved in the best interest of its clients.
Changes to CIP are published in Universal Gestió’s website (www.universalgestió.com)
Andorran regulation relating to MiFID and investor protection requires the adoption of all reasonable measures to obtain the best possible outcome for clients in the execution of orders.
Universal Gestió is an independent financial investment company. Its nature does not authorise it to carry out orders directly, nor have direct access to the markets, therefore the service is limited to sending orders to an intermediary for their fulfilment.
The independent investment management company model allows the client to choose his own Trust institution which will normally be the company carrying out orders, depending on the specific instructions of the client.
As required by Andorran regulations, investment services businesses have to take into account the following factors when fulfilling orders:
For these purposes, the financial instruments for which Universal Gestió provides services are as follows:
Given the diversity of markets, it’s possible that there are a number of intermediaries in the chain of fulfilment if one is not a member of the relevant exchange.
In the shortlisting of intermediaries and potential execution centres, the following aspects are valued:
Once a selection of intermediaries has been chosen, a decision will be made based on the following factors:
Types of asset and fulfilment centres are provided in the following table:
|Types of asset||Type of market|
|Variable income||Organized market|
|Fixed income||Organized market/OTC|
|Money market instruments||Organized market|
|Investment funds||Organized market|
|Structured products||Organized market|
Universal Gestió reviews this policy and the suitability of chosen intermediaries annually, or when there are significant changes that require it, in order to detect and, when necessary, amend any errors.
The Company annually undergoes an external audit complying with the procedures of internal control and sends a report to the supervisory organisation (AFA).
This information is available on Universal Gestió’s website (www.universalgestio.com) or at its client services offices.
1. INDIVIDUALIZED AND DISCRETIONARY MANAGEMENT CONTRACT OF INVESTMENT PORTFOLIOS
a. Management fee on Global Equity:
Universal Gestió will charge a management fee between 0.00% and 2.00%, depending on the managed balance, the type of investment and the portfolios administrative complexity.
b. Success fee on results:
Universal Gestió may charge a success fee if obtained performance on managed portfolio exceeds agreed benchmark with the client. This fee is charged at the end of each calendar year.
2. FINANTIAL ADVICE CONTRACT
a. Advisory fee on Global Equity:
Universal Gestió will charge a fee between 0.00% and 1.00%, depending on the advice portfolios balance and the type of investment.
b. Success fee on results:
Universal Gestió may charge a success fee if obtained performance on advice portfolio exceeds agreed benchmark with the client. This fee is charged at the end of each calendar year.
3. INVESTMENT REPORT AND FINANCIAL ANALISYS
a. Investments reports and financial analysis fees:
Universal Gestió will charge depending on the complexity of the report and supply up to 300 euros / hour..
4. GENERAL CONDITIONS
a. Administration of the account fee:
Universal Gestió may charge a quarterly fee of up to 500 euros, in concept of administration fee, at the beginning of each calendar quarter. This fee is charged for the first full quarter after the / the owner / s has / have signed the account opening with Universal Gestió. The amount of this fee is updated every year according to the Consumer Price Index (CPI).
Current fee schedule of the 24th of November 2015.