Brazil is updating its investment agent regulation. What comes next?

As Brazil’s financial markets blossom, the entire investment industry develops alongside it. But this burgeoning growth is not without its ups and downs. In 2020, Brazil’s Securities Commission (CVM) will have the chance to untangle one of the main knots in the distribution system: the regulation over autonomous investment agents. However, changing the way the main link between clients and brokerages works in Brazil is not as easy as it seems and may have deep impacts on a major domestic player: XP Investimentos.

In 2011, the CVM established the current regulation for autonomous investment agents, which must apply for official credentials in order to operate. They are allowed to prospect for clients, provide information on financial products and receive and transmit investment orders. But there is a catch: though they are nominally autonomous, AAIs—as they are more commonly known in the industry—may only represent a single brokerage firm, which will pay them a fee on their sales. 

They are also not allowed to provide financial advisory services—which involves expressing their opinion on products or managing a client’s investment portfolio. This ability is reserved for fully-fledged financial advisors.

In practice, regulatory differences are quite blurred in clients’ minds. Used to reaching out to their bank managers for any kind of financial help, Brazilians who are newcomers in the investment arena tend to replicate that relationship with their AAIs, as reported by market observers. Also, while financial advisors are paid by clients themselves, AAIs are commissioned by brokerages according to the products they sell, which is also not public information, opening up enormous potential for conflicts of interest.

Top investment dogs fighting it out

No one company has been more successful in implementing the AAI advisory model in Brazil than brokerage firm XP Investimentos. The company’s founder himself, Guilherme Benchimol, used to be an agent and knew how to create a system attractive enough for these professionals, turning the company into the ultimate market leader. Now, XP is associated with several AAI offices, which represent billionaire portfolios.  

Data provided by Ancord shows the country has 9,607 certified autonomous investment agents, of...