Continuing series on the the Bermuda Investment Business Act 2003 (the Act) under the Bermuda Monetary Authority Consultation Paper 31 March 2010 - Securing Enhanced Protection for Investors Revised Code of Conduct for Investment Providers.

GEOGRAPHICALLY, Bermuda is small. As an international finance centre, investment offerings are global, ranging from generic deposit accounts to numerous currency choices to complex alternative instruments. Consumers need assistance in understanding and selecting investment choices that are suitable for them.

The proposed Client Service Agreement

The process for the investing public to work with a financial representative at an investment provider firm will be:

• More detailed as to services provided, omore specific regarding the division of investment responsibilities.

• More consumer friendly (read less investment jargon).

• More consistent in Investment knowledge provided across the local industry spectrum.

This is all good for every employee with a vested pension, for every family saving for the future, for individuals contemplating retirement lifestyle changes, and for those charged with protecting assets and legacies.

The crux of the matter. Section 3-3 states that an investment provider which conducts investment business with any client shall do so by means of a written agreement which shall set out the basis on which its services are to be provided.

The agreement shall be:

• Easy to understand

• Not likely to be misunderstood.

• Conform to the Code.

Unless the agreement specifies to the contrary, the client will be deemed to be a private investor. If the client is not to be treated as a private client, the client shall be informed in writing that the level of protection afforded to him/her is lower than that offered to a private client.

Section 3.2, further in the Code states that the investment provider shall comply with the terms of the relevant client agreement in all dealings with, or on behalf of, clients.

So, what kind of client are you? You need to understand yourself first. Do you want to control the entire investing process? Or, are you comfortable following the recommendations of an investment provider?

If you start the investment process as a self-directed person assuming all the responsibility for all investment decisions made, you will receive services based upon that directive. Changing your mind mid-stream by assuming that your investment provider is responsible for your bad (or good) investment choices, will not fly as the type and kind of service (in your Client Service Agreement) will be spelled out clearly at the beginning of your investment process. There are differences between private client and self-directed clients.

Execution-only (often called a self-directed) client - is an individual(s), whether investment sophisticated or an independent thinker, who prefers to do his/her own homework in the investment decision-making process.

For instance, they may work with an investment provider (either through an electronic platform or on a physical basis) to open a custody account in which to hold, buy or sell securities, or a mutual fund provider who can offer a variety of investment products.

They will not receive personal advice or recommendations based on their needs from the investment provider. They will ask questions on investment pricing, selections of products and other relevant details. They will then make their own investment choices by directing the investment provider to purchase or sell investments for their account.

The private client may receive basic investment advice on a limited range of products, to full independent investment advisory services and recommendations after a needs assessment, to authorising a licensed portfolio manager to assume discretionary authority over an entire investment portfolio. Again, it is important to note that each type of service and its limitations will be clearly stipulated in the CSA between the investment provider and you, the consumer.

Here is a Sample CSA agreement (based on the BMA Consultative Paper recommendations) for a hypothetical firm and hypothetical client interested in receiving investment advice and recommendations based on their needs. Note that this sample agreement is not reflective of any investment or related organisation situated in Bermuda or elsewhere. (XXXXX is a purely fictionary company).

Your individual circumstances and the services provided by a genuine licensed investment firm may be completely different than that of the hypothetical illustration below.

XXXXX Investments Ltd.

Dear Client: Terms of the Agreement for Investment Services to be Provided to You.

Service. The Bermuda Monetary Authority is Bermuda's independent financial services' regulator. This document is designed to be given to consumers considering buying our financial products. If you wish to work with us, you are advised to read this important document as it explains the service you are being offered by us, how we will charge you for this service and how you will pay for it.

Products

We do not offer investment products from the whole market. We can only offer products from a limited number of companies and these products include our own brand managed products, but our recommendations will be made following an analysis of our entire product range. We enclose a list of all the companies' products that we offer with this agreement.

Service Provided

We will provide basic investment advice on our range of investment product choices. In order to do this we will need to assess your client risk profile by asking some questions about your income, savings, and other financial circumstances.

Fees for Services and Products Provided

You will pay for our services on the basis of commissions received through product charges. We have attached a Schedule of Commissions and administrative fees chart for your review. If you purchase a financial product where you pay nothing up front, this does not mean that our service is free.

You will still pay us indirectly through product charges. If you wish to work with us, we can provide you with an estimate of your cost to help you in your decision making process.

Conflicts of Interest

Our firm works other firms that provide other investment products. If we place a component of your investments with this related firm, we will receive a referral fee from them. Additionally, some of our investment product providers may offer a reduced commission rate for client investment sales above certain thresholds. It is our policy to pass this fee savings to the client.

Loans and ownership

Our firm is partly owned by another firm that holds 45% of our share capital. In 2008, they provided us with loan financing for operations and capital for expansion. Regulation. XXXXXXX Investments Ltd. is regulated by the local authority and licensed to conduct Investment Business.

Complaints

You may register a complaint by contacting us in writing or by phone. We welcome the opportunity to work with you.

Signed XXXXXX Investments Ltd and by Hypothetical Client.

As stated above, this is a hypothetical sample CSA. It is not to be used (and cannot be used) for your individual circumstances.

In real life, both parties, the client(s) and the investment provider representative will sign an agreed-upon appropriate contract at the time of contracting for the investment services if the BMA Consultative Paper recommendations are implemented.

Next articles: understanding investment fees and the effect on investment returns and working with a professional investment provider representative.

Prior articles on this topic were published in the Royal Gazette on June 26, June 12, April 24, 2010.

Martha Harris Myron, CPA/PFS CFP(US) TEP(UK) JP- Bermuda is an independent fee-only cross border financial planner specializing in tax, estate, and strategic retirement planning services for Bermuda residents with cross-border and multi-national connections and US citizens living abroad. For more information, contact martha.myron@gmail.com">martha.myron@gmail.com or 296 3528 at Patterson Partners Ltd. The article expresses the opinion of the author alone, and not necessarily that of the Royal Gazette. Under no circumstances is this advice to be taken as a recommendation to buy or sell investment products or as a promotion for financial plans. The Editor of the Royal Gazette has final right of approval over headlines, content, and length/brevity of article.