Antonio Flores’ Blog

According to report on the matter, banks provide 90% of the investment and financial advice given in Spain. The remaining 10% is left to the different type of authorized investment businesses: financial and investment advisors, broker-dealers, securities dealer companies and brokerage houses.

Banks offering investment advice has proven to be disastrous in Spain: hundreds of thousands (literally) have been missold financial products by their own banks that by and large, deliberately dumped billions of own worthless stock on their customers. Conflict of interest does not begin to cover it.

Other than banks, any person or company not deemed a regulated investment business (empresa de servicio de inversion), either directly with the Spanish regulator (CNMV) or through the ‘passporting’ system, which gives rights to firms to conduct business into the European Economic Area (EEA) under a single market directive, is not allowed to provide financial advice, let alone take funds from the public.

A third category we cannot miss are those who operate illegally, without any authorization. The Spanish CNMV calls them ‘chiringuitos financieros’, a term that is increasingly used officially to best describe how these rogues operate.  The activities of these cowboys are dangerous in different intensities: some just provide advice (never innocent though), others take funds from the public and invest them more or less sensibly and then, the most dangerous of all: those who take funds from others, on the pretext of carrying out a sound investment, and either run a Ponzi scheme, sell worthless stocks/bonds or, quite simply, make off with the monies. This type of con artist, often with a previous criminal conviction in a different country, unfortunately finds Spain a ‘fertile ground’ full of trusting retirees sitting on substantial savings. And there is the sun too.

Some of these fraudsters have learnt that, if they take money under the promise of returning the capital plus say 20% and they record the transaction as a personal loan, they could get away with it and, at the most, be successfully sued in a civil Court; or maybe not but, in any case, stay away from these defrauding individuals altogether. If you are desperate to lend money to others for a nice return, do it officially via a Spanish Notary and use, if possible, real estate as collateral (just as banks do).

Currently, there are only 50 or so regulated Spanish financial and investment advisors (called “EAFI”) and approximately 10 times that figure operating with a EU ‘passport’. Any person or company offering services not appearing on the CNMV list of authorized investment services businesses is operating illegally. Don’t deal with them, not even a beer.

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It was not until 2008, when the Spanish Supreme Court got its hands on this controversial matter that Spanish lawyers were at liberty to agree on pure conditional fee arrangements, better known as no-win no-fee, or “pactum de quota litis“. Because up until then, it was actually forbidden for lawyers in Spain to work freely in pursuit of a favourable result for their client, upon which they would share the proceeds of the recovery.

This prohibition was removed by the Tribunal for the Defense of Free Competition, who established that any rule preventing a client and a lawyer from freely fixing their fees was a restraint to free competition, declaring any regulation to the contrary null and void, at which point they also fined the Spanish Law Society with €180,000. On appeal, the National Audience revoked this decision but, on further appeal to the Supreme Court, the original ruling was upheld (though the fine removed).

Detractors of this arrangement consider that these types of agreements do not guarantee civil justice and that legal professionals “cherry pick” only the strongest claims, which are most likely to succeed. In sum, that they make lawyers party to the claim (conflict of interest), diverting them their ‘statutory’ functions i.e. serenity of judgment, independence and dignity, collaboration with justice and moral integrity, all of them alien to the concept of “ambulance chaser”, a term that came in handy to shame campaigners of the conditional fee agreement.

Supporters claim that this system allows people with few financial means access to the court which otherwise, could not afford. In this context, no win no fee also provides significant motivation to the lawyer to work diligently on the client’s case whereas, if the fees are fixed, it would makes little economic difference for that lawyer whether the client has a successful outcome to the litigation. Finally, it is also argued that the number of speculative, frivolous or unmeritorious cases may be reduced.

Arguments for and against are equally respectable but, in today’s socio-economic world, it would seem daft to uphold restraints to private agreements between clients and their lawyers, in the context of free competition, even in spite of the semi-prohibition of the Charter of Core Principles of the European Legal-Profession.

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