Investment advice & prospectuses

What we do

Investment Advice
Investment advisors are subject to a special duty of care regarding the financial position and risk profile of clients. The special duty of care of investment advisors aims to protect investors against unsound advice. This special duty of care is most far-reaching for private, inexperienced investors. Unsound advice and a breach of the duty of care can result in liability for the investment advisor.

Prospectus
When companies go public (IPO), they are required to issue a prospectus to inform investors about essential investor information. The Dutch Authority for the Financial Markets (AFM) supervises and approves or disapproves prospectuses. Violation of prospectus requirements, such as failing to share all necessary information or providing a misleading representation of reality, can lead to civil liability.

Within our Financial Law practice group, we deal with various issues in the areas of investment advice, prospectuses, breach of the special duty of care, and misleading conduct.

We have the knowledge and expertise to assume diverse roles: from advice to dispute resolution. We have an experienced team of lawyers and legal experts in the field of financial law. Contact us to discuss the possibilities.

The legal framework: duty of care and prospectus obligation

Investment advice and the issuance of a prospectus are firmly anchored in financial law. Two sets of standards are central to this. The first is the duty of care of the investment advisor. Pursuant to Article 4:23 of the Financial Supervision Act (Wft), an advisor must assess the suitability of the advice: he obtains information regarding the client's financial position, knowledge, experience, objectives, and risk appetite (the suitability test, also known as the “know-your-customer”). In addition, the civil law duty of care of a diligent contractor applies pursuant to Article 7:401 of the Dutch Civil Code (BW), and for banks and investment firms, the special duty of care developed in case law. The second system is the prospectus requirement: pursuant to Article 5:2 Wft, it is prohibited to offer securities to the public or to admit them to trading without a prospectus approved by the AFM.

Prospectus requirement, AFM approval, and exemptions

Anyone offering securities such as shares or bonds to the public is, in principle, required to have an approved prospectus. The Authority for the Financial Markets (AFM) assesses the prospectus against the Prospectus Regulation (EU) 2017/1129 and the Financial Supervision Act (Wft) and has a time limit of, in principle, ten working days per submitted version to do so. Not every issuance is subject to this obligation. Exemptions apply, including:

• offers exclusively to qualified investors;
• offers to fewer than 150 persons per Member State (the closed-circle exemption);
• offers with a nominal value or minimum investment of at least EUR 100,000 each;
• the national exemption up to EUR 5,000,000, calculated over a period of twelve months.

With that last exemption, the prospectus is waived, but the obligation to provide information remains: the offeror must notify the AFM of the offering in advance, prepare a prescribed AFM information document, and include an exemption statement in advertising. We assess whether your issuance is subject to prospectus requirements, guide the approval process with the AFM, or prepare the information document for an exempted offering. This also applies to crowdfunding and broader transactions on the capital markets.

Prospectus liability and misleading

An incomplete or misleading prospectus can lead to civil liability. For the professional investor, the claim is typically pursued via Article 6:194 of the Dutch Civil Code (misleading statements) and the general tort provisions of Article 6:162 of the Dutch Civil Code. For the consumer investor, the provisions regarding unfair commercial practices apply: Article 6:193c of the Dutch Civil Code (misleading act) and Article 6:193d of the Dutch Civil Code (misleading omission), part of Sections 6:193a through 6:193j of the Dutch Civil Code. Additionally, Article 5:13 of the Financial Supervision Act (Wft) prohibits a misleading prospectus. An important advantage of the route via Articles 6:194 and 6:193 of the Dutch Civil Code is the reversal of the burden of proof: the party being sued must prove the accuracy and completeness of the statement. Moreover, the court generally assumes that a causal link exists between the deception and the investment decision. The issuing institution, the accompanying banks (the syndicate), and involved advisors may be held liable. We assist both aggrieved investors in liability proceedings and issuing institutions that must defend themselves against a claim.

Breach of the duty of care in investment advice

If an advisor, bank, or asset manager breaches the duty of care, the investor may claim damages. The legal basis is breach of contract pursuant to Article 6:74 of the Dutch Civil Code or unlawful act pursuant to Article 6:162 of the Dutch Civil Code. Typical allegations include: advice that does not match the risk profile, insufficient warning of risks, an overly one-sided or concentrated portfolio, or failure to monitor the portfolio. The special duty of care carries the heaviest weight against the private, inexperienced investor and less weight against the professional party. Contributory negligence often plays a role in the calculation of damages: pursuant to Article 6:101 of the Dutch Civil Code, the damage may remain partly at the investor's expense, for example, because they disregarded warnings. We accurately map out the breach of the duty of care and the damages, and litigate if necessary before the civil court, the Kifid (Financial Services Complaints Institute), or in a class action.

Our approach: from advice to proceedings

Whether you are an international group looking to go public, a growth company raising capital, or the local entrepreneur who made an investment on which you received incorrect advice: we switch between these different roles. Our mixed teams of lawyers and in-house counsel work practically and solution-oriented. In the first phase, we assess the position: is there a prospectus requirement, has the duty of care been breached, and how strong is any potential claim? Subsequently, together with you, we choose the route: a settlement, litigation, or guidance during the issuance process. Where necessary, we coordinate with related issues such as financial litigation and financial supervision.

Frequently asked questions about investment advice and prospectuses

When do I need an approved prospectus?
In principle, as soon as you offer securities to the public or have them admitted to trading (Article 5:2 Wft). If your offering remains below EUR 5,000,000 over twelve months, or falls under another exemption, approval is not required, but a notification and information obligation to the AFM often does apply.

My investment advisor gave me incorrect advice. What can I do?
You can hold the advisor liable for breach of the duty of care (Articles 7:401 and 6:74 of the Dutch Civil Code). We assess whether the advice was appropriate for your profile, calculate the damages, and discuss whether a claim, a complaint to Kifid, or legal proceedings are the best course of action.

Who is liable for a misleading prospectus?
In addition to the issuing institution, the accompanying banks and involved advisors may be held liable pursuant to Article 6:194 or 6:193c and 6:193d of the Dutch Civil Code. The burden of proof regarding the accuracy of the statements lies with the party being sued.