Discretionary Portfolio Management in France: The Mandat de Gestion Explained

What the Mandat de Gestion Is — and Is Not

The gestion individuelle sous mandat — also called gestion discrétionnaire — is the investment service by which a client entrusts the management of their portfolio of financial instruments to a professional who exercises full discretionary authority over buy and sell decisions within the limits set by the mandate (C. mon. fin. Art. L 321-1 and D 321-1). The manager acts unilaterally, without seeking prior authorisation for each transaction. All gains, income, capital gains, and associated rights belong to the client, not the manager.

This is fundamentally different from investment advice — where the professional recommends a course of action that the client then decides whether to follow — and from order reception and transmission, where the client retains full decision-making authority. Under a mandate, the client delegates. The manager decides.

The mandate is a form of civil law mandate governed by Articles 1991 to 1994 of the Civil Code, overlaid by the more specific obligations of the Code monétaire et financier and the AMF's rules. As mandataire, the manager must execute the mandate as defined, act in the client's interest, and account for the management on an ongoing basis and at termination.

Who Can Legally Offer This Service

Only AMF-authorised investment services providers (PSIs) may offer discretionary portfolio management professionally (C. mon. fin. Art. L 531-10). Three categories qualify:

• Credit institutions (banks, insurance companies) that provide discretionary management as an ancillary activity alongside their core banking or insurance operations
• Investment firms (entreprises d'investissement) — legal entities whose principal activity is individual discretionary portfolio management, without managing any collective investment scheme
• Portfolio management companies (sociétés de gestion de portefeuille, SGPs) that also manage collective funds such as OPCVM and FIA

No private individual may offer discretionary portfolio management for others on a professional basis. The prohibition is absolute (C. mon. fin. Art. L 531-10). The investor may, however, retain the right to exercise shareholder rights — including voting rights — attached to shares held in the managed portfolio. At the client's request, the manager must ensure, so far as possible, that the account-keeping institution transmits all documents and information the client needs to exercise those shareholder rights.

Account Structure Before Signing the Mandate

Where the mandate is entrusted to an investment firm or SGP that does not hold client assets directly, the client must first open a compte-titres with a separate account-keeping institution, or give the manager a power of attorney to open the account on their behalf. A signed attestation from both the account holder and the manager must be delivered to the account-keeping institution, authorising the account to operate on the manager's signature alone.

Where the mandate is given to a bank or investment firm that also holds client assets, the manager typically acts simultaneously as account keeper. The client then concludes both an account-opening convention and a mandate with the same institution. If that same entity also provides order transmission services for the same client, it must open two separate comptes-titres — one for managed assets and one for direct-dealing assets.

The Pre-Mandate Suitability Assessment

Before concluding any mandate, the manager must collect the information necessary to carry out a full évaluation de l'adéquation (suitability assessment) (C. mon. fin. Art. L 533-13, I). This is a higher-level obligation than the appropriateness test that applies to mere order execution: for a mandate, the assessment covers the client's knowledge and experience, their financial situation including capacity to bear losses, and their investment objectives including risk tolerance.

In practice, according to AMF Position-Recommendation 2019-03, the information gathered should cover: family, patrimonial, and professional situation; past and current holdings of savings and investment products; planned investment horizon and a ranked list of investment objectives; and the level of risk the client can bear.

The manager must verify three conditions before the mandate is concluded: the mandate corresponds to the client's investment objectives and risk tolerance; the client is financially able to support any risk connected with the managed portfolio; and the client has sufficient experience and knowledge to understand the risks of a discretionary portfolio management service.

Sustainability preferences: the August 2022 addition

Since 2 August 2022, the suitability assessment must also cover the client's sustainability preferences across three specific axes (Régl. UE 2017/565 du 25-4-2016 Art. 54):

• The proportion of the investment the client wishes to see allocated to activities that are environmentally sustainable under the EU Taxonomy — a precise list of economic activities defined according to six environmental objectives
• The proportion the client wishes to see invested in investissements durables as defined by the SFDR (the EU's Sustainable Finance Disclosure Regulation), which covers both environmental and social objectives
• How the portfolio should take account of principal adverse impacts on sustainability — for example, greenhouse gas emissions, hazardous waste, or human rights violations in the investment chain

The manager must stress to the client that it is important to provide up-to-date, complete, and accurate information, since the quality of the suitability assessment depends entirely on the quality of the data collected. These sustainability preferences then form part of the mandate itself and must be tracked and reported on throughout the management relationship.

Information the Manager Must Give Before Signing

For non-professional clients, the manager must provide a specific set of information before the mandate is concluded (Régl. UE 2017/565 du 25-4-2016 Art. 47 s.):

• The types of instruments and transactions that fall within the mandate's scope
• The management objectives
• All costs and fees associated with the portfolio management service
• The methods used to assess portfolio performance and the reference benchmark against which performance will be measured
• The conflicts-of-interest policy and the order execution policy
• The risks inherent in the portfolio management service, taking account of the specific instruments within the mandate's scope

Additionally, a risk/return profile presentation must be made before the mandate is signed. This takes the form of a synthetic indicator that positions the mandate on a scale from 1 (lowest risk) to 7 (highest risk) based on past volatility results (AMF Instruction-Position-Recommendation 2019-12). This indicator is the primary tool allowing the client to understand and compare the risk level of different mandates.

The Mandate: Mandatory Content and Permitted Instruments

The mandate must be in writing — on paper or another durable medium. Any amendment or addition requires a signed addendum from both parties (Régl. UE 2017/565 du 25-4-2016 Art. 58). The absence of a written mandate does not void the contract in itself (Cass. com. 7-1-2004 n° 01-10.346), but it can found an action to annul for a defect in consent.

Mandatory terms

The mandate must include at minimum (AMF Instruction-Position-Recommendation 2019-12):

• The identity of the parties
• The management objectives — with the AMF specifically noting that the label profil prudent must be used carefully and cannot be applied where more than 30% of net assets are invested in risky assets such as equities or speculative high-yield bonds
• The types of financial instruments the portfolio may contain
• The client reporting arrangements: nature and frequency of management reports
• Duration, renewal conditions, and termination procedures
• The manager's remuneration — including research costs and, where the management fee includes a performance-related variable component, the precise method for calculating the performance fee
• Confidentiality obligations applicable to the manager under professional secrecy laws and regulations

Permitted financial instruments — default and expanded scope

Unless the mandate specifies otherwise, the instruments that may be included in a managed portfolio are limited to (AMF Instruction-Position-Recommendation 2019-12):

• Financial instruments traded on a regulated market in regular operation (provided that market is not excluded by the AMF)
• French and foreign OPCVM that are authorised and open to non-professional investors, and French FIA open to non-professional investors
• Financial contracts traded on markets listed in a ministerial order

Where the mandate authorises instruments outside this default list — including leveraged transactions, financial futures, or instruments not traded on regulated markets — the client must give an express and specific written agreement. This agreement must clearly identify the authorised instruments, the terms of those transactions, and how the client will be informed.

Remuneration: Management Fees, Performance Fees, and Transaction Costs

All remuneration modes and their calculation methods must be set out in the mandate or in an annexed document delivered at signing. Any subsequent change to the remuneration calculation must be communicated to the client in writing in advance.

The management fee

The core remuneration is the commission de gestion. This may include a fixed component and a variable component linked to portfolio outperformance against the management objective. A performance fee is permissible only where expressly provided for in the mandate and consistent with the stated management objective. The AMF recommends that performance fees meet specific conditions: they must not encourage excessive risk-taking; the measurement of outperformance must be verifiable; the frequency of charging must be reasonable; and the client must be well-informed about the potential impact of the fee on the portfolio's net return.

Transaction costs

Alongside the management fee, the manager also charges transaction costs comprising brokerage commissions paid to the executing intermediary and, where applicable, a per-transaction commission de mouvement charged each time a transaction is carried out for the account (Régl. gén. AMF Art. 314-30).

A specific restriction applies where the manager is an SGP that buys or subscribes to units in OPCs or investment funds that it manages itself or that are managed by an affiliated entity. In that situation, subscription and redemption commissions — other than those retained by the OPC itself — are prohibited (Régl. gén. AMF Art. 321-124). This rule prevents double-charging: the client pays the management fee at the mandate level and should not also bear distribution commissions when their manager places them into funds that generate additional revenue for the same group.

The Manager's Ongoing Obligations

Compliance with the mandate terms

As mandataire, the portfolio manager is bound to comply strictly with the terms of the mandate — in particular the management objective and any investment limits or exclusions set out in the contract (C. civ. Art. 1991). Breaching those limits engages the manager's civil liability, unless the client has ratified the irregular transactions.

The professional diligence obligation

The manager must act honestly, fairly, and professionally in a manner that serves the client's best interests at all times (C. mon. fin. Art. L 533-11). It must comply with the rules governing every trading platform on which it operates. When transmitting orders for execution to a third-party intermediary, it must take all sufficient measures to achieve the best possible result — consistent with its order execution policy — unless it is following specific client instructions (Régl. UE 2017/565 du 25-4-2016 Art. 65). The manager must establish and implement a written execution policy, determine for each instrument type which executing intermediaries to use, and communicate that policy to clients. Breach of professional conduct rules can result in disciplinary and financial sanctions from the AMF's sanctions commission.

Delegation

The manager may substitute another mandataire (delegate part of the management) where necessary for better portfolio management in the client's interest (C. civ. Art. 1994). Delegation requires the client's express prior consent. The manager remains responsible for the acts of the sub-manager it has appointed.

Reporting: What the Manager Must Send and When

The portfolio manager must account to the client during the mandate's execution and at its termination (C. civ. Art. 1993; C. mon. fin. Art. L 533-15).

Periodic management statements

The manager must send a periodic portfolio statement to each non-professional client on a durable medium (Régl. UE 2017/565 du 25-4-2016 Art. 60). This statement must cover:

• Portfolio composition and value, with detail on each instrument held, the opening and closing cash balance, and portfolio performance over the period
• Total fees and commissions borne by the client, itemised by at least total management fees and total transaction-related costs, with a note that a more detailed breakdown is available on request
• A comparison of portfolio performance over the period against the benchmark reference indicated in the mandate
• Total dividends, interest, and other payments received during the period
• Information about corporate actions affecting instruments in the portfolio
• Unless the client has opted to receive individual avis d'opéré for each transaction, the statement must also list every transaction, specifying the trading date and time, the execution venue, the order type, the securities, the quantities bought or sold, the unit price, and the total consideration

The default frequency is at least every three months for non-professional clients, with three exceptions: if the manager provides online access to updated portfolio valuations and has evidence the client accessed a valuation at least once during the quarter; if the client has opted to receive individual trade confirmations for each transaction, the periodic statement need only be sent annually (provided no leveraged or complex financial instruments are held); and if the mandate authorises portfolio leverage, the statement must be sent monthly.

The AMF additionally recommends that each periodic statement include the risk/return profile indicator (1–7 scale) and an assessment of changes in market conditions that could affect that profile. Late, absent, incomplete, inaccurate, or misleading statements can engage the manager's civil liability.

Per-transaction trade confirmations on request

The client may ask to receive an individual avis d'opéré for each transaction carried out within the mandate. Where this option is exercised, the confirmation must be sent at the latest by the end of the business day following execution, or by the end of the first business day following receipt of a third-party confirmation where execution has been delegated (Régl. UE 2017/565 du 25-4-2016 Art. 60, 4).

The Client's Right to Intervene — and Its Limits

The question of whether a client may place occasional direct orders on an account under a discretionary mandate is a matter for the mandate itself to determine. In practice, client intervention is possible if expressly provided for in the mandate. However, it is generally reserved for exceptional circumstances and must be given by written instruction from the client; the manager expressly disclaims responsibility for any transactions executed at the client's specific request.

Systematic client interference in the management of the portfolio — as opposed to occasional instructions — must lead the manager to propose a modification of the contractual relationship. A client who repeatedly directs specific transactions is in practice no longer receiving a discretionary management service and the contractual framework should reflect that reality.

Termination of the Mandate

Either party — the investor or the manager — may terminate the mandate at any time. The termination modalities must be specified in the mandate itself. At the latest on the effective termination date, the manager must prepare a portfolio statement and a management account showing the results of management since the last portfolio valuation, and must provide all information the client needs about the nature of any open positions (AMF Instruction-Position-Recommendation 2019-12).

This article is provided for general information and educational purposes only. It does not constitute legal or investment advice. The rules described here derive from the Code monétaire et financier, EU Regulation 2017/565, the AMF's Règlement général, and AMF Position-Recommendation 2019-12. Their application depends on the specific terms of the mandate, the manager's authorisation scope, and the client's classification. Investors with questions about a specific mandate or dispute should seek advice from a qualified French lawyer (avocat) or contact the AMF's mediation service. References are correct to the best of the author's knowledge as of the date of publication.