20) CONDUCT OF BUSINESS REQUIREMENTS Flashcards
Explain the difference between an eligible counterparty, a professional client and retail client
Category incl govts, central banks and finanl insti authorised by an EEA state (banks, insu co.s, investt firms and collective investt funds.
Applies to eligible counterparty busi - situa such as execu of transac of busi recd or purchase of shares by a firm for onward sale to clients. Clients are assumed to have a level of knowl and exper. clients receive lowest level of investor protecn
Professional clients: All bodies who would otherwise be eligible counterparties, but req a level of advice in addn to execution of transactions.
Incl other types of large clients eg institutional investors - when dealing with them certain level of knowl and ability to accept finanl risks can be assumed by advisers
Retail clients: Req highest level of investor protecn - assumed to have a basic level of understanding of finanl serv, described ‘the person in the street’
What are the Conduct of Business Sourcebooks for investment firms
BCOBS - Banking Conduct of Business Sourcebook
Rules governing deposit-takers e g banks, bldg soc,
MCOB - Mortgages and Home Finance: Conduct of Business Sourcebook - Rules governing the provision of advice relating to mortgages and home fin, including equity release
ICOBS - Insurance Conduct of Business Sourcebook
- rules covering the provision of advice on gen insu and protection products
What are the types of client
COBS sets out three types of client
eligible counterparties
professional clients
retail clients
What are the different types of adviser categories?
Independent adviser
Restricted adviser
Explain ‘independent advise’ and ‘restricted advice’
In order to be an independent adviser, a firm must assess a suff range of relevant prod avai on the mkt and must be
** prod must be sufficiently diverse w reg to ty pe and issuers/product providers, to ensure client objectives can be suitably met
** not be ltd to prod relevant to firm, issued by firm, having close links with firm or other entities with which
the firm has close legal, contractual or economic relationships as to risk independent advice
**even if one aspect of advice is not indept then firm cannot claim to be an independent adviser
Any firm or adviser that does not meet the above reqts to be ‘independent’ will, by default, be providing restricteed advice
Describe ‘independent advice’
From 3 Jan 2018, bec of MiFID II, a firm can call itself indep even if advice if it offers advice on a certain area. Firm offering only pension advice
Indep adviser shd have sufficient range of prod wh are suff.ly diverse in terms of type and provider, to suitably meet the client’s obj.ves.
FCA Glossary defines a ‘personal recommendation’ as
“advice on investt, advice on conversion/transfer of pension benefits, or on a home finance transaction that is presented as suitable for the person for whom it is made, or based on consideration of the circumstances of that person”
USE of PANELS is not prohibited for indep advisers, provided the panel has a sufficiently broad and diverse range of relevant prod on the mkt - panel shd be regu.ly reviewed and updated.
If it is not advantageous for a client to use a panel, ‘off-panel’ advice shd be avai.
Specialists working for an idep firm must ensure that each personal recommendation meets the defn of ‘independent advice’
Explain what is meant by ‘restricted advice’
Any advice that is not independent advice or basic advice. Basic advice is provision of advice on stakeholder products using scripted questions
What is meant by ‘execution only business’?
While most retail customers receive finanl advice regarding investt, there are some situations where a customer is equipped with sufficient knowledge and do not need any advice. Execution-only involves the customer telling the firm what they wish to do and the firm executes that wish , no advice is given.
No duty of care for the adviser to explain the nature of the product - customer is wholly responsible for their choice.
FOS EXPECTS FIRMS TO OBTAIN A SIGNED STATEMENT FROM CUSTOMER TO CONFIRM
*busi transac is exe-only
*they have not asked or recd advice
*investt decision is their’s alone
*the firm/adviser takes no respon for suitability of investt
What kind of advise can an independent adviser give?
Qualified investt advice - adviser makes a recommendation based on full analysis of a customer’s needs and circumstances.
Simplified advice - a streamlined or automated process is used to gather the personal and financial info on which advice is given.
What are the rules relating to financial promotions?
Finanl promotion - “invitation or inducement to engage in investt acti”
Includes * - advertisements - in all media
* - telephone calls
* - mkting during personal visits to clients
* - presentations to groups
Real-time finanl promotions - personal visits/telephone
non-real time finanl promo - newspaper/internet site advertisements
What are the rules relating to financial promotions?
COMPARISONS: with other prod shd be meaningful, and presented in fair and balanced way
Markets in Finanl Instruments Directive (MiFID) firms shd detail source of info and assumptions made in comparison
PAST PERFORMANCE: this info shd not be prominent part in promo
- make clear this is past and does not indicate future results
- past data shd be w.in 5 years (or since investt started)
but shd not be less than a year
UNSOLICITED PROMOTIONS:
Permitted only for certain investt such as Life insu and Unit trusts…but not Life insu with links to high-volatility funds. Cold calls never for mortg contracts.
- Tele calls shd be appropriate hours - 9 - 9pm M-Sat
- caller to ensure recipient happy to proceed
- caller shd give contact pt with whom appt is arranged
What aspects of codes shd be followed for advertisements reg finanl services, acc to Advertising Standards Authority?
LEGAL: shd not break law, not omit anything that law req in the advert, and shd not incite anyone to break law
DECENT: no cause for serious/widespread offence. Shd be judged by prevailing std of decency
HONEST: shd not exploit lack of knowl, inexperience or credulity of cust
TRUTHFUL: not inaccurate, ambiguous, misleading by omission or other means
Rules relating to financial adviser charges
No more commision based, as recommen could be skewed
From 1 Jan 2013,
- charging structure based on service provided not on prod/provider recommended
- shd be explained to cus in initial disclosure
- continued charges shd be agreed by cust and shd only be made is continued service for wh charges are levied is provided
(An insu co can still provide commission to for insu sales - term assurance/income protection)
What info shd a finanl adviser provide at the outset?
Contact info - name and address/contact details for communication
Communication - methods of commu betn firm and cus
Authorisation - statement of fact that firm is authorised and regulator that has authorised ( e g FCA)
Advise type - whether indep or restricted, if firm provides both - must explain nature of both
Investt mgt - method and freq of mgt/evaluation
Client money or investments: If client money is held, who holds the money (cd be third party), and respon.ty of firm w reg 3rd party’s acts, insolvency etc
Charging str - list of serv offered and indicative charges
Charges payable - total charge payable, if over a prd of time, amt + freq. of payments, and adviser charges conseq to investt prod being cancelled
Details of complaints procedure - incl FOS and FSCS
When is a written client agreement required in financial investments, by an adviser
If a firm carries ‘designated investt business’, i.e. deals in investt of assets directly on behalf of client as opposed to selling packages investt products (wh involves making decisions on behalf of the client not having to gain agreement for every transaction)
Types of prod may include equities, options and futures contracts.
Agreement shd include investt range and limits.
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