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Certificate in Retail and Digital Banking (Cert RDB) > 23. Specialist Advice > Flashcards

23. Specialist Advice Flashcards

1
Q

What level of understanding should an advisor expect a retail customer to have when providing advice?

A

No more than a SIMPLE, GENERAL UNDERSTANDING

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2
Q

What is meant by an execution only sale?

A

A sale without a personal recommendation

  • the firm has NO RESPONSIBILITY for the SUITABILITY OR AFFORDABILITY of the sale
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3
Q

What is Generic Advice?

What three things must Generic Advice be?

A

Advice which does not meet MiFID (Markets in Financial Instruments Directive, 2004) definition of advice.

Must be:
1. Balanced
2. Not expressing an opinion which could be seen as a recommendation
3. Factual

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4
Q

If a customer wants to make a complaint because they believe that they were given a recommendation when they should have been given generic advice, who should they direct their complaint to?

A

The Financial Ombudsman Service

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5
Q

What is the MiFID definition of Investment Advice (including insurance contracts)? What are the the main elements of this? (3)

A

Investment advice = personal recommendations to a customer, either upon the customer’s request or the firm’s initiative

Compromises of 3 main elements:

  1. Recommendation must be made TO A PERSON IN THEIR CAPACITY AS A POTENTIAL INVESTOR /AGENT ACTING ON THEIR BEHALF
  2. Must be SUITABLE & BASED ON INVESTOR CIRCUMSTANCES
  3. Must relate to either:
    - Buying
    - Selling
    - Subscribing
    - Exchanging
    - Redeeming
    - Holding
    or
    - Underwriting

Think - US HERBS

a MiFID investment

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6
Q

Financial Advisors must undertake exams & are subject to the FCA’s training & competence regime. This is regulated under which EU directive?

A

MiFID - Markets in Financial Instruments Directive

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7
Q

What constitutes as Focused Advice? Who decides the focus?

A

A personal recommendation is given on a LIMITED AREA/PRODUCT TYPE that meets a particular set of customer needs.

THE CUSTOMER REQUESTS IT & DECIDES THE LIMITED SCOPE.

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8
Q

What constitutes as Simplified Advice? Who decides the area of advice?

A

A personal recommendation is given on a LIMITED AREA/PRODUCT TYPE that meets a particular set of customer needs.

FIRM DECIDES THE SCOPE OF THE LIMITED NATURE OF SERVICE.

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9
Q

What type of transaction is unable to take place as a result of using simplified advice? Why?

A

Simplified advice cannot be used to SELL / TRANSFER AN INVESTMENT

because simplified advice recommendations MUST MEET A NEED. SELLING or TRANSFERRING something doesn’t DIRECTLY MEET A NEED.

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10
Q

True or false - using language such as “if it were me…” or “most people…” is considered to be advice or a recommendation?

A

True

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11
Q

What kinds of people is simplified advice suitable for? (3)

A

Those who:

  1. ALREADY HAVE THEIR PRIORITY NEEDS MET
    - eg. debt reduction, liquid cash, core protection
  2. HAVE DISPOSABLE INCOME/CAPITAL TO INVEST
  3. DON’T WANT A HOLLISTIC ASSESSMENT OF THEIR FINANCIAL SITUATION
    - would rather have advice on just one specific investment need
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12
Q

If simplified advice is provided using an automated system like a decision tree, what are the rules that need to be followed specifically in relation to this? (2)

A
  1. The customer can answer questions but is NOT ALLOWED TO DISCUSS ANY ISSUES
  2. The advisor is allowed to answer generic questions on factual matters but CANNOT MAKE A RECOMMENDATION
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13
Q

What is Basic Advice? What must an advisor disclose when giving basic advice? (2)

A

A series of PRE-SCRIPTED QUESTION that assess a product’s SUITABILITY TO MEET THE CUSTOMER’S NEEDS

Must explain that the advice:

  1. Establishes only BROAD FINANCIAL PRIORITIES
  2. Takes LIMTIED ACCOUNT OF THE INDIVIDUAL’S PARTICULAR CIRCUMSTANCES
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14
Q

What are Independent Financial Advisors (IFAs)?

A

Advisors who are independent, i.e. they are not tied to any one financial firm

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15
Q

True or False - IFAs must be registered with the FCA.

A

True, unless they are an appointed representative of a registered firm

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16
Q

How are an IFA’s fees decided? Can they charge commission?

A

NOT ALLOWED TO RECEIVE COMMISSION

SET OWN FEES, IN ADVANCE - must agree these with customer before beginning the service

17
Q

What types of products are IFAs allowed to recommend?

A

IFAs can recommend ALL TYPES OF PRODUCTS from across the WHOLE MARKET

i.e., unbiased, unrestricted advice

18
Q

How would an IFA collect information from a customer in order to make their recommendation? What are the main types of information they need to collect? (3)

A

Using a Factfind.

Need details relating to the customer’s:
1. Financial Position
2. Preferences
3. Objectives

19
Q

What is restricted advice?

Can an IFA give restricted advice?

A

Advice that CANNOT BE DESCRIBED AS INDEPENDENT
Either…

  • the advisor only works with one provider and only recommends their products
    or
  • the advisor chooses to only focus on a particular market (e.g. pensions) & consider all products from all providers, but only in that market.

IFA’s CANNOT GIVE RESTRICTED ADVICE

20
Q

True or false - all advisors need to declare whether they offer independent or restricted advice to the customer.

A

True

21
Q

What two things must IFA’s be able to demonstrate? (2)

A
  1. that they review ALL SUITABLE PRODUCTS WITHIN A MARKET
  2. that they give FAIR, UNBIASED, UNRESTRICTED ADVICE
22
Q

What is an information-only/non-advice service?

A

Where an IFA offers GUIDANCE rather than advice

They just provide GENERAL INFORMATION about PRODUCTS or EXPLAIN FINANCIAL TERMINOLOGY

23
Q

What is the minimum level of qualification needed by an IFA?

A

Level 4

24
Q

What are Digital Wealth Managers?

A

ROBO ADVISORS that MANAGE YOUR ASSETS FOR YOU based on ALGORITHMS (mathematical rules) with VERY LITTLE HUMAN INTERVENTION

25
Q

How do Robo advisors decide how to invest a customer’s money? (3)

A

They create a portfolio based on:

  1. the customer’s GOALS & ATTITUDE TO RISK
  2. whether they want to invest a LUMP SUM or REGULAR AMOUNTS
  3. they continue to invest until the customer tells them to stop
26
Q

True or false - robo-advisers are not subject to the same MiFID / AML rules as other types of advice?

A

False, they are subject to the same rules

27
Q

What are the benefits of firms using robo-advisers? (4) What is the main disadvantage? (1)

A

Pros
1. REDUCED COMPLEXITY
2. LOWER COSTS FOR FIRM
3. CHEAPER FOR CUSTOMERS
4. can deal with HIGHER VOLUMES OF WORK

Con
1. Some people DON’T TRUST TECHNOLOGY

28
Q

What are “passive trackers” and a “basket of EFTs”?

A

Where robo-advisors invest funds

29
Q

What does PPI stand for? What type of insurance is it?

What happened with PII up until 2010? What lessons were learnt by the financial services industry?

A

Payment Protection Insurance

Credit/loan repayment protection - designed to repay loans in the event of sickness, disability or death

Advisors mis-sold PPI to people who it was not suitable for. Advisors now have to evidence suitability for every recommendation.

30
Q

How many complaints did the FCA receive relating to the mis-selling of PPI? How much was paid out in redress?

A

34.2 million complaints

£38 billion paid out in redress

Certificate in Retail and Digital Banking (Cert RDB) (23 decks)

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