4 - Industry Obligations to the Customer Flashcards
What is ‘Eligible Counterparty’?
This is the lowest level of investor protection, which include financial institutions such as banks, insurance companies and investment firms etc. They only require limited service, such as transaction only (no advice, nothing more).
What is a Professional Client and what protections are they provided?
These are bodies that would otherwise be an eligible counterparty business, but the key difference is they require advice, in addition to the execution of transactions. There is however an acknowledgement that those in this group have a clear understanding of the risks and have a good degree of knowledge within the marketplace.
What is considered a Retail Client and what protections are they given?
A retail client is an average person in the street. They receive the highest level of protection because they not only require transactions but have limited to no skills or knowledge in the area and are not expected to have a high-risk profile.
What are the key obligations of a Financial Advisor to retail clients within the FCA guidelines?
1 to act in the best interest of the customer;
2 to look after customers’ assets responsibly;
3 not to abuse customers’ trust in the firm;
4 to deal with customers in an open and honest manner;
5 when things go wrong, to investigate and put things right promptly if the firm was
at fault;
6 to do all it can to make sure that customers understand the products and services they have bought, and that product are suitable and appropriate for them;
7 to make sure that customers understand the costs and charges of any products and
services they buy;
8 to deal with customers sympathetically when problems occur. This is not to say the
customer is always in the right; firms are expected to reach fair decisions rather than
always found in the customer’s favour.
What is the definition of investment advice?
1 - A recommendation made in person to an investor or someone thinking of investing.
2 - It must be suitable for the person and their circumstances.
3 - It must relate to steps to either; buy, sell, hold, redeem, exchange, subscribe to any financial product.
Is implied advice, as in “Most people go for this one…” an actual recommendation, or not?
Implied advice, basically where the advisor is hinting, guiding, pointing, directing, swaying in any manner to one product, service, financial vehicle or another IS deemed as advice and therefore it is required the person acting in that role be certified to do so.
When a company is offering information (not advice) does the FCA regulation still hold?
Providing they are not giving direct or implied advice on a particular product, but ARE just providing information on products for the customer to learn from and then decide for themselves, then NO.
What is meant by “Without Personal Recommendation.” mean?
This applies to a transaction only. So no advice or recommendation given, implied or offered. The person, investor, trader, making that transaction is doing so under their own volition without any implied, given, advice or recommendation from anyone.
What would be considered ‘Generic advice?’
For example; advising someone in broader terms - say investing in shares, rather than cash. Or providing general advice on financial planning but not directed to any specific product or method. Providing factual information on products results, history and record. But making sure to apply the proviso that it is not indicative of future results. Or helping someone through a decision tree, to enable them to make their own decision.
What is meant by Focused Advice?
Focused advice is any advice given at the customers’ request on a limited number of options, products, services. The person giving that advice must be fully competent to do so and regulated, certified and trained to do so.
What is ‘Simplified Advice?’
Mean of providing straightforward, limited advice on a focused area of need that does not consider other personal aspects to that need. Therefore, it is assumed that the customer has already met their priority needs - debt reduction, liquid cash, core protections. Has a disposable income to invest and does not require or want a holistic assessment of their financial situation. Similar to focused advice, but the difference is the provider decides on what level the advice is given. It cannot be used for selling or transferring an investment product. Those offering this level advice must be certified and have completed and passed FCA accredited training.
What is ‘Basic Advice’?
Basic advice is when a company provides general advice to a customer, through the use of heavily scripted questions, to assess the suitability of a given product. The provider must explain that the advice is broad in nature and doesn’t take into account the detail of the customers personal financial standing. Although this is restricted advice, those giving it do not need certification to do so. Providing they do not deviate.
What is Robo advice?
Robo advice is becoming more popular with online services and new banks. By provided automated AI-driven services that assess a customer based on decision trees, software and AI. To then offer a range of products that would be suitable. It allows the customer to choose for themselves, by providing the information they know and have given. This is a much more cost-effective route, for those not wanting or who cannot warrant or afford a completely holistic view of their finances.
