7 - Regulatory Advice Framework Flashcards
Generic Financial Advice
National Strategy for Financial Capability
What is it?
This is a scheme run by the FCA as part of their principle of consumer responsibility.
Aims to educuate younger people to improve financial awareness.
Generic Financial Advice
What is GFA and Money Guidance (MG)?
This is a recommendation of the Thoresen Review of Generic Financial Advice.
FCA responsible for setting up a national, impartial and sales-free advice service. Multi-channel approach, with multi-faceted marketing strategy.
Generic Financial Advice
Money Advice Service
MAS is a free and independent service set up by government, with chairman and board appointed by the FCA.
Designed to help consumers with practical money advice regardless of their circumstances.
Generic Financial Advice
Pension Wise
Set up by government to help people figure out their pensions choices in the new environment (flexible drawdown).
Generic Financial Advice
Treating Customers Fairly
Six outcomes firms must achieve
- Consumers confident that fair treatment of customers is central to the firms culture.
- Retail products and services are designed to meet the needs of identified consumer groups, and targetted accordingly.
- Consumers provided with clear information before, during and after the sale.
- Consumer advice is suitable and takes account of circumstances.
- Products perform as firms have led them to expect, service is an acceptable standard.
- No unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint.
Financial Advisers
Information about firm, services & fees
General requirement
Two options open to firms
General requirement is to communicate information on the firm, it’s services and their fees in a fair, clear and not-misleading way.
Can either develop their own dislosure materials, or use the Services and Costs Disclosure Document (SCDD) which satisfies a number of COBs requirements.
Financial Advisers
Services
Independent vs Restricted advice
Independent advice - The personal recommendation is based on a comprehensive and fair analysis of the relevant market, unbaised and unrestricted.
Resricted advice - Advice that does’t meet the definition for independent advice.
Financial Advisers
Charges
5 rules
- Advisers set their own service charges, not determined by product providers;
- Charging structures based on the level of service provided, not the product type;
- Charges disclosed to customers up front;
- Ongoing charged only levied where an ongoing service has been agreed (except on regular contribution products);
- Product providers banned from offering commission, and other requirements in place if they offer to deduct adviser charges from products.
Financial Advisers
Types of Adviser
Tied
Multi-tied
Whole of Market
Independent
Tied - Restricted to one marketing group
Multi-tied - Restricted to a number of product providers.
Whole of Market - Able to select from any product provider, but under RDR they fall into ‘restricted advice’
Independent - “Unbaised, unrestricted advice which is not influenced by product provider or remuneration”.
RDR
Three main impacts
- Distinguishing between sales and advice. Note that ‘basic advice’ and ‘simplified advice’ fall within ‘restricted advice’
- Altering remuneration structures.
- Professional Standards (level 4)
Financial Promotions
Cases where the rules don’t apply
Financial communications rules don’t apply to:
- communications to one recipient;
- specific product for a specific recipient;
- personal quotations or illustrations;
- a promotion containing only:
- firm name
- contact point
- logo
- brief factual description of firm activities
- fees
- products
Financial Promotions
Non-Real time Promotions (ie written)
Rules
Approval - By an individual with the appropriate expertise to verify it meets the rules. Promotion must be regularly reviewed if ongoing and withdrawn if it fails rules.
Records - Keep records on usual indefinite, 6 year, 5 year, 3 year basis (including the approver name).
Content - Include firm and address/contact point. Fair, clear and not missleading.
Past Performance - Usual statement.
Tax - If it refers to tax must state that tax treatment depends on individual circumstances and may be subject to change.
Financial Promotions
Real time Promotions (ie spoken)
Rules
- Fair, clear and not missleading
- Make clear the purpose of the promotion at the start, identify themselves and their firm
- If communication wasn’t previously approved, check the recipient wishes them to continue
- Give recipient a contact point
- Not at an unsocial hour, unlisted phone number or without permission
Financial Promotions
Direct Offer Promotions
Must include items
- Confirmation firm is regulated by FCA;
- Full name & address of person offering the investment (and of person authorising the promotion if different)
- If promoter can’t hold client money, name of person payment should be made to
- Details of charges and expenses
- Details of related commissions or remuneration
Financial Promotions
Direct Offer Promotions
Additional information customers should received
Packaged product requirement
- Confirmation that the firm can be contacted for advice, an IFA should be contacted if the firm doesn’t offer advice
- General description of the nature and risks
- Summary of the taxation of the investment and taxation consequences for the average investor.
Packaged products required to meet the information requirements in key features rules.
Financial Promotions
Unsolicited Real-time Promotions
Rules
Only allowed if the recipient has an established customer relationship with the firm, or the promotion relates to a generally marketable packaged product (not a higher volatility fund).
In a proper cold call the adviser must offer an opportunity early on to terminate the call.
Financial Promotions
E-commerce
Rules
- Minimum information (name, address, email) easily, directly, permanently available
- FCA stats disclosure given along with Financial Services Register number
- Clear information about services
- Information on how to place an order
- Means of identifying and correcting input errors prior to making an order
- Orders acknowledged without delay, although they don’t have to be accepted.
Advice
KYC
What if client declines to give info?
Record keeping
If client declines to give any info this should be recorded on the fact find and in future suitability reports. Consider not providing a recommendation and whether you should continue doing business with the client.
Records kept for usual time periods, indefinitely in the case of pension opt-out or pension transfer even if no advice is given.
Advice
Suitability Report
When is it required?
Required for recommendations on:
- Buying or selling a unit trust of OEIC;
- Buy, sell, surrender, convert, cancel or suspect premiums or contributions to a pension;
- Income withdrawals;
- Buying a short term annuity;
- Pension transfer or opt-out;
- Life policy recommendation.
Advice
Suitability Report
What does it include?
- Clients demands and needs;
- Why the firm has concluded that the recommendation is appropriate;
- Any possible disadvantages
- Summary of the main consequences (details as appropriate according to the complexity of the transaction)
- For a personal pension why it is at least as good as a stakeholder pension
Advice
Suitability Report
When is it sent? (timing)
For life policies it must be provided before the contract is concluded (unless info provided orally or immediate cover required); or in the case of personal pensions no later than the 14th day after the contract is concluded.
In other cses as soon as possible after the transaction is effected or executed.
Advice
Suitability Report
When is it not required
Not required for friendly society life policies with premiums below £50 pa or £1 pw.
Not required for increases to regular premium contracts or single premium top-ups of single premium contracts.
Advice
Application Form
Who should complete it?
It is ‘best practice’ for a customer to complete their own application form, especially the case in life assurance.
This is because it removes doubt over who provided the information.
Advice
Key Features Document
When is it required?
Format
Timing
Who is responsible?
Required by all product providers for all of their packaged products.
They can be hard copy or electronic, but must be in the same format as the marketing materials.
Must be given to each retail customer before the application form is completed, or immediately after advice is given if there is no form.
The product provider isn’t responsible for this if the sale is through an intermediary.
Advice
Pure Protection Life Policies
Additional Requirements
Customer must be sent the information required by the Consolidated Life Directive before entering the contract.
Information must be kept for 6 years.
Advice
With-profits business
Additional Requirements
Every life office doing with-profits must have a principles and practice of financial management (PPFM) document setting out how they deal with the business.
A consumer friendly PPFM (CFPPFM) must be sent to existing with-profits customers with their annual statement, to new customers and to existing customers when there is a change.
Client Relationships
Client Types
Retail clients
Professional clients
Eligible counterparty
Retail clients are not eligible counterparties or professional clients.
Profession clients are either ‘per se’ or ‘elective’.
Eligible counterparty can only be applied to clients in respect of ‘eligible counterparty business’.
Client Relationships
First Communication with client
Requirements in person
If in person the first action should be to produce a business card, confirm identity of the adviser, the firm they work for and status as indepedent, multi-tied or tied.
Client Relationships
Status Disclosure
Information firms must provide on first contact with retail clients when packaged products are contemplated (7)
- Firms regulatory status
- Indepedent/tied/multi-tied/WoM status
- Details of services to be provided
- Details of how the firm is paid
- Details of loans and ownership
- How to complain
- Coverage by FSCS
Included in the services and costs disclosure document.
Client Relationships
Charges
Disclosures related to charges
Additional retail investment rule
Firm must disclose the basis of it’s charges and details of any income receivable by it or it’s associate due to that business.
Before arranging a retail investment product they must disclose any remuneration payable by it to it’s employees or agents.
Client Relationships
3 Non-advisory types of Service
Limited - Record on the fact find they only wanted advice on one topic. It is always possible for the client to ask for this.
Non-Advised sales - No personal recommendation made to the client, but they must still receive sufficient information to enable them to make an informed decision.
Insistent clients - Need to issue two letters reiterating their advice to the clients. Firm doesn’t need to consent to the trade.
Client Relationships
Cancellation Rights
Cancellation period by product
14 days
Cash ISAs always.
Designated investments when sold at a distance.
Units in regulated collective investment scheme, transfer of child trust fund, open or transfer an ISA and EIS - only when sold face to fact.
30 days
Life policy (including pension annuity or within an ISA), personal of stakeholder pension, pension transfer, variations of existing pensions including withdrawals.
Client Relationships
Cancellation Rights
When cancellation period begins
What if no post-sale cancellation details are sent?
Period of cancellation starts on the date of conclusion of the contract (date the client is told the contract is concluded for a life policy), or if later, the day they receive the T’s & C’s and other pre-contractual information.
If the post-sale cancellation details aren’t sent the client can cancel any time, and is not liable for any shortfall.
Client Relationships
Customer agreements
Timing for different customer types
Must be provided before concluding business, or immediately afterwards if sold at a distance and it wasn’t possible to send in time.
For a professional client this change to a ‘reasonable period of time’.
Client Relationships
Customer agreements
How long must customer agreement records be kept?
5 years from the customer agreement (start of relationship or sale of business, not termination of relationship), or the end of the relationship whichever is later.
For pension transfers must be kept forever.
ICOBS
ICOBS definitions
A retail buyer of insurance is a counterparty, customer or consumer?
Just a customer and consumer, not a counterparty.
Stakeholder
Type of advice and regulation linked to them
The 3 products
Stakeholder schemes are sold via basic advice and ‘lighter touch’ regulation is applied to them.
- Short term is a cash deposit account (min £10)
- Medium term - collective fund or unit linked life product, can be within stocks & shares ISA, or the smoothed product
- Long term - Lifestyled version of stakeholder pension
Stakeholder
Basic Advice
KYC
Full disclosure
Suitability Report
Charges
Full KYC isn’t required, instead a standard set of questions is asked. The product has to be suitable, but not necessarily the most suitable.
Full disclosure isn’t required, but customer must be given a copy of the range of stakeholder products.
Suitability report is replaced with a recommendation summary. No post-sales info is required.
Maximum charge of 1.5% pa on the medium and long term products, decreasing to 1% after 10 years.
