Applying The Regualtory Framework In Practice For The Consummer Flashcards
What is the distinction between information and advice?
Information is stating the facts
Advice is an expression of opinion
What will constitute advice for a fianiacial advisor?
Causing someone to do/not do something because of what you say to them.
Therefore, anything an advisor says is advise unless it can be proven only factual information was exchanged.
How should advisors protect themselves?
Treat anything that could be considered advise as advise.
What categories can guidance be split into?
Provider guidance - information supplied by a representative of a product provider.
Generic guidance - non-product specific guidance
If a customer requires guidance/information, where can they get this?
The money helper service - formally the money and pensions service (MaPS) (single financial guidance body)
What is the purpose of the Money Helper service?
Set up by the government and paid for by the financial service in order to provide free, impartial information in respect of personal finances.
What are the core functions of the money helper service?
Pension guidance
Debt advice
Money guidance
Consummer protection as well as its overarching strategy to improve financial capability.
What is money helper also responsible for?
The provision of PensionWise.
When was pensionWise set up?
When the government relaxed its rules on drawing pension benefits in 2015.
What are the aims of pensionwise
To give people guidance on their options at retirement.
Do you have to pay for pensionwise.
No, and they offer face to face meetings.
What were the categories of financial advisors?
Tied - one company
Independent - no company
Multi-tied - multiple companies
Whole market - fees and no fees
What added to the polarisation of financial advisors
The retail distribution review (2012)
What are the categories of financial advisors now?
Independent
Restricted
- tied
- multi-tide
- whole market
What is expected for an independent advisor?
Whole of market advise on a wider range of products than simply packaged retail products.
The advisor should research the whole of the market, including more esoteric investments where appropriate. Should be unbiased and unrestricted.
What is expected from a restricted advisor?
Nature of the restriction is up to the advisor or their regulated firm to determine, provided the customer is made aware.
- tied selling the products of a single provider
- multi-tied selling the products of providers on their panel
Whole market - selling products from across the market but subject to restrictions. (E.g. Whole of market but only a certain area)
Where a customer has a certain need but a restricted advisor does not have the product to meet that need what is best practice?
Make them aware of the availability of an independent advisor.
What are bancassures?
Banks that offer financial services products as tied agents
Are all WoM advisors unrestricted?
No. To be unrestricted, the advice needs to conform to the standards set out by the FCA.
What does it mean to be non advised?
A client buys on a non- execution basis only
What is payment by advisor charge?
Commision is now outlawed on most products, and advisers instead charge fees.
Ongoing charges are only permitted where there is justified ongoing work.
Any fees dur must be disclosed to the customer in advance.
What must advisors do to unskilled and demonstrate professionalism?
Pass an appropriate level 4 exam with 30 months of starting work
Meet the requirements of continuing professional development.
Maintain an annual statement of professional standing.
What is the previous way in which information was disclosed to customers?
A prescribed format called services and costs disclosure.
How is disclosure now set up?
By the individual firm and disclosed in any manner they see fit.
(Designing their own method or using a template - templates removed from FCA handbook)
When should disclosure be given to the customer?
At first contact or at least before buisness is concluded.
What information should be disclosed?
Level of service - will the firm offer advice or not.
Basis of advice - are they independent or restricted and the nature of any restriction
Fees and commission - followed up by more detailed costings at the point of sale.
How to make a complaint and the right to go to the FOS.
That the firm is covered by the FSCS
Loans and ownership - if the firm is part of a larger group and how this works.
Regulatory status - explaining that the firm is authorised and regulated by the FCA.
What will be included in the detailed follow-up of fees and commissions
Detailed costings including non-cash benefits paid to the firm by the provider (such as marketing allowances)
What happens under fee only arrangements?
Pre 2013 legacy arrangements that paid trail commission must be paid to the (adviosor) by the (client) unless specific consent is received.
May be reversed.
When does disclosure not need to happen?
In execution, only sales
When it has been insuesed in the past and is still correct and current.
In regards to disclosure, what should happen if the initial contact is made over the phone.
Exaplied over the phone and followed up in writing.
What are useful things to combine with disclosure?
Consent of the clients’ personal data being retained and processed for the purpose of providing advice.
Terms of business (client agreement)- sets out duty of care, rights to cancel, compliance with anti-money laundering regulations, and conflicts of interest.
When must a client agreement be given?
Must be issued to retail customers before sale in almost all cases.
What are the exemptions for issuing a client agreement?
Execution only buisness or direct offer buisness.
How long should the terms of business be retained
5 years for most.
Indefinitely for pension transfer
Kept for the duration if the relationship lasts longer than 5 years
How are customers categorised by the regulator?
According to the duty of care owed to them.
What are the categories given by the regulator for clients?
Retail
Professional
- per se profesional clients
- elective professional clients
Eligible counterparty
-per se eligible counterparty client (local authorities excluded from this)
-elective counterparty client
What is a retail client?
Individuals and small companies that make up most customers. They require the highest duty of care, and firms are unlikely able to waive their responsibilities towards these clients.
What are professional clients?
Clients that require less duty of care as they should have sufficient knowledge and skill to know what they are getting into.
What is the subcategory per se professional client?
Professional clients who are considered this automatically due to their status. (Local authorities, etc.)
What is the subcategory elective professional client?
Companies who choose to be treated as professional clients. This means giving up protection so the advisor should satisfy themselves that they have sufficient knowledge and resources to be classified this way.
What is an eligible counter party?
Clients offered the lowest duty of care.
Proffesional clients but opperate a special type of business known as eligible counterparty business.
(Not likely to be handled by most advisors)
What are the categorisations of general insurance business acting as clients?
Consumer - a person not acting in respect of their business
Commercial consumer - anyone not covered by the definition consumer
Customer - covers both consumer and commercial consumer
In relation to home finance, customers are simply customers.
What is the principle of the rules set out by the FCA regarding compacting with customers?
Clear, fair, and not misleading.
What do the detailed rules for communication apply to?
Financial promotions other than those in respect of deposits, general insurance, pure protection, home loans, and reassurance.
What is the primary focus of the communication rules?
To govern the way firms communicate with clients ‘en masse’ so Communications to a single client are personalised illustrations. These rules extend over social media posts.
What are the communication groups?
Real-time financial promotions - speaking to customers
Non-real time financial promotions - written communications.
What are the rules for real-time financial promotions communication?
Not during anti-social hours
Genuine purpose for contact made clear to the customer.
Should offer the customer the chance to terminate the contact if not convenient.
Be mindful of the requirement to be clear, fair, and not misleading.
The customer should be given a contact point for the future quiries.
What are unsolicited real-time financial promotions?
Cold calling
Normal communication rules apply to these, and they are only allowed if the caller has an established relationship with the client.
What are the rules for non-real time financial promotions Communications?
Must be subject to a sign-off process by compliance with a limited validity period and records of sign off kept:
Indefinitely for pension transfers
6 years for life and pensions
5 years for MiFID firms
3 years for non MiFID firms
How do you make sure a sign-off is clear, fair, and not misleading?
Clearly state the risks
Don’t make misleading statements
Provide the firms name and contact details
Don’t make inaccurate comparisons to other products
Not giving negative factors less prominence than positive.
What standardised warnings are required?
Past performance is not a guide to future performance
References to tax are based on current position and will depend on the clients’ tax status.
Is it permissble to use past performance?
Yes, with the appropriate warning, but it must be over a reasonable period (usually 5 years) and although hypothetical past performance can be used if there isn’t enough data, this must be made clear and has further controls.
Where is cold calling not allowed?
Certain types of business such as equity release.
Where used, customers should be given an early opportunity to terminate the call.
Where a firm issues a financial promotion, what should it record?
The name of the person who checked it adhered to the communication rules