Chapter 7 - Regulatory Advice Framework Flashcards
KID & KIIDS - what are they, what providers must do for new and existing products and what KIID document must include (7)
KIIDS - Explain to customers the main features of any financial product in a format that is easy to follow.
Providers must produce and information pack for each of its products and must be given to client before application completed. If variation made to product, they must be supplied with sufficient information about change. And if sold without written app, must be given a KIID straight after sale.
KIID must include;
- Nature of investment
- Aims of investment
- Risk factors
- Principle terms of the investment
- Cancellation or withdrawal rights
- Compensation arrangements
- Complaints procedures
- Info required to Solvency II Directive (life policies only).
Solvency II Directive includes the following (life policies only)(15)
- Name of life insurer
- Address of head office or branch
- Solvency and financial condition information.
- Definition of each benefit and option
- Policy Term
- Means of termination
- Means of payment of premiums and duration
- Calculation and bonus distributions
- Surrender and paid up values + if guaranteed
- Premiums
- Unit linking details
- Cancellation rights
- Tax arrangements
- Complaints arrangements
- Law
Product information disclosure - Projections - what they must be based on (3) - (think projections from work)
Projections must be based on;
- Reasonable assumptions which are supported by objective data.
- Risk warning explaining examples + not reliable indicator of future performance.
- If gross figures used, effect of charges must be included.
Product info disclosure - Pure protection life policies - what info must they send to client and how long do they keep record, pure protection policies - what are they (Think protection, 3) and what policies does it mainly apply to.
Providers must send client info required by Solvency II Directive and a record of this must be kept for 6 years.
Pure protection policies:
- Benefits payable on death or incapacity due to illness etc
- No or little surrender value
- No conversion or extension options
Mainly applies to term assurance and income protection.
Product information disclosure - With-Profits - what must they have and outlines?
Must have PPFM document which sets out how they manage their with profits business.
Product information disclosure - guidance - two categories, why bigger focus on guidance? (2) and what lead creation of what and what do they do?
Provider guidance - product information supplied by provider and given directly to client.
Generic guidance - generic information on type of product.
Greater focus on better guidance due to advice being unaffordable and greater pension choice. Lead to creation of MAPS who aim to help individual manage personal circumstances as well as they can.
Product info disclosure - guidance - Pension Wise (what is it and what they can enquire about, 3), Money Advice Service (why set up?) & The Pensions Advisory Service (TPAS) (role and what it covers)
Pension Wise - free Gov service that allows those over the age of 50 to enquire about:
- what they can do with their pension pot.
- different types of pension and how they work
- what is and isn’t tax free.
MAS - was set up to enhance public knowledge about their finances. Provides clear impartial information on financial products and services.
TPAS - role to deliver information and guidance on pensions. It covers state, company, personal and stakeholder schemes.
Fair treatment of clients - Six outcomes to ensure fairness and what should they do to deliver these outcomes (2)k
Six outcomes to ensure fair outcomes for clients;
- Clients confident that fair treatment is central to firms culture.
- Products and services are designed to meet target market
- Clients provided with clear information before, during and after sale.
- Advice is suitable and takes into account their circumstances.
- Products and services are as client has been led to expect.
- No unreasonable post sales barriers when changing product, switching provider, submitting a claim or complaint.
Firms must look to deliver these six outcomes and record evidence of them doing so. Therefore, firms should;
- identify which of the six outcomes are relevant to them.
- ensure they have appropriate systems in place to measure if they are meeting these outcomes.
Stakeholder products and basic advice - why basic advice rules were introduced, what stakeholder products are included, what client must be given when given basic advice(4), fact find and what needed instead (4) and max charges for medium term investment.
Basic advice rules introduced to enable firms to provide simpler and lower-cost advice to consumers for stakeholder products via pre-scripted questions.
Stakeholder products include;
- Short term deposit based products
- Medium term collective or life products
- Long term stakeholder pension scheme
Client must be given explanation on why product was chosen for them, list of products if asked for them, initial disclosure information, how it will be paid for and commission details.
No need for full fact find but questions asked around debt levels, investment objectives, tolerance of risk and pension.
Medium term investment - max 1.5% AMC and reduces to 1% after ten years.
Communicating with clients inc financial promos - COBS comms rules (3) and who they don’t apply to (5), what they don’t apply to (4) and real time financial and non real time + written
Under COBS, communications must be fair, clear and not misleading but these rules do not apply for;
- deposits
- general insurance
- home finance business
- pure protection policies
- reinsurance
Aimed at advertisements and promotions but do not apply to
- communications to one recipient
- specific products for specific person
- personal quotes or illustrations
- promotion containing only - name of firm, contact, logo, brief description, fees and products.
Real time financial promotions - those done during visit or conversation.Non-written financial promos fall into this category.
Non real time - all others e.g. static promotions & written financial promos.
Non real-time financial promotions - Approval, how long records must be kept for what product, content of promo must be (4)
Approval - Compliance Department or officer checks that promotion meets rules. Promos with extended shelf life need to be checked regularly to ensure they remain compliant.
Records for non real time promos must be kept;
- Indefinitely for a pension transfer, opt-out or FSAVC
- six years for life and pension contracts
- five years for all other cases (3 for non MiFID firm)
Content - fair, clear and not misunderstanding, comparisons must be quoted objectively and on a like-for-like basis, promo purpose not disguised and must state capital at risk.
Non-real time financial promotions cont - past performance and promos (easy, 4) & referring to tax (what must it state)
Past performance - must state not an indication of future performance, data used must be relevant and sufficient period (should be 5 years), needs to reference period of time it relates to and hypothetical past performance must meet certain conditions and only used if data not available.
Tax - must state tax treatment depends on individual circumstances and can change in the future.
Real-time financial promotions - must ensure they are done… (5)
Must ensure real time promos are done;
- in a way that is fair, clear and not misleading
- purpose of promo is made clear at the start
- check that the recipient wishes to proceed with communications or stop if not.
- gives them a contact point
- does not communicate without permission, at unsocial hours and unlisted telephone number.
Direct offer financial promotions - what they must include in promotion (6) and what they should receive (3)
They must include;
- sufficient information to make informed decision.
- confirmation of authorisation or regulation from FCA.
- Name and address of firm or person offering and approving the promotion.
- Name of the person whom payment should be made.
- details of charges and expenses.
- Details of commission or renumeration payable to another person.
And should receive, where relevant, the following;
- Confirmation that firm can be contacted for advice.
- Description of risk involved
- Summary of taxation (investment & consequences)
Unsolicited real-time financial promotions (cold calling)- can be done when (2) & adviser must offer client…
Must not be done unless already established relationship with client or general marketable packaged product (not high volatility fund).
Cold call properly made they must offer client opportunity to terminate call.
E-commerce - E-commerce Directive Rules (6)
If firm does business or advertises online they are subject to E-Commerce Directive rules which are;
- Minimum information must be easily, directly and permanently accessible.
- FCA status & Financial Services Register number must be disclosed.
- Clear information on services provided.
- Clearly guided how to place order.
- Must have means of correcting input errors.
- Orders must be acknowledged without delay.
Know Your Customer (KYC) - what to do when client declines details & record keeping.
If client declines to give details on any given subject then adviser should record this on fact find and suitability report. Depending on amount and nature of information withheld, the adviser should not provide recommendation and consider if appropriate to do business or not.
Record keeping - must be kept for standard times.
Suitability Report - when to do one (think job, 7), what it must include (3) and what FSAVC must include (not 100% necessary)
Must provide a suitability report if recommending that client;
- invests in collective investment schemes or ISA
- make any adjustments to premiums or contributions to a personal or stakeholder pension contract.
- makes income withdrawals or lump sum payment.
- purchases short-term annuity
- pension transfer, opt-out or conversion
- life policy recommendation
Must;
- Specify clients demands and needs
- explain why recommendation is suitable
- explain any disadvantages of the transaction.
SR & FSAVC - should explain why it is considered as suitable as a stakeholder pension and explain why as suitable as an in-house AVC.
Suitability Report Cont - when they must provide SR to client (life policy , personal pensions and all others)
Must provider SR to client;
- Life policy - before contract is concluded
- Personal or Stakeholder Pension - no later than 14th day after contract concluded.
- Others - when transaction is effected or executed.
Not required for Friendly Society life policies when premiums are below £50 per annum or increase premiums to an existing product.
Suitability of advice - Existing investments - majority of the time and what adviser must explain if stopping long term contract.
In the majority of occasions, adviser should recommend continuation of existing policy unless unsustainable or merit replacement with new contract - term assurance = can usually get better contract with alternative insurer. If they do recommend relinquishing long term contract, must explain implications to the client such as surrender value.
Suitability of recommendations - guidelines (think work, 5)
Guidelines to be followed when making suitable recommendations are;
- considered advice that has been arrived at conscientiously with clients best interests in mind.
- Needs quantified and shortfalls identified.
- Find most suitable product based on clients needs and circumstances.
- Must ensure that client understands disadvantages as well as benefits.
- Past performance not indication of future performance.
Suitability of advice - Unsuitable transactions - disagreement (rule), example of when best to avoid instruction and records.
Client may disagree with recommendation and instruct adviser to do a transaction that isn’t suitable - no rule detailing that they can or cannot do what the client asks.
Sometimes better to avoid e.g pension transfer from good occupational scheme with large employer contributions to a personal pension with no contributions.
Good to get record of any disagreement and get the client to counter sign for protection.
Suitability of advice - Application forms - who should complete and why important for life assurance and signing
Client should complete where possible and especially for life assurance so as to not make a misrepresentation.
Application form should always be signed by the client and signature should never be forged.
Suitability of advice - Understanding of risk - what SR should explain (2), ensuring understanding of risk allows… (3), risk profiles & existing policies.
The suitability report should explain any risks involved with an investment and why the recommendation is suitable against clients attitude to risk and understanding of risk. Ensuring this understanding will allow firms to make appropriate recommendations, improve quality of advice and reduce risk of complaints.
Risk profiles - adviser needs to explain what their risk profile means to them and could cover - capital security, shortfall risk, interest rate risk, inflation risk amongst a number of other things.
Need to take existing policies into consideration
