Chapter 8 Flashcards
GQ 8 - Product information is made available to individuals through key features, key information and key investor documents, product key facts illustrations and factsheets for which financial sector/areas? (2)
Life and pensions sector
GQ 8 - What are the roles of Key features, key information and key investor documents, Key features illustrations and Factsheets
Key features, key information and key investor documents: explain to customers the main features of any financial products that they are considering buying in a format that is easy to follow.
Key features illustrations: provide customers with information specific to their circumstances. They will include a personalised quote showing how much has been invested and typical scenarios in relation to returns or proceeds.
Factsheets: tend to be more specific in content. They focus on fund breakdowns, investment performance and how the investment is managed.
GQ 8 - What information document is required for:
Packaged retail and insurance-based investment products (PRIIPs), non-PRIIPs and Collective investment scheme investments?
PRIIPS - Key Information Document (KID) (think two ii’s but one i)
non-PRIIPs - Key Features Document (KFD) (think no i’s)
Collective investment scheme investments - Key Investor Information Document (KIID) (Think investment = investor)
GQ 8 - When should a KID, KFD or KIID be given to the client?
Before the application form is completed (new sales only), thought the product provider isn’t responsible for sales made by intermediaries.
Exception:
Where there’s a variation in an existing like policy or pension scheme (e.g. increasing the premium) the customer must be provided with sufficient info about the variation and consequences.
Where a relevant product is sold without a written application, the key features, key information or key investor information document must be sent immediately after the sale.
GQ 8 - Information required by the Solvency II Directive is part of the KID/KFD/KIID for which product only? How long must the record be kept for?
Pure Protection Life Policies (e.g. term assurance and income protection insurance)
6 years
GQ 8 - Where projections are used in KID/KFD/KIID’s, what must be written?
- Contain a risk warning to explain that the figures are only examples and are not reliable indicators of future results.
- Where gross figures are used, the effects of any charges must be shown
GQ 8 - What type of business must have a principles and practices of financial management (PPFM) document?
With-profits
Setting out how they manage their with‑profits business.
GQ 8 - What is the definition of guidance and informed choice?
Guidance involves providing a customer with information on a product so that they can make an informed choice on how to progress.
A customer makes an informed choice when they receive information (not advice) on a product and use this to decide whether or not to proceed. It does not involve a product recommendation as the information provided to the customer is not personalised to their circumstances.
GQ 8 - What’s the two categories of guidence?
Provider Guidance - product information supplied by one of the provider’s representatives directly to the customer.
Generic Guidance - generic information given to an individual on a type of product, as opposed to a specific product from a provider.
GQ 8 - What is the purpose of Money and Pensions Service (MaPS)? What is it’s consumer-facing brand called?
The need for guidance has culminated in the creation of the Money and Pensions Service (MaPS), a single financial guidance body created from the three existing providers of Government guidance.
The Financial Guidance and Claims Act 2018 set up the Money and Pensions Service (MaPS) to provide the services previously offered to consumers by The Pensions Advisory Service (TPAS), Pension Wise and the Money Advice Service.
As part of its move to amalgamate the services offered by the previous bodies, in June 2021, MaPS launched its consumer-facing brand MoneyHelper.
GQ 8 - What is the Consumer Principle (Principle 12)?
Principle 12: A firm must act to deliver good outcomes for retail clients
GQ 8 - What are the 3 cross-cutting obligations of the Consumer Duty?
1) Act in good faith towards retail customers
2) Avoid causing foreseeable harm to retail customers
3) Enable and support retail customers to pursue their financial objectives
These can be applied to the four outcomes of Consumer Duty (hence cross-cutting)
GQ 8 - What are the definitions of Manufacturers, Distributors and Co-manufacturers?
Manufacturers - Create, design and develop products or services.
Distributors - Offer, sell, recommend or advise on products and services.
Co-manufacturers - Set the parameters of a product and commission another firm to build it. E.g. An advisory firm commissioning a discretionary investment management firm to design and build an investment solution. The advisory firm would stipulate the criteria to be used in the design of the product.
Where firms collaborate in this way, they must have a written agreement in place to comply with the rules. This must outline each of their roles and responsibilities regarding the product or service being co-manufactured.
GQ 8 - What is shoehorning?
Independent advisers should be aware that the products and services they offer through something like a centralised investment proposition or centralised retirement proposition might not be appropriate for all clients. Advisers should never recommend a solution to a client, which is not suitable for their individual circumstances, simply because it is the firm’s preferred solution. This process, known as shoehorning, is bad advice.
Centralised investment proposition - Typically involves using model portfolios or a set of investment strategies that are designed to meet the needs of a broad range of clients. The main advantage of a CIP is that it streamlines the investment process, making it easier for advisers to manage multiple clients efficiently.
Centralised Retirement Proposition - Similar to a CIP but focuses on retirement planning.
E book 8 - What should single-tied advisers do if they do not have a suitable product within their provider’s product range?
They should inform the client they have nothing suitable. They may also refer the client to an independent financial adviser.
GQ 8 - What is a restricted whole of market adviser?
Restricted on types of products they can advise on, but offer impartial advice that considers ALL providers of those products.
The adviser must explain exactly how their advice is restricted.
GQ 8 - What is Bancassurance?
Bancassurance is a partnership between a bank and an insurance company/life office, allowing the insurance company to sell its products to the bank’s customers. This arrangement benefits both parties: banks earn additional revenue by offering insurance products, and insurance companies expand their customer base without needing to increase their sales force
GQ 8 - What is the Core Investment Advice Regime? What is the policy paper Advice Guidance Boundary Review?
Core Investment Advice Regime aimed to make it easier for both restricted and independent advice firms to offer services to customers with simpler needs. For example, instead of needing full, detailed advice, a customer might just need basic guidance on investing in a stocks and shares ISA. However, the financial services community didn’t support this idea much, so the FCA decided to rethink it and gather more feedback
Advice Guidance Boundary Review - This paper is the FCA’s response to the Edinburgh Reforms, which aim to make the UK the world’s most innovative finance centre. The paper asked for opinions from financial services professionals and consumer groups on how to close the “advice gap” – the gap between people who need advice and those who actually get it
GQ 8 - What is ‘facilitation’? (In the context of Remuneration)
Facilitation refers to the process where advisory fees are deducted by the product provider (e.g., an investment platform) and then passed back to the advisory firm. This means the client doesn’t have to pay the adviser directly; instead, the fees are taken from the investment and given to the adviser. This simplifies the payment process for the client, not having to make two separate payments?
Example:
Imagine you invest £100,000 in a fund. The advisory fee is 2%, which is £2,000. Instead of you paying the adviser directly, the fund provider deducts £2,000 from your investment and gives it to the adviser. This process is called facilitation.
GQ 8 - What are the basic advice rules? What are the types of stakeholder products?
The basic advice rules were introduced in 2005 to help firms provide simpler and cheaper advice to consumers on certain financial products, known as stakeholder products.
Types of Stakeholder Products:
1) Short-term deposit-based products: These are like savings accounts.
2) Medium-term collective or life products: These include life insurance or investment funds.
3) Long-term pension schemes: These are pension plans designed for long-term savings.
Pre-scripted Questions: Firms use a set of pre-scripted questions to understand the client’s financial situation, such as debt levels, investment goals, risk tolerance, and pension rights.
Suitability: The recommended product only needs to be suitable, not necessarily the best option
Not Independent: Firms providing basic advice on stakeholder products must not claim to be acting independently
GQ 8 - What are the maximum annual management charges that a provider can charge for stakeholder products?
Providers can charge up to 1.5% annually for medium-term investment products and long-term pension schemes, reducing to 1% after ten years
E book 8 - What three products are included in the stakeholder product range?
A short-term deposit-based stakeholder product,
a medium-term collective or life stakeholder product;
and a long-term stakeholder pension scheme.
GQ 8 - What is a financial promotion?
Essentially any communication that invites or encourages someone to engage in investment activities or claims management activities. This can include advertisements, marketing materials, or any other form of communication that aims to persuade people to invest in financial products or services.
GQ 8 - The COBS 4 financial promotions rules apply to investment business communicating or approving a financial promotion except for promotions of what 7 products?
Exclusions:
1) Qualifying credit, a home purchase or home reversion plan (Loans that meet certain criteria.)
2) Non-investment insurance contract (Regular insurance policies.)
3) Unregulated collective investment schemes (Investment funds not regulated by the FCA (firms cannot promote these).
4) Credit agreement, consumer hire agreement or credit-related regulated activity (Various types of credit and hire agreements.)
Further exclusions as they have their own rules:
5) Deposits: Savings accounts.
- (covered above) General insurance: Regular insurance policies (travel, home etc)
- (covered above) Home finance business: Mortgages and related products.
6) Pure protection life assurance: Life insurance focused solely on protection.
7) Reinsurance: Insurance for insurers.
GQ 8 - The financial promotion rules do not apply to…(4)
- One-on-one communications: Messages to a single recipient.
- Specific products for specific recipients: Tailored product recommendations.
- Personal quotations or illustrations: Customized financial estimates.
- Basic promotions: Simple messages with just the firm’s name, contact info, logo, brief description of activities, fees, and products.
GQ 8 - What are real-time and non-real time financial promotions? What are they also called?
Real-time or non-written - personal visit, face-to-face conversation, telephone conversation or other interactive dialogue
Non real time or written - other promotions. Social media is part of this.
