COBS: Accepting Clients and Product Disclosure

Question 1

what type of general information do firms need to provide when starting business with a client (6 things), which clients does this apply to and how is it presented

Answer 1

name and address of firm
method and language of comms
name and contact details of competent authority
whether firm is acting through appointed representative
nature, frequency and timing of performance reports
if a common platform firm, the conflicts of interest policy

this applies to all clients, presented in an initial disclosure document before engaging in business

Question 2

which types of people need to be provided with a formal client agreement

Answer 2

professional and retail clients

Question 3

who is exempt from the client agreements rule

Answer 3

ECPs
insurance where the firm acts as principal

Question 4

what are the rules on timing in providing client agreement

Answer 4

generally should be provided in good time before the customer is bound by the agreement

however, firm may provide client agreement immediately after customer is bound by the agreement where it was impossible to supply the agreement earlier e.g. agreement concluded via distance comms

Question 5

when are trail commissions allowed

Answer 5

never allowed

Question 6

what does the retail distribution review say about firms before making personal recommendations

Answer 6

they must be independent or restricted before making personal recommendations to clients

Question 7

what does the retail distribution review say about remuneration

Answer 7

adviser charges agreed in advance with the client as early as practicable in a durable medium or via a website

no commissions from the product provider are permitted
clients can choose to either pay adviser charge up front or have it deducted from their investment over time

Question 8

what does the retail distribution review say about disclosure on costs

Answer 8

must disclose adviser status and the cost of the service before providing a service or before the client is bound by any agreement

Question 9

what is the purpose of the product disclosure rules to retail clients

Answer 9

to provide enough information about the nature and risks of a product to enable a retail client to make an informed decision

Question 10

what are the three types of documents under product disclosure rules and for what do they apply

Answer 10

Key information document - PRIIPs
key investor information - UCITS schemes
key features document - any non-PRIIP packaged product e.g. personal pension plan

Question 11

what is the number of days to cancel under distance marketing directive for life products and pensions

Answer 11

30 days

Question 12

what is the number of days to cancel under distance marketing directive for any other product e.g. ISAs

Answer 12

14 days

Question 13

what are PRIIPs

Answer 13

packaged retail and insurance based products:

investment funds
insurance based investment products
retail structured deposits
structured term deposits

Question 14

can UCITS funds be freely marketed to retail clients

Answer 14

yes

Question 15

what is the purpose of inducement rules

Answer 15

to reduce risk of conflicts of interests

Question 16

to who do inducement rules apply

Answer 16

retail and professional clients

Question 17

what do the inducement rules say about fees and commissions for MiFID business

Answer 17

a firm must not pay to, or accept from, a person other than the customer, any fee, commission or non-monetary benefit UNLESS:

the fee is designed to enhance the quality of service to the customer
the fee does not impair the firms duty to act in the best interests of the customer

Question 18

what do the inducement rules say about disclosure to customers regarding fees and commissions received or paid to a third party

Answer 18

the firm must disclose the existence, nature and amount of the fee to the customer before providing the service

Question 19

what types of fees are permissible under the inducement rules

Answer 19

proper fees necessary for the provision of the business e.g. custody costs, settlement fees, legal fees etc

Question 20

to what do the inducement rules not apply

Answer 20

minor non monetary benefits:

info relating to a financial instrument or service
written material to promote a new issuance
participation in conferences/seminars
hospitality such as food and drink during a meeting

Question 21

to who do provision of research information disclosure rules apply

Answer 21

retail and professional clients

Question 22

to what has the FCA disapplied the provision or research rules

Answer 22

alternative investment funds and CIS that invest mainly in non - mifid investments e.g. commercial property

Question 23

what are the provision or research rules regarding charges

Answer 23

firm must apply a charge when providing research to other firms unless mkt cap under 200m pounds (the company the research is based on)

Question 24

how must firms pay for research

Answer 24

direct payments out of its resources or
payments from a separate research payment account controlled by the firm

Question 25

what must a firm providing research disclose

Answer 25

the budget as well as charges before providing services
annual info on the total cost each customer has incurred for third party research

Question 26

does a firm need to regularly assess the quality and effectiveness of the research paid for

Answer 26

yes