Investment Advice/ COBS 9, 10 & 11 Flashcards
RDR
Retail Distribution Review 2013
Investment Advice
Standards of professionalism applying to providers of retail investment products
What did RDR achieve
1) Firms making personal recommendations ;
- Independent ( Advisor is agent of client )
- Restricted ( Advisor is agent of Firm )
Status must be disclosed with charges before providing service
2) Remuneration - Commission bias
Charges for advisor are agreed in advance
Choose to pay advisor charge or have deducted from investment
3) Retail Investor advisors must hold statement of Professional standing from accredited body
- Approved qualification
- 35 hours minimum CPD per year (21 must be structured)
- annual declaration
Firms send reports confirming qualification status to FCA
FAMR
Financial Advice Market Review 2015
Aimed at examining how financial advice could work better for consumers
Followed on the back of RDR
Emerging issues e.g. new pensions freedom
Main recommendations of FAMR
1) Affordability
- more affordable advice for consumers
2) Accessibility
- easier access to advice for consumers (streamlined advice + robots advice )
3) Liabilities and Consumer redress
address industry issues about advice before RDR + not affecting consumer protection
COBS 9 Name
Suitability
Overview of when assessing Suitability is required
Advised Services (Advice or Management)
Suitability rule
RC only - suitability Report
Detail of Suitability
Firms have to obtain sufficient info to give suitable advice
- Personal recommendation/advice
- Acting as investment manager
Personal + financial info = fact find
Suitable advice;
1) Meets client objective
2) Able to bear financial risk
3) Knowledge and experience
Per se pro = 1
Elective pro = 1+ 2
retail = all 3
Suitability Report
RC only
Confirm why firm recommendation suitable
provided for both MIFID and non - MIFID investments
1 - specify clients needs
2- recommended transaction meets those needs
3- disadvantages of transaction for client
COBS 10 Name
Appropriateness
Overview of when assessing Appropriateness is required
NON - Advised Services
execution only business
Complex FI
Derivatives, structured products, Hedge Funds & warrants
Appropriateness rule
Overview of when assessing neither Suit/approp is required
NON - Advised service s
Non complex FI
shares , bonds , gilts
Neither rule applies
Churning + switching
unsuitable
Unnecessary transactions to increase charges
Churning - excessively frequently for a client
Switching - selling one and replacing it with another
Detail of Appropriateness
Firms have to obtain sufficient info to assess if product s appropriate for customer
before acting Assess;
1) Bear financial risk in relation to product or service
2) Has knowledge and experience to understand risks (RC only)
Risk warning provided
- investment not appropriate
- not produced sufficient info
COBS 11 Name
Dealing & Managing
Best Execution
All sufficient steps
best possible result for its client
accounting the execution factors
In this market
For this client
Best Execution Factors + Criteria
Price
Cost
Speed
Likelihood of execution
Criteria Client categorisation Type of Order Type of financial instrument being traded Characteristics of execution venues
Order Execution Policy
Ensure firm obtains best possible result for client
Provided before proving service
Info;
list execution venues
affect firms choice of venues
Additional info for retails
Must be kept up to date by firm and alert customer if changed
Specific Client Instructions
take priority over OEP
Client Order Handling
Prompt
Fair
Expeditious execution of client orders
Orders promptly recorded and allocated
Carried out sequentially - time stamp order
Exceptions to delay execution
- Interest of client
- material difficulty e.g. exchange calls trading halt
Material difficulty client needs to be informed
Aggregation
Adding together firm + client orders
Larger orders get better trading terms
Permitted if;
don’t disadvantage customer
disclose that may operate to disadvantage to customer
Order allocation policy in place
Allocation
Promptly in accordance with order allocation policy
Allocation to clients first
Limit Orders
If not executed immediately must be made public
Placed into order book
Unless either
client expresses instructs otherwise - private
Limit order greater than approx 10% of average trade volume
Personal Account Dealing
Applies all conducting designated investment business
Arrangements making sure not to break;
Insider dealing
GDPR
Conflicts of interest
Relevant persons need to be informed
Inform firm
Firm records all notification
Rules don’t apply to personal transactions in (not poss to abuse markets)
Shares in regulated CIS
Independent managed portfolios -RISHI SUNKA Blind Trust
Life assurance policy
