Investment Advice/ COBS 9, 10 & 11

Question 1

RDR

Answer 1

Retail Distribution Review 2013

Investment Advice

Standards of professionalism applying to providers of retail investment products

Question 2

What did RDR achieve

Answer 2

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

Question 3

FAMR

Answer 3

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

Question 4

Main recommendations of FAMR

Answer 4

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

Question 5

COBS 9 Name

Answer 5

Suitability

Question 6

Overview of when assessing Suitability is required

Answer 6

Advised Services (Advice or Management)

Suitability rule

RC only - suitability Report

Question 7

Detail of Suitability

Answer 7

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

Question 8

Suitability Report

Answer 8

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

Question 9

COBS 10 Name

Answer 9

Appropriateness

Question 10

Overview of when assessing Appropriateness is required

Answer 10

NON - Advised Services
execution only business

Complex FI
Derivatives, structured products, Hedge Funds & warrants

Appropriateness rule

Question 11

Overview of when assessing neither Suit/approp is required

Answer 11

NON - Advised service s

Non complex FI
shares , bonds , gilts

Neither rule applies

Question 12

Churning + switching

Answer 12

unsuitable

Unnecessary transactions to increase charges

Churning - excessively frequently for a client

Switching - selling one and replacing it with another

Question 13

Detail of Appropriateness

Answer 13

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

Question 14

COBS 11 Name

Answer 14

Dealing & Managing

Question 15

Best Execution

Answer 15

All sufficient steps
best possible result for its client
accounting the execution factors

In this market
For this client

Question 16

Best Execution Factors + Criteria

Answer 16

Price
Cost
Speed
Likelihood of execution

Criteria 
Client categorisation
Type of Order 
Type of financial instrument being traded 
Characteristics of execution venues

Question 17

Order Execution Policy

Answer 17

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

Question 18

Client Order Handling

Answer 18

Prompt

Fair

Expeditious execution of client orders

Orders promptly recorded and allocated
Carried out sequentially - time stamp order

Question 19

Exceptions to delay execution

Answer 19

• Interest of client
• material difficulty e.g. exchange calls trading halt

Material difficulty client needs to be informed

Question 20

Aggregation

Answer 20

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

Question 21

Allocation

Answer 21

Promptly in accordance with order allocation policy

Allocation to clients first

Question 22

Limit Orders

Answer 22

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

Question 23

Personal Account Dealing

Answer 23

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