Pt 8. The Regulatory Advice Framework - Different Types of Financial Advisers & Services Flashcards
What is COBS?
- FCA’s Conduct of Business Sourcebook
- This distinguishes between different types of customer and financial adviser, in turn affecting the service a firm provides.
Which type of the client has greatest protection under COBS rules?
Retail clients
What is a retail client?
A client who is not professional client or eligible counterparty.
What is a professional client?
- Covers a wide range of organisations including other authorised firms, investment firms, credit institutions, local authorities, pension funds etc.
- A retail client can be an elective professional client; if there is evidenc eof sufficient expertise, experience and knowledge.
What is an eligible counterparty?
- When business is limited to clients such as another authorised financial institution, government or national bank of country.
- Applies to clients when conducting a limited range of activities, including arranging, transacting orders on counterparty behalf, as well as when firm is dealing on their own account.
What are the 2 types of financial advisers?
- Restricted - a personal recommendation to retail client in relation to products; with respect to range of products offered, range of product providers, whose products are considered.
- Independent - assess sufficent range of relevant products divers in terms of type and issuer, ensuring clients objectives are suitably met; includes all types of financial instruments, structured deposits, other retail investment products.
What do you do if a retail client is interested in a particular type of packaged investment, but restricted adviser cannot find this from her company’s range?
- Inform the client that they have nothing suitable, and may introduce client to indpendent financial adviser providing agreement covers making such arrangements.
What is best execution sales?
- Most common when trading stocks and shares.
- Requires a firm to take all sufficient steps so transaction carried out on best terms available, including price, speed, cost, likelihood of execution and settlement, size, nature or any other consideration relevant to execution of order.
What is an execution only sale?
- When an investor states exactly what they want, and does not ask for or receive any advice.
- More common in field of stocks and shares, as many clients do know exactly what they want to sell or buy.
- Stockbroker then uses best execution to obtain best possible result for customer’s order.
What is a short term product?
- Cash deposit account, with minimum investment no more than £10.
What is a medium term product?
- An investment product.
- Minimum investment no more than £20.
What is a long term product?
- A pension.
What can the charge be for medium term investment and pension products?
- Maximum annual management charge of 1.5% of the value of plan/pension each year reducing to 1% after 10 years.
What is the basic simplified regulator process for stakeholder products?
- A firm providing basic advice must explain why it chose the stakeholder product.
- No requirement to ‘know your customer’.
What is basic advice?
- Firm explains why it chose the stakeholder product.
- Give client a list of products and providers that appear in range on offer, if client asks them information.
- Given basic advice disclosure information, and explanation of how advice will be paid for and any commission will be disclosed.
- With stakeholder products there is no requirement to ‘know your customer’, so full fact find is not completed, but questions must be asked regarding debt levls, investment objectives, tolerance of risk and pension rights.
