Section 4 Flashcards
The firm. Information disclosure that must be provided for all clients:
Name and address of firm.
Method and language of communication.
Name and contact details of competent authority.
Whether the firm is acting through an appointed representative.
Nature, frequency and timing of performance reports.
If a common platform firm, the conflicts of interest policy.
Information is typically produced in a standardised format and will be provided in an initial disclosure document (IDD) before engaging in business.
Additionally, all customers must be provided with a formal ‘client agreement’ which sets out the essential rights and obligations of the firm and of the customer.
Firms that make personal recommendations to retail clients must be either:
independent or restricted
Remuneration for the adviser.
Remuneration - 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 permitted and clients can choose either up front payment to the adviser or have it deducted from their investment over time.
Disclosure from the adviser.
Disclosure - must disclose adviser status, and the costs of service before providing a service or the client is bound by agreement.
Purpose of product disclosure rules for retail clients:
Provide enough info about the nature and risks of a product to enable a retail client to make an informed decision.
Types of product disclosure documents:
Key Information Document (KID) - packaged retail and insurance-based investment products aka PRIIPS. PRIIPS includes investment funds, insurance-based investment products, retail structured securities, and structured term deposits.
Key Investor Information Document (KIID) - UCITS schemes.
Key Features Document - Any non-PRIIP packaged product e.g. pension annuities.
Post-sale cancellation rights.
Providers of above products and services covered under the distance marketing directive. Life products and pensions - 30 calendar days, other products - 14 calendar days.
MiFID business inducements information disclosure
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 (etc.) is designed to enhance the quality of service to the customer
• The fee (etc.) does not impair the firm’s duty to act in the best interests of the customer
- Disclosure
• The firm must disclose the existence, nature and amount of the fee (etc.) to the customer
before providing the service
- Proper fees necessary for the provision of the business (e.g. custody costs, settlement
fees, legal fees, etc.) are permissible
Non-MiFID business inducements information disclosure
Only required for personal recommendations for packaged products. Disclosure is not required
if the benefit is a minor, non-monetary benefit, or consists of basic advice on
stakeholder products.
Paid for research information disclosure - receiving firm can only use the research if it pays for it with either:
Direct payments by the firm out of its own resources; or
• Payments from a separate research payment account controlled by the firm
Paid for research information disclosure - the research payment account.
- The account must only be funded by a specific research charge agreed with and
charged to customers - The firm must disclose:
• The budget, as well as the charges, before providing services
• Annual information on the total costs that each customer has incurred for third-party research
Who have the FCA disapplied the provision of research rule for?
The FCA has disapplied this rule for Alternative Investment Funds and
Collective Investment Schemes that invest mainly in non-MiFID investments
What is a trail commission? Is it allowed?
Trail commission was an annual fee paid to financial advisers by their customers over the lifetime of products.
Advisors have been prohibited from receiving any trail commissions (including from existing clients) as of April 2016.
