Topic 10 Flashcards
What is the key difference between an eligible counterparty and a professional client?
An eligible counterparty is a large financial institution – bank, insurance
company, investment firm, collective investment fund or government
– requiring a limited service, such as straightforward execution of
transactions. This category provides the lowest level of investor protection.
A professional client includes all the bodies that would otherwise be
eligible counterparties, except for the fact that they require a higher level
of service than would normally apply to ‘eligible counterparty business’.
For example, they require advice, in addition to execution of transactions.
They are also entitled to a higher level of investor protection than an
eligible counterparty.
What are the 2 types of advice in which FA’s can operate?
- Independent advice – providing advice and recommendations after
assessing the client’s needs, based on a comprehensive and fair analysis
of the market. - Restricted advice – providing advice and recommendations after assessing
the client’s needs, but only offering products from one company or a
limited number of companies.
List the 4 drivers of vulnerability identified by the FCA
- Health conditions or illnesses that affect the ability to carry out dayto-day tasks.
- Life events – including bereavement, job loss or relationship breakdown.
- Resilience – low ability to withstand financial or emotional shocks.
- Capability – low knowledge of financial matters or low confidence
managing financial matters.
The FCA Principles for Businesses that set out general requirements
relating to a duty of care to customers are:
Principle 1 – Integrity: a firm must conduct its business with integrity.
Principle 2 – Skill, care and diligence: a firm must conduct its business
with due skill, care and diligence.
Principle 6 – Customers’ interests: a firm must pay due regard to the
interests of its customers and treat them fairly.
Principle 8 – Conflicts of interest: a firm must manage conflicts of
interest fairly, both between itself and its customers and between one
customer and another.
Principle 9 – Customers’ relationship of trust: a firm must take
reasonable care to ensure the suitability of its advice and discretionary
decisions for any customer who is entitled to rely on its judgement.
Principle 10 – Clients’ assets: a firm must arrange adequate protection
for clients’ assets when it is responsible for them.
What are the 3 factors that determine that an adviser has made a personal recommendation?
- There must be a recommendation made to a person who is an investor
or potential investor (or their agent). - The recommendation must relate to buying, selling, retaining,
subscribing or underwriting a particular investment, or exercising any
rights given by that investment. - The recommendation must be presented as suitable for that person,
based on their circumstances.
an FA is going to arrange a personal pension, a unit trust investment and an options investment for her. what documents must they provide the client with, and when?
must provide her with an initial disclosure document and, as he
will be arranging an options investment, she must also receive a client
agreement. The documents should be given to her before she is committed
to any of the investments.
What potential benefits does using a platform offer an adviser?
Platforms offer a single facility to hold the client’s investments, and they
provide tools and data to help advisers in their research and decision
making.
an FA is arranging a unit trust for their client. what specific additional information must the key informational document contain compared to a key features document?
In addition to the general information required for all products, the KID
also includes a summary risk indicator showing the market and credit risk
in quantitative terms, three performance scenarios and a stress scenario
based on the term or recommended holding period of the PRIIP(Packaged retail and insurance-based investment products).
What statutory cancellation periods apply to investments + stocks and shares ISA’s + cash deposit ISA’s?
And to life assurance, annuities, pensions, lifetime ISA’s and pure protection insurance?
14 days for investments + stocks and shares ISA’s + cash deposit ISA’s
30 days for life assurance, annuities, pensions, lifetime ISA’s and pure protection insurance
How do advisers get paid from advice regarding general and protection-only business?
not subject to fee requirements, can be paid commision by the insurer
How can advisers be remunerated (paid) for making personal recommendations?
Hourly, or via the firm they work for at a reasonable level based of the product(s) they are selling.
What do PRIIPs (Packaged retail and insurance-based investment products) include? 4
- Unit trusts and OEICs
- investment trusts
- unit-linked and with-profits insurance-based investments products (eg investment bonds)
- structured investments (eg guaranteed income bonds) and structured deposits
What do Non-PRIIPs include? 6
- pension products
- purchase annuities with fixed/escalating income
- non-life and general insurance
- deposits
- ISA’s and investment trust savings schemes
- gilts and similar securities offered by EU member banks, central banks, local authorities and other public international bodies.
What are the limitations to what an adviser can advise?
Only provide recommendations about the regulated activities for which their firm has permission from the FCA.
Define independent advice
is where the firm provides advice and recommendations based on an analysis of the most suitable solution from the whole market. must be fair, comprehensive, unrestricted and unbiased.
