Topic 10 - The regulatory advice framework Flashcards
What is an eligible counterparty and what are some examples of them
Organisation (counterparty) that requires a limited service (straightforward transactions). Lowest level of investor protection
* Banks
* Insurance companies
* Investment firms
What is a professional client
All bodies that would be an ‘eligible counterparty’, but require more services
Higher level of investor protection
What is a retail client
‘Normal people’, most customers fall into this category
Highest level of investor protection
What are the 4 drivers of vulnerability identified by the FCA
- Health conditions
- Life events
- Resilience (ability to withstand financial shocks)
- Capability (low knowledge of financial matters)
How many people in the UK have characteristics of vulnerability
24 million
What are the sort of problems that vulnerable clients face
- Financial exclusion
- Difficulty accessing services due to no suitable commmunication channels
- Inability to manage products and services
- Over-indebtedness
- Buying wrong products due to misunderstanding
- Scams and financial abuse
What structures and processes does the FCA expect firms to put in place to help vulnerable clients
- Senior management create a good culture
- Create good systems to support good customer service
- Tell vulnerable customers about help and support options
- Provide straightforward options
- Ensure client-dealing staff are appropriately trained
- Consider vulnerable customers when designing products
- Set up in-house teams for support of vulnerable clients
What is a fiduciary relationship
Relationship between Fidcuiary (agent/provider of service) and the customer
Although general UK law covers some fidcuiary duties, what are the 3 main fiduciary duties in financial services
- The duty of care
- Confidentiality
- Primacy of customers interests
What are the 3 main elements of a ‘personal recommendation’
What must happen in a personal rec. for it to be a personal rec.
- 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.
If a firm is not approved to give advice, they can give guidance, but what are the key features of this
- Provide product and general information
- Information must be balanced
- Provider must not express an opinion
- Information allows customer to make their own informed decision
What 2 types of advice does the term ‘streamlined advice’ describe
- Focused
- Simplified
What is focused advice
- Personal recommendation relating to specific need
- Firm must ensure that any personal rec. is suitable for the customer
More focused than simplified advice
What is simplified advice
- Personal rec. that is limited to one or more of the customers specific needs
- Does not involve analysis of any circumstances that are not directly relevant to the needs
- For customers who have already met their priority needs
- Cannot be advice on selling or transferring of investment product
- Can be provided using automated system (decision tree)
What is basic advice
- For firms offering stakeholder products
- Uses pre-scripted questions to assess suitability
- Provider must disclose that basic advice only establishes broad priorities, limited account of personal circumstances
When must a firm tell customers the ‘type or scope’ of advice they give
Before any business commences
What are the 2 broad categories of advice the FCA rule out
Relating to type or scope of advice
- Independent
- Restricted
What is independent advice
- Firm provides recommendations from the WHOLE MARKET
- Must be fair, unrestricted and unbiased
- Can use a panel of providers but must be reviewed and updated regularly
What is restricted advice
- Also known as non-indepedent advice
- Provides advice on products from ONE OR A LIMITED NUMBER OF COMPANIES
- Includes ‘basic advice’
If a customer expresses a need outside of the firm’s and FCAs scope, such as… …adviser must be careful as there is no recourse for the adviser or client
- Taxation
- Wills
- Trusts
- Certain unregulated investments
What does Initial Disclosure COBS 6 introduce
In good time before doing any business, firms must disclose:
* Info about the firm
* Categories they operate in
* Services they provide
* Their costs
What is the main content in an initial disclosure
- the name and address of the firm
- methods of communication between the customer and the firm
- a statement that the firm is authorised and regulated by the Financial Conduct Authority (in full);
- the type of service provided – independent, focused independent, restricted and the nature of the restriction;
- the nature, frequency and timing of reports on the performance of the service that will be provided by the firm;
- where the firm manages investments for the customer
- costs and fees for the service
- information about the Financial Services Compensation Scheme if it applies to the service
What is a client agreement
COBS 8
- Agreement similar to an ‘initial disclosure’ that recognises that the services provided put more reliance on adviser
- Used for designated investment business other than purely advising on packaged investments
What investments do not require a client agreement
- Discretionary investment management services
- Transactions in futures and options
- Packaged investments (PRIIPs)
- Pensions
- Life policies
When selecting an appropriate provider, what must an adviser consider
- Financial strength of provider
- Standards of customer service
- Claims payment record
- Fund performance and consistency
- Reliability and accuracy of marketing material
The FCA requires firms to ensure good outcomes forn clients, what are the 3 components identified for achieving this
- Competence of the adviser
- Research and due diligence
- Assessing suitability
What is covered in Product Disclosure COBS 14
- Advisers must provide client with written details of packaged products they are recommending
What is covered in the written disclosure of a product
Product disclosure COBS 14
- the type of product and its key features;
- risk factors related to the product and the potential return;
- the product terms and conditions;
- product costs and charges; and
- complaints information.
What is a PRIIP
PRIIPs are a category of investment products and contracts brought in under MiFID II. They are defined as products featuring direct or indirect investment in capital markets or where eventual repayment is linked to the performance of certain securities or benchmarks, so they are potentially subject to investment risk. PRIIPs include (but are not limited to):
- unit trusts and OEICs;
- investment trusts;
- unit‑linked and with‑profits insurance‑based investment products (eg investment bonds);
- structured investments (eg guaranteed income bonds) and structured deposits;
- venture capital trusts
What is a KID and how many pages long should it be
- Key information document
- Used to provide information on PRIIPs
- 3 pages
What are non-PRIIPs products
- pension products;
- purchase annuities with fixed/escalating income;
- non‑life and general insurance
- deposits;
- ISAs and investment trust savings schemes (but the underlying investments are PRIIPs);
- gilts and similar securities offered by EU member states, central banks, local authorities and other public international bodies.
What type of products do the rules for adviser charging apply to
Retail products
What are the main charging rules for advisers
- Advisers can only be remunerated for making personal recommendations through a system of adviser charging
- Advisers cannot ask for or accept commission for making personal recommendations, even if they intend to refund the payments to the client.
- Product providers must not offer or pay any adviser commissions, remuneration or benefit of any kind. However, the provider can pay the adviser’s charges on the client’s behalf from the product charges.
- If the adviser’s firm is the product provider, the adviser charges must be at a level that reasonably represents the services provided.
- A firm must establish and use an appropriate charging structure for calculating its adviser charge for each client
- The charging structure must not hide any charges either directly or by subsidising one type of charge from another.
- The firm must disclose its charging structure to the client in writing, in good time before providing the service. The charges should be explained in clear language and in cash terms whenever practicable.
What is covered in Cancellation COBS 15
- Customers rights to cancel a regulated packaged investment within a specified time, known as the cooling-off period
- Provider must send cancellation notice from date the contract was in force, or from the date the terms and conditions were received
What products have a cooling-off cancellation period of 14 days
- Investments
- Stocks and shares ISAs
- Cash deposit ISAs
What products have a cooling-off cancellation period of 30 days
- Life assurance policies
- Annuities
- Pensions
- Lifetime ISAs
- Pure-protection insurance
What is meant by proactive servicing
AFTER-SALES CARE
Adviser instigating action by contacting customer regarding:
* Reviews
* Clear up all recommendations
What is meant by reactive servicing
AFTER-SALES CARE
Happens as a request from the customer, due to changing circumstances, questions ETC.
