Topic 20 Flashcards
COBS sets out three types of client, what are they?
Eligible counterparties
Professional clients
Retail clients
In order to be able to inform a client that you can provide independent advice, they must be able to do what?
- Be sufficiently diverse with regard to their type and issuers, or product providers, to ensure that the clients investment objectives can be suitably met
- Not be limited to relevant products issued or provided by the firm itself or by entities having close links with the firm, or other entities with which the firm has such close legal or economic relationships, including contractual relationships, as to present a risk of impairing the independent basis of the advice given.
What is a panel?
A selection of providers who are known and trusted, based on their product range, charges and service level.
When an ‘independent’ adviser uses a panel, what should that panel be?
Sufficiently broad in its composition to enable the firm to make personal recommendations based on an assessment of a sufficient range of diverse and relevant products on the market.
What is execution only?
A transaction executed upon a clients specific instruction, where the firm gives no advice and the rules on assessing appropriateness do not apply.
What is ‘qualified investment advice’?
Where an adviser makes a recommendation based on a full analysis of a customers needs and circumstances.
What is ‘simplified advice’?
Where a streamlined or automated process is used to gather the personal and financial information on which advice is given.
What clear and credible evidence must firms be able to provide when an execution-only transaction has taken place?
- They are aware that business is being transacted on an execution-only basis
- They have not asked for or received advice
- The decision to take out the investment is theirs alone
- The adviser (and/or the firm they represent) takes no responsibility for the suitability of the investment
The above is normally done be obtaining a signed statement from the customer confirming all of the above.
What is a financial promotion defined as in COBS?
Invitation or inducement to engage in investment activity
What four activities can be seen as an invitation or inducement into investment activity?
Advertisements in all forms of media
Telephone calls
Marketing during personal visits to clients
Presentations to groups
When can financial promotions be ‘communicated’?
Only if they have been prepared, or approved, by an authorised person
What is a ‘real-time financial promotion’?
Non written financial promotions. Such as personal visits and telephone communications
What is a ‘non-real time financial promotion’?
Written financial promotions. Such as a newspaper advertisement and those on internet sites
What is the overall principle of financial promotions to retail clients?
Clear and adequate description of the product or service and be clear, fair and not misleading
In the case of retail clients in regards to financial promotions, what information must be supplied?
- Be accurate, including the requirement not to emphasise potential benefits without giving a fair and prominent indication of risks
- Be understandable by an ‘average’ member of the group it is aimed at
- Not disguise or obscure important terms or warnings
- Contain the name of the conduct regulator (the FCA) in the case of direct offer advertisements
In addition to abiding by the rules laid down by industry-specific regaulaitions regarding financial promotions, they must also meet the advertising standards authority standards, what are the four main points?
Legal
Decent
Honest
Truthful
When charging for advice, what three main rules must be followed?
- The charging structure should be based on the service provided, rather than the product/provider recommended
- Charges should be explained as part of the initial disclosures to a customer
- Any continuing charges can only be made where the customer has agreed to these and where the service for which these charges are levied is actually provided
Before any business is discussed, what must the adviser disclosed to the client and confirmed in writing?
Contact information
Communication
Authorisation
Advice type
Investment management
Client money or investments
Charging structure/method
Charges payable
Details of complaints procedure, including FOS & FSCS
What is ‘Designated investment business’?
Dealing in investment assets directly on behalf of a client
When an adviser formulates a recommendation, what factors must the adviser consider to ensure the recommendation is suitable?
- Meets current and likely future needs
- Is affordable, both initially and on an ongoing basis
- Is consistent with the customers risk profile
- Is flexible, to take account of future changes
List examples of risk that may need to be explained to a client to ensure they fully understand the risks implicit with the proposed product
- Whether or not the customers capital will be returned in full
- The extent to which income levels from an investment may vary or the circumstances in which no income may be paid at all
- The factors on which a customers income from a pension product will depend
- Any factors that might affects a customers ability to make a claim on a protection product
- Whether or not the level of life cover is sustainable for the duration of the term without an increase in premiums
What is ‘attitude to risk’
The extent to which a customer can cope with a lack of guarantees in respect of capital values and their feelings on fluctuating returns/income levels.
What is ‘tolerance of risk’
The extent to which a customers finances could cope with a loss of capital and/or income.
A suitability report explains why the particular product recommended is suitable for the client based on;
- Their particular personal and financial circumstances
- Their needs and priorities as identified through the fact finding process
- Their attitude to risk (both in general terms and in relation to the specific recommendations made)
