Topic 20 Flashcards
Conduct of business requirements 1
When recommending a product to a client, the suitability of advice rules require that, in making a recommendation, the adviser must always abide by the fundamental principle of:
a. accepting that the client knows best.
b. offering the most cost-effective product.
c. offering the top-performing product.
d. serving the client’s best interests.
d. serving the client’s best interests.
Under FCA rules, a financial institution that requires advice on a transaction from another financial institution is most likely to be categorised as:
a. a professional client.
b. a retail client.
c. an eligible counterparty.
d. an independent client.
a. a professional client.
Which of the following risk warnings must appear on all advertising material containing details of past investment performance?
Past performance:
a. is not necessarily a reliable indicator of future performance.
b. is not necessarily better than future performance.
c. is only a general guide to the future.
d. over a period of five years or more is a reasonable guide to the future.
a. is not necessarily a reliable indicator of future performance.
Which of the following pieces of information is an adviser not obliged to provide to their client before any business is discussed?
a. Confirmation that they will consider products from every provider in the market.
b. Details of the firm’s address and contact details.
c. Disclosure of status as either independent or restricted.
d. Disclosure of the firm’s charging structure.
a. Confirmation that they will consider products from every provider in the market.
When disclosing the adviser charge to a retail client in cash terms, what information is not required when the charge is payable over a period of time?
The:
a. amount due.
b. benefits of paying the charge in this way.
c. frequency.
d. implications for a client if an investment product is cancelled before the payment is made.
b. benefits of paying the charge in this way.
When undertaking investment business, the level of client charges should reflect the:
a. provider recommended.
b. service provided and must represent fair value.
c. status of the adviser.
d. type of product recommended.
b. service provided and must represent fair value.
Theo is a pension transfer specialist in a firm of independent financial advisers.
Which of the following is true regarding the impact of his specialist role?
a. Theo can describe his advice as independent, provided that he meets the independence rule in every personal recommendation he makes.
b. Theo can only offer restricted advice in areas of financial planning other than pension transfers.
c. Theo is not permitted to describe the advice he offers as being independent because the range of products he can recommend is limited.
d. Theo’s firm must also have a specialist for every other area of financial planning it offers advice on.
a. Theo can describe his advice as independent, provided that he meets the independence rule in every personal recommendation he makes.
Janice has cancelled an investment within the cancellation period but has received back less than she invested.
This is because:
a. a surrender charge has been applied to her plan.
b. a withdrawal charge has been applied to her plan.
c. she invested a lump sum into a unit-linked plan, which has fallen in value.
d. she invested a regular premium into a unit-linked savings endowment.
c. she invested a lump sum into a unit-linked plan, which has fallen in value.
Which of the following pieces of information would not be detailed on a key features document?
a. A summary of the client’s data protection rights.
b. Information about the Financial Services Compensation Scheme.
c. Details of the right to cancel.
d. The consequences of failing to maintain required contributions.
a. A summary of the client’s data protection rights.
When an adviser transacts designated investment business, such as equities, for a client, the essential rights and obligations applying to the relationship would normally be disclosed in which document?
The:
a. client agreement.
b. key features document.
c. statutory cancellation notice.
d. suitability report.
a. client agreement.
David has arranged a life policy for his customer, Jane.
Assuming that Jane does not require immediate cover and that details of suitability are not provided orally, what is the latest date that the suitability report can be sent to Jane?
a. Before conclusion of the transaction.
b. Five days after the end of the cooling-off period.
c. Five days after the final interview.
d. Five days after the initial interview.
a. Before conclusion of the transaction.
If a client intends to purchase an investment product on an execution-only basis, then:
a. best execution rules will not apply.
b. no product charges will be payable.
c. no advice will be required.
d. suitability rules will still apply.
c. no advice will be required.
A £12,000 single premium unit-linked investment bond is cancelled by a customer within the cooling-off period. However, during this period, the stock market fell sharply. Consequently, so did the value of the bond.
What is the customer most likely to receive?
a. £12,000.
b. £12,000 less set-up charges.
c. 95% of the surrender value of the investment bond.
d. The market value of the bond on encashment.
d. The market value of the bond on encashment.
Responsibility for product selection in relation to ‘execution-only’ business rests with the:
a. adviser.
b. customer.
c. product provider.
d. regulator.
b. customer.
When meeting with a client and assessing the suitability of product recommendations, an adviser should consider the client’s attitude to risk and:
a. returns produced by investments currently held by the client.
b. the amount of money the client is investing.
c. the client’s capacity for loss.
d. the potential returns offered by the recommended investments.
c. the client’s capacity for loss.
Which of the following is not typically included in the initial disclosure documentation issued by an adviser?
a. A statement that the firm is authorised and the name of the regulator.
b. Details of the charging structure.
c. Details of what qualifications are held by each of the firm’s advisers.
d. Details of whether the adviser offers independent or restricted advice.
c. Details of what qualifications are held by each of the firm’s advisers.
To meet the FCA definition of independent advice, recommendations must be based on:
a. a sufficiently diverse range of relevant products.
b. all areas of financial advice.
c. all of a client’s financial needs.
d. all products on the market.
a. a sufficiently diverse range of relevant products.
Which of the following criteria is not one that must be satisfied by an advertisement, in order to comply with the FCA’s rules in respect of financial promotions?
a. Information about past performance must be based on a period of at least five years, where possible.
b. It must be approved by the FCA.
c. It must be clear, fair and not misleading.
d. It must include a clear and adequate description of the product or service.
b. It must be approved by the FCA.
Rosario is meeting her adviser to discuss her financial protection needs and to obtain advice on life assurance.
This means that the adviser’s charges must be disclosed:
a. at the latest, when the cancellation notice is sent to Rosario.
b. in writing before any business is discussed.
c. in writing within five business days after the business is transacted.
d. verbally before the business is transacted.
b. in writing before any business is discussed.
For new arrangements, of which of the following product types can an independent financial adviser receive commission from a product provider?
a. Income protection insurance.
b. Investment bond.
c. Stocks and shares ISA.
d. Unit trust.
a. Income protection insurance.
Under the FCA client categorisation rules, advisers must:
a. ensure they are able to offer advice to all client types.
b. ensure the client has more than a basic understanding of financial services.
c. only have to explain potential product risks to eligible counterparties.
d. offer the highest level of investor protection to retail clients.
d. offer the highest level of investor protection to retail clients.
Which FCA sourcebook specifies the length of time for which information collected during the course of a customer factfind is kept?
The:
a. Conduct of Business sourcebook.
b. Prudential sourcebook.
c. Systems and Controls sourcebook.
d. Training and Competence sourcebook.
a. Conduct of Business sourcebook.
In order to ensure that a recommendation is suitable, an adviser will need to consider a number of factors.
This will exclude:
a. current and future needs.
b. if it is affordable.
c. if it is consistent with the customer’s risk profile.
d. researching products that have the lowest charges only.
d. researching products that have the lowest charges only.
A key information document (KID) must provide the consumer with:
a. a summary of the consumer’s personal and financial circumstances.
b. all of the terms and conditions of the product.
c. easy and concise information to read, no longer than three sides of A4.
d. key information about the product, no longer than one side of A4.
c. easy and concise information to read, no longer than three sides of A4.
Which of the following is not one of the three categories of customer as defined by the FCA within the Conduct of Business Sourcebook (COBS)?
a. A corporate client.
b. A professional client.
c. A retail client.
d. An eligible counterparty.
a. A corporate client.
An investment fund manager is to launch a postal campaign to draw attention to its new European Equity Fund.
In order to comply with FCA rules, what information must be included in the literature that will be sent to customers?
a. A balanced view of any potential benefits and a prominent indication of risks.
b. An indication of the maximum proportion of their initial investment that an investor could lose.
c. That equity funds generally underperform in the early years because of the charges.
d. That investments into the equity fund must be made for a minimum period of ten years.
a. A balanced view of any potential benefits and a prominent indication of risks.
A financial adviser must issue a key information document prior to a sale being concluded for all of the following products except:
a. gilt-edged securities.
b. investment trusts.
c. unit-linked endowments.
d. unit trusts.
a. gilt-edged securities.
Jeremiah invested £10,000 in a unit-linked investment bond and cancelled seven days later. He subsequently received a refund of £9,500. What did the reduction in his original investment represent?
The:
a. adviser’s fee.
b. cancellation charge.
c. handling charge.
d. reduction in the value of the investment.
d. reduction in the value of the investment.
Which of the following is most likely to be classed as an eligible counterparty?
a. A firm acting on behalf of a retail client.
b. A private individual.
c. A small business.
d. An authorised insurance company.
d. An authorised insurance company.
