Topic 20 Conduct of Business Requirements 1 Flashcards
Which sourcebook covers conduct rules for business firms?
Conduct of Business Sourcebook (COBS)
Which sourcebook covers rules for deposit takers, eg banks & building societies
Banking: Conduct of Business Sourcebook (BCOBS)
Which sourcebook covers rules relating to mortgages, home finance & equity release
Mortgages & Home Finance: Conduct of Business Sourcebook (MCOB)
Which sourcebook covers rules on provision of advice on general advice & protection policies
Insurance: Conduct of Business Sourcebook (ICOBS)
What are the 3 types of client set out in Conduct of Business Sourcebook (COBS)?
- Eligible Counterparties
- Professional Clients
- Retail Clients
What type of client would this be according to Conduct of Business Sourcebook (COBS)?
- Applies to governments, central banks & finance Institutions
- Buyer or seller or a product for resale
- Deemed to have assumed level of knowledge & expertise
- Less investor protection
Eligible Counterparties
What type of client would this be according to Conduct of Business Sourcebook (COBS)?
- Require a higher level of service than eligible counterparties (require advice)
- Large clients e.g (Institutional investors)
- Can opt to be treated as professional clients
Professional Clients
What is the term for a professional clients who opts to be treated as such
Elective Professional Clients
What type of client would this be according to Conduct of Business Sourcebook (COBS)?
- People in the street with limited understanding of financial services
- Highest level of investor protection
Retail clients
What are the 2 categories of advisor?
- Independent
- Restricted
What must an independent Financial advisor or a firm must ensure?
- Suitably diverse products to meet investor needs
- Not linked to firm or entities link to firm (avoid impairing advice)
If a firm does not meet the standards for independent advice is considered to be what?
Restricted
An advice firm can call itself independent even if it offers advice on a certain area.
True or False
True
The FCA is defines a “Personal recommendation” as advice on?
- Investment
- Pensions
- Home Finance
A firm is able to use panels but it must be what to avoid limiting a customers options?
Sufficiently broad to enable appropriate advice to be given
Why must firms who operate panels must be able to offer “Off Panel” advice?
Other providers may have products that suit clients better
What is a Panel?
Selection of providers who are trusted on their product range, charges & service level
Is an independent firm allowed to have specialist advisors?
Yes but it must offer advice that meets independence rules
What is restricted advice?
Any advice that is not independent and has a narrow range of products & services
What is Execution-only Business?
Where a customer feels equipped to make their own investment choices without taking advice. The firm just executed their wishes
What is Qualified Investment Advice?
Where a recommendation is given based on a full analysis of a customers needs & circumstances
What is Simplified Advice?
Streamlined/automated way of gathering personal & financial information on which advice is given
What are the below in relation to Execution-only business?
- Customer is aware business is transacted on an Execution-only basis
- They have not asked for or received advice
- The decision to take out an investment is their own
- The adviser takes no responsibility for the suitability of the advice
What the Financial Ombudsman Service (FOS) requires as “Clear & Credible” evidence that are happy to act on an Execution-only basis
What is a “Insistent customer” ?
Where a customer decides not to take the advice given and take their own course of action
In the case of a “insistent customers” what does the adviser need the client to do?
Sign to say they are acting against the advice
What is an Appropriateness Test?
A test to see whether a customer has the knowledge & Expertise to understand risks involved in a complex product
These are what?
- Alternative Investment Funds
- Spread betting contracts
- Structured products
Example of complex products that require an Appropriateness test
How does Conduct of Business Sourcebook (COBS) define financial promotions?
“Invitation or Inducement to engage in investment activity”
Financial promotions can only be communicated if they have approved by an authorised person.
True or False
True
Non-written financial promotions including:
- Personal visits
- Telephone calls
Are examples of what?
Real-time financial promotions
Written financial promotions including:
- Newspaper advertisements
- Online advertisements
Are examples of what?
Non-real time financial promotions
The below must be clear, fair & not misleading by what type of client is it aimed at?
- Accurate give benefit of products as well as risks
- Understand by who it is aimed at
- Not disguise or obscure terms or warnings
- Contain the name of conduct regulator in case of direct offer advertisements
Retail clients
Which rule relating to financial products is this?
- Comparisons with other products must be meaningful, presented in a fair way
- MiFID firms have extra requirements to detail information source and assumptions made in comparison
Comparisons
Which rule relating to financial products is this?
- Past performance must not be prominent part of promotion
- Must be clear it is a past performance & not reliable measure of future results
- Past performance data must be based on last 5 years or (since investment began not less than 1 year
Past Performance
Which rule relating to financial products is this?
- Unsolicited phone calls/visits must be made at an appropriate time of day
- Caller must check that the receiptant is happy to proceed with the call
- The caller must give a contact point to any client with whom they arrange a call
Unsolicited Promotions (cold calls)
Unsolicited promotions are only permitted to certain investments packaged products (such as life assurance policies & Unit Trusts
True or False
True
- Higher volatile funds (use gearing) & linked life policies
- Mortgage contracts
Are all what in relation to unsolicited promotions?
Not permitted for unsolicited promotions
Adverts for financial services like from the below must all what?
- Broadcast media
Meets standards set out in the Advertising Standards Authority (ASA)
All adverts should be what according to the Advertising Standards Authority (ASA)
- Legal
- Honest
- Decent
- Truthful
Why did advisor charges replace commission payments on products?
Advice could be skewed towards products with higher commission rates
Charges for advisors must be?
- Fair & based on service provided
- Charges must be explained as part of the initial discussion to a customer
- Continuing charges can only be made where customer agrees & service is provided
How are advisor charges calculated?
- Hourly rate
- Percentage of amount invested
Advisor charges based on hours must also what?
Give an indication on how many hours it is likely to take
Does the customer need to provide a reason to why they wish to cancel their service?
No they don’t need to provide a reason
Commission can be charged on Income Protection & Term Assurance
True or False
True
At the beginning of liaising with a client what type of information being given is this?
- Name, address & contact details of the firm
Contact Information
At the beginning of liaising with a client what type of information being given is this?
Methods of communication between firm & client
Communication
At the beginning of liaising with a client what type of information being given is this?
Statement of fact that the firm is regulated & the regulator is known
Authorisation
At the beginning of liaising with a client what type of information being given is this?
Whether advice being provided is restricted or independent and the difference must be explained
Advice type
At the beginning of liaising with a client what type of information being given is this?
- Method & frequency of investment evaluation
- Types of investment
- Delegation of discretion management
Investment Management
At the beginning of liaising with a client what type of information being given is this?
Client money or Investments held by a third party on behalf of the client. The form must provide consequences of third party’s insolvency to the client
Client Money or Investments
At the beginning of liaising with a client what type of information being given is this?
May be a list of advisory services offered with charges index for calculating each service
Charging structure/method
At the beginning of liaising with a client what type of information being given is this?
Total charge payable by client in cash terms
Charges Payable
At the beginning of liaising with a client what type of information being given is this?
Must make available to client details of complaints procedures & explain protection offered by the Financial Ombudsman Service (FOS) & Financial Services Compensation Scheme (FSCS)
Detail of complaints procedures including FOS & FSCS
If a firm carries out direct investment business (packed investments excluded) is written client agreement required?
Yes it is
What is Designated Investment Business?
Dealing in investment assets directly on behalf of a client without gaining clients authority without client agreement
When will an advisor make a personal recommendation?
When they have all the personal & financial circumstances from the customer to make a recommendation
What does an advisor need to consider when assessing the suitability of products for a customer?
- Meets current & future needs
- Is affordable both initially on an ongoing basis
- Consistent with customers risk profile
- Flexible to take account of future changes
When making a recommendation to a client the below are examples of what the client would need to know?
- Whether the capital will be returned in full
- Extent of which income levels could vary regarding an investment return
- Factors with may affect returns from pension income
- Factors that may affect claims on a protection product
- Whether or not life cover is suitable for the term without increases in premiums
Risks involved in products
What is a Suitability Report?
Product or service that is most suitable for a client based on the information provided by a client
What does a suitable report need to contain for a client?
- Their personal & financial circumstances
- Their needs & priorities (identified through factfind)
- Customer attitude to risk
What else should a suitability report contain?
- Disadvantages of the transaction for a customer
- Any “Lock in” periods during which time an investment can’t be encashed
- Clear, concise & written in plain English
Regarding Suitability Reports the below are all what?
- Life Policies
- Pension Policies
- Unit Trusts
- Investment Trusts (Acquired through Trust savings schemes)
- OEIC’s
- Pension Transfers & Opt-outs
Products that require suitability reports
Regarding Suitability Reports the below are all what?
- Life Policies
- Pension Policies
- Unit Trusts
- Investment Trusts (Acquired through Trust savings schemes)
- OEIC’s
- Pension Transfers & Opt-outs
Products that require suitability reports
When a sale is completed via Telephone selling when must a suitability report be completed?
Immediately after the conclusion of the life policy
For a stakeholder or personal pension when must a suitability report be provided?
14th day after the contract is completed
For other suitability reports when must they be completed?
As soon as possible after the transaction is concluded
What is Product Disclosure?
Advisors who advise on packed products must provide clients with key features of the product before a sale is completed
All the below are what?
- Description of the product’s aims
- Description of how a product works
- Key terms of the contract
- Consequences of failing to maintain the commitment or investment
- Arrangements for handling complaints about the product
- Compensation for the FSCS
- Details about the right to cancel
What is in a Key Features document
Who do Key Information Documents (KID) get issued to?
Customer who are buying Personal Retail & Insurance-based Investment Products (PRIIP) Packaged Products
What are Personal Retail & Insurance-based Investment Products (PRIIP)?
Products that are liable to risk & fluctuations
What information is put on Personal Retail & Insurance-based Investment Products (PRIIP) Key Information Documents (KID)?
- Nature & features of product
- Costs & risks of product
- Relevent performance information
- Derivatives
- Non-UCITS retail schemes (Unit Trusts, OEIC’s
- Insurance-based Investments (Unit Linked & with profits Endowments
- Investment Trusts
- Structured products & structured products
All require what?
Key Information Documents (KID)
- Pension Products
- Deposits with no investment risk
- Gilts, shares & bonds (directly held)
- General Insurance & protection-based insurance products with no surrender value
All what?
Don’t require Key Information Documents (KID)
The below is what in relation to Personal Retail & Insurance-based Investment Products (PRIIP) to EU regulation?
- Consistency between the information that different providers make to their customers
- Information provided covers certain areas
- Information is presented in an easy to understand manner
- Easier for investors to make comparisons between products
Aims of how transparency & comparability of investment products is measured
The Key Information Documents (KID) must be no longer than?
3 pages of A4 paper
The below is what in relation to a Personal Retail & Insurance-based Investment Products (PRIIP)?
- Product name
- Name of provider
- Main features
- Any possible risks
- Any potential investment returns
- Costs & charges
- Details of complaints procedure
What Personal Retail & Insurance-based Investment Products (PRIIP) should contain
What is a Key Inventor Information Document (KIID)?
A document that is submitted to an Investor for collective investment
What are these in relation to collective investment for an investor?
- Objectives & Investment Policy
- Risk & Reward Profile
- Charges
- Past Performance
- Practical Information
What is contained in a Key Inventor Information Document (KIID)
How does a Synthetic Risk & Reward Indicator (SRRI) help an investor?
Allows them to assess the past performances of collective investments
The UK Retail Disclosure Framework for Consumer Composite Investments (CCI) will do what?
Replace Personal Retail & Insurance-based Investment Products (PRIIP)
What is a Cooling Off period?
A limited time where a client can withdraw from a contract without penalty
The cooling off period for life policies & pension policies (insurance policies) with pure protection is how long?
30 days
The cooling off period for investments or deposits is?
14 days
The cooling off period for binding mortgage offers is?
7 days
If a customer decides to cancel after a product is made they may be liable to what?
Advisor charges that may be due
Where can the rules relating to record keeping be found?
Conduct of Business Sourcebook (COBS)
True or False
A firm can determine it’s own charging structure
True
The charges for investment business would normally be found where?
Client Agreement Letter
If a client invests in a lump sum in a Unit Linked Investment are they entitled to a full refund?
No only the amount of the fallen investment
If a major bank requires advice on to a higher level on a particular area what type of client are they?
Eligible Counterparties or Professional Clients?
Professional Clients
Under the FCA’S categorisation rules adviser must offer the highest level of Investor protection to retail clients who have less knowledge of investments.
True or False
True
Where would the essential rights & obligations applying to designated investment business be found?
Client Agreement Document
When a life product is completed for a client a suitability report must be completed when?
Before the start of the contract
