Topic Thirteen Flashcards
COBS 2 – Obligations a firm has to its clients
● Acting honestly, fairly and professionally
o For retail clients
o In relation to MiFID
● Information disclosure before providing services. Must provide information to a client relating to:
o The firm and its services
o Designated investments and proposed investment strategies
o Execution venues
o Costs and associated charges
o The information must be provided in a standardised format
COBS 3 – Categorisation
● Client categorisation – firms must categorise their clients according to the following FCA definition:
o Eligible counterparty – lowest level of protection and requires limit service
o Professional client – has knowledge, but still requires advice
o Retail client – man on the street and needs highest level of protection
COBS 4 – Communication
● Deals with client communications, particularly promotions.
● Non-written promotions
o Meetings
o Phone calls
● Written promotions
o Adverts
▪ Be accurate and not overemphasise the benefits without showing the risks
▪ Be understandable by an average member of the group
▪ Not disguise or obscure important terms or warnings
COBS 4 – past performance
o Based on the last 5 years
o Or since inception but at least 1 year
● Cold calls rules?
o Mortgage cold calls are not permitted
o Cold calls can only be made
▪ When there is an existing relationship
▪ The call relates to a generally marketable product that is not a higher volatility fund
▪ The call relates to a controlled activity carried out by an authorised person
o The caller must ensure
▪ It is at an appropriate time of day
▪ They identify themselves
▪ They ask the clients permission to continue the call
▪ They give the client a contact point if an appointment is agreed
COBS 6 and 8 – Initial disclosure
● Status of the firm or adviser is divided in to two groups
o Independent advice
o Restricted advice
▪ If the adviser doesn’t have a suitable from their product range they cannot recommend a next best product.
▪ They can recommend they seek independent advice but this is not mandatory
● Financial incentives
o Not all products were covered by the new rules (PPI)
o FSA did a consultation to ensure incentive scheme did not lead to inappropriate selling practices. Firms should focus on:
▪ Checking for high risk incentive features that promote aggressive sales behaviours
▪ Using management information to spot trends in an individual’s sales pattern to identify increased risk
▪ Doing more to identify inappropriate staff behaviour
▪ Managing the risk in discretionary schemes and balanced score cards
▪ Monitoring non-advised sales to ensure staff are not giving advice
▪ Improving oversight of incentives used by appointed representatives
▪ Recognising where remuneration is 100% variable pay based on sales = increased risk
COBS 9 – Suitability
● Know Your Customer o Fact finds help gather a full picture of the client. Keys area of the fact find include: ▪ Personal information ▪ Employment ▪ Income ▪ Expenditure ▪ Assets ▪ Liabilities ▪ Objectives ▪ Knowledge and experience ▪ Risk profile
How Long to keep a fact find for?
▪ Forever for pension transfers / opt outs and free standing AVCs
▪ 5 years for life policies / pension contracts and MiFID business
▪ 3 years for all other products
▪ There is no requirement to keep the information if the client doesn’t proceed with the advice
● Suitability reports required when?
▪ Life policy
▪ Unit trust / investment trust / OEIC
▪ Personal and stakeholder Pension contracts
▪ Pension transfers and opt outs
COBS 15 – Cancellation - what are the periods?
● Cancellation periods are:
o 30 days for pension plans and long term life assurance
o 30 days for pure protection
o 14 days for everything else
● The providers responsibilities fro product design
▪ Identify the target market for which the product is suitable
▪ Stress test the product to see how it will perform in a range of market conditions and the effect it could have on the consumer
▪ Have systems and controls in place to manage the risks posed by the product
