U2: T20 - CONDUCT OF BUSINESS REQUIREMENTS I

Question 1

For how long must records be retained for the following types of business? You will have to think back to the information you were given in Topic 14.

a) Pension transfers/opt‐outs and free‐standing additional voluntary contributions (AVCs).
b) Life policies, pension contracts and MiFID business.
c) All other products.

Answer 1

a) Indefinitely.
b) Five years.
c) Threeyears.

Refer back to Topic 14 for further information.

Question 2

Which of the three categories of investor identified in COBS is provided with the highest level of regulatory protection?

Answer 2

Retail clients are assumed to have least expertise in relation to financial services and consequently require more support from the adviser. Dealings with retail clients are more highly regulated than those with eligible counterparties or professional clients.

Question 3

If a client intends to purchase an investment product on an ‘execution‐only’ basis, then:

a) no recommendation is provided.
b) no charges will be payable.
c) they can only use an independent adviser.
d) they will have to complete all the paperwork themselves.

Answer 3

a) No recommendation is provided.

Question 4

A restricted adviser is one who:

a) can only make recommendations based on the products of a single provider.
b) has not passed all of the relevant exams to enable them to give independent advice.
c) does not meet the FCA criteria to be considered ‘independent’.
d) can only give basic advice on stakeholder products.

Answer 4

C) A restricted adviser is one who does not meet the FCA criteria to be considered ‘independent’.

Question 5

A firm is keen to develop its mortgage business and has acquired a list of potential new customers from a marketing company. It plans to call the listed individuals in the evenings and at weekends.

In what respects would this plan breach COBS rules on financial promotions?

Answer 5

As the individuals are not existing customers, contacting them by telephone would constitute cold calling, which is not permitted in relation to mortgage contracts. Additionally, cold calls may only be made at an ‘appropriate time of day’ – evenings (to 9.00pm) and Saturdays would be permissible but not Sundays.

Question 6

Which of the following reflects the FCA’s rules on adviser charging?

a) Advisers may minimise the upfront cost of their services to clients by charging in instalments over a number of years.
b) Advisers’ charges must be based on hourly fees.
c) Advisers have discretion to determine their charging structures but they must pay due regard to the best interests of the client.
d) It is accepted that it is not possible to provide an estimate in advance of chargeable hours because of the potential complexity of some transactions.

Answer 6

c) Advisers have discretion to determine their charging structures but they must pay due regard to the best interests of the client.

Question 7

When an adviser transacts designated investment business for a client, the basis or amount of the charges would normally be disclosed in which document?

a) The key features document.
b) The statutory cancellation notice.
c) The suitability report.
d) The client agreement letter.

Answer 7

d) The client agreement letter.

Question 8

For existing clients, a services and costs disclosure document (SCDD) (or the equivalent used by a particular firm) must be provided every time an adviser carries out a new transaction for them.

True or false?

Answer 8

False.

Where several transactions are carried out for an existing client, a services and costs disclosure document (SCDD) or equivalent need only be provided if any of the information previously provided is different.

Question 9

An adviser must issue a key features or key information document and illustration prior to a sale being concluded for all of the following products, except:

a) gilt‐edged securities.
b) life assurance.
c) stakeholder pensions.
d) unit trusts.

Answer 9

A) Gilt‐edged securities. Key features or key information documents must only be provided in relation to packaged products, and gilt‐edged securities are a direct investment rather than a packaged product.

Question 10

How long is the cooling‐off period for pension policies?

a) 30 days from the date when the contract begins or from the date on which the client receives contractual terms, if this is later.
b) 14 days from the date when the contract begins or from the date on which the client receives contractual terms if this is later.
c) 14 days from the date when the cancellation notice is issued.
d) 30 days from the date when the cancellation notice is issued.

Answer 10

A) 30 days from the date when the contract begins or from the date on which the client receives contractual terms, if this is later.

Question 11

An adviser would not be required to prepare a suitability report in respect of a recommendation for a:

a) personal pension.
b) life insurance product.
c) mortgage.
d) unit trust.

Answer 11

C) Suitability reports are not required for mortgages, although many lenders do issue them.

Question 12

Jane has cancelled a unit trust within the cancellation period but received less back than she invested.

Why is this?

a) A withdrawal charge has been applied to her plan.
b) She invested a lump sum into a unit‐linked plan.
c) A surrender charge has been applied to her plan.
d) She invested into a regular premium unit‐linked plan.

Answer 12

B) She invested a lump sum into a unit‐linked plan. The value of the investment fell between the date of her original investment and her cancelling the bond.

Question 13

A governments, central banks and financial institutions authorised by an EEA state – are which type of counterparty?

A) Retail Clients
B) Eligible Counterparties
C) Professional clients

Answer 13

B) Eligible Counterparties

This category includes governments, central banks and financial institutions authorised by an EEA state – the latter including firms such as banks, insurance companies, investment firms and collective investment funds.

Question 14

Tier the following counterparts in terms of level of required protection?

1) Retail Clients
2) Professional Clients
3) Eligible Counterparties

Answer 14

3, 2, 1

Question 15

For an execution‐only transaction, the adviser’s duty of care to fully explain the nature of the transaction and risks involved does not apply.

True or false

Answer 15

True

Question 16

Which of the following is true in relation to financial promotions?

1) Comparisons must be given
2) Comparisons given must be meaningful, fair and balanced
3) Where comparisons are given, there must be more than 1

Answer 16

2) Comparisons given must be meaningful, fair and balanced

• Comparisons with other products must be meaningful, and presented in a fair and balanced way.
• Markets in Financial Instruments Directive (MiFID) firms are subject to additional requirements to detail the source of information and the assumptions made in the comparison.

Question 17

Which of the following is true in relation to financial promotions?

1) Past performance must be given
2) Past performance must be prominent in the promotion
3) Past performance must not be prominent in the promotion

Answer 17

2) Past performance must be prominent in the promotion

• Past performance information must not be the most prominent part of a promotion.
• I t must be made clear that it refers to the past, and it must contain a warning that past performance is not necessarily a reliable indicator of future results.
• Past performance data must be based on at least five years (or the period since the investment commenced, if less, but must not relate to a period of less than one year).

Question 18

Which of the following is true in relation to financial promotions?

1) Unsolicited promotions are not allowed
2) Unsolicited promotions are not allowed for high-volatility products
3) Cold calls are permitted for mortgage products

Answer 18

2) Unsolicited promotions are not allowed for high-volatility products

Permitted only in relation to certain investments, including packaged products, such as life assurance policies and unit trusts. Not permitted in relation to higher-volatility funds (which use gearing) or life policies with links to such funds, due to the increased investment risk involved. Cold calls are not permitted in relation to mortgage contracts.

• Unsolicited telephone calls or visits must only be made at ‘an appropriate time of the day’. Within the industry, this is generally taken to mean between 9am and 9pm Monday to Saturday.
• The caller must check that the recipient is happy to proceed with the call.
• The caller must also give a contact point to any client with whom they arrange an appointment.

Question 19

For broadcasted advertisement, which of the following is not an ASA code of conduct?

1) Legal
2) Decent
3) Accurate
4) Honest
5) Truthful

Answer 19

3) Accurate - not one

Aspects of the Codes that are particularly relevant to financial services include the requirements that all advertisements should be:

-„ legal, ie containing nothing that breaks the law, or incites anyone to do so, and omitting nothing that the law requires;
„- decent, ie containing nothing that is likely to cause serious or widespread offence, judged by current prevailing standards of decency;
„- honest, ie not exploiting the credulity, lack of knowledge or inexperience of consumers;
„- truthful, ie not misleading by inaccuracy, ambiguity, exaggeration, omission or any other means.

Question 20

For which product might a customer not receive a full refund of money paid to the provider when exercising their statutory cancellation rights?

a) Unit-linked investment bond.
b) An annuity.
c) Personal pension.
d) Unit-linked whole-of-life policy.

Answer 20

a) Unit-linked investment bond.

Question 21

Bobbie has declined her adviser’s recommendation and instructed them to arrange a different product. This means Bobbie will be regarded as:

a) a professional client.
b) an execution-only client.
c) an exception client.
d) an insistent client.

Answer 21

d) an insistent client.

Question 22

A suitability report is not required for:

a) Mortgages.
b) Personal pensions.
c) Open-ended investment companies.
d) Whole of life assurance policies.

Answer 22

a) Mortgages

Question 23

Harminder is an investment adviser who makes decisions and executes investments for his customer without seeking permission each time. As part of initial disclosure for a new customer interested in that service, what additional document must Harminder present at the beginning of the relationship, specifically due to the nature of his services?

a) An initial disclosure document.
b) A written client agreement.
c) A product disclosure document.
d) A services disclaimer document.

Answer 23

b) A written client agreement.

Harminder would have to present an initial disclosure document anyway, as part of the COBS requirements. Due to the nature of his services, he would also have to present a client agreement.

Question 24

What is the cooling-off period for a whole-of-life assurance policy?

a) 14 days from the later of the date the contract begins or when the customer receives contractual terms.
b) 14 days from the date the application is received from the customer.
c) 30 days from the later of date the contract begins or when the customer receives contractual terms.
d) 30 days from the date the application is received from the customer.

Answer 24

c) 30 days from the later of date the contract begins or when the customer receives contractual terms.

Question 25

What is the cooling-off period for a whole-of-life assurance policy?

a) 14 days from the later of the date the contract begins or when the customer receives contractual terms.
b) 14 days from the date the application is received from the customer.
c) 30 days from the later of date the contract begins or when the customer receives contractual terms.
d) 30 days from the date the application is received from the customer.

Answer 25

c) 30 days from the later of date the contract begins or when the customer receives contractual terms.

Question 26

Yvonne’s customer is about to sign applications for a term-assurance policy and a personal pension. What is the position with Yvonne’s remuneration?

a) She cannot receive commission from either provider, but can take an adviser charge from the customer for both products.
b) She can receive commission from the pension provider but can only take an adviser charge from the customer for the life policy.
c) She can receive commission from both product providers.
d) She can receive commission from the life company but can only take an adviser charge from the customer for the pension policy.

Answer 26

d) She can receive commission from the life company but can only take an adviser charge from the customer for the pension policy.

Question 27

Which of the following is true in relation to advice and suitability?

a) An independent financial adviser must provide advice from all products available in the market.
b) An independent financial adviser cannot offer advice restricted to certain areas of need.
c) If a suitable product is not available to an adviser, they can recommend a product that meets some of the need criteria.
d) An independent financial adviser can use panels of providers to provide advice.

Answer 27

d) An independent financial adviser can use panels of providers to provide advice.

Question 28

Which product would not require the adviser to give the customer a key information document (KID) as part of the product disclosure requirements?

a) A personal pension.
b) Derivatives.
c) A unit-linked endowment.
d) An investment trust.

Answer 28

a) A personal pension.

Question 29

An investment firm is producing promotional material for one of their unit trust funds, which has been running for 20 years. Any performance figures used must show the fund’s performance for what minimum period? The past:

a) 12 months.
b) 5 years
c) 10 years.
d) 20 years.

Answer 29

b) 5 years

Question 30

A division of a major bank needs some advice on an investment matter. They would be classified as:

a) A professional counterparty.
b) An eligible counterparty.
c) A professional client.
d) A retail client.

Answer 30

C) a professional client

Question 31

Investment bonds = Insurance bonds = with-profits bonds. True or false

Answer 31

True