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Status: You are viewing the version of the handbook as on 2005-06-30.

COB 5.1 Advising on packaged products2

Application

COB 5.1.1R

This section applies to a firm which gives advice on investments to a private customer on packaged products but does not apply to a firm when providing basic advice on a stakeholder product.23

Purpose

COB 5.1.2G

This section gives support to Principle 6 (Customers' interests) and Principle 7 (Communications with clients) which require firms to have due regard to the information needs of their customers and treat them fairly. The purpose of this section is to ensure that private customers are adequately informed about the nature of the advice on investments which they may receive from a firm in relation to packaged products. In particular firms need to be clear to private customers about the scope and range of the products and product providers on which their advice on investments is based.2

COB 5.1.3G

2[deleted]

COB 5.1.4G

[deleted]

12
COB 5.1.5G

2[deleted]

COB 5.1.6G

2[deleted]

Scope and range of advice on packaged products: general2

COB 5.1.6AR
  1. (1)

    2A firm which gives advice on investments to private customers about packaged products must, subject to (2), take reasonable steps to ensure that the scope of the advice on investments given to a private customer is based upon a selection from one of the following:

    1. (a)

      the whole market (or the whole of a named sector of the market); or

    2. (b)

      a limited number of product providers; or

    3. (c)

      a single company or single group of companies.

  2. (2)

    A firm may change the scope of the advice on investments it gives to a particular private customer by widening the scope from that in (1)(c) through to that in (b) or (a) or from (b) to (a), but it must take reasonable steps to ensure that before doing so the customer is made aware of the proposed change by a communication in a durable medium.

  3. (3)

    If a firm:

    1. (a)

      extends the scope of the advice on investments it will give a private customer; or

    2. (b)

      extends the range of packaged products on which its advice on investments will be based;

    and as a consequence the firm's arrangements for its remuneration are materially altered, the firm must provide the customer with a new and appropriate fees and commission statement.

COB 5.1.6BG
  1. (1)

    2COB 5.1.6A R requires a firm when giving advice on investments to a private customer to do so on the basis that the scope of its advice on investments will involve a selection from the whole market (or from the whole of a sector of the market), or from a limited number of product provider or from a single provider and to adhere to such a scope during the advisory process unless the firm decides, and if necessary secures the customer's agreement, to widen the scope for the customer and, if necessary, any changes in the arrangements by which the firm will be remunerated (see COB 4.3.7 R). A firm can choose to offer both whole of market and more limited advice on investments. The scope of the advice which the customer subsequently receives should always however be made clear and explained in a way which is likely to be understood.

  2. (2)

    The scope of advice on investments prescribed in each of COB 5.1.6AR (1)(a) will require different competencies on the part of a firm'srepresentatives to enable the firm to discharge its advisory functions.

  3. (3)

    A firm selecting packaged products from a limited number of product providers or from a single provider may do so on the basis of a range of packaged products which comprises a selection of products available from those providers and accordingly a firm may have one or more such ranges. COB 4.3.3 R requires a firm to give each customer some initial disclosure information - an initial disclosure document - which must indicate the scope of the advice on investments which the customer can expect to receive. This initial information must also invite the customer to ask for a copy of the range of packaged productsfrom which the firm will make a selection. A firm which has several ranges of packaged products will need to ensure that each customer who asks for it is given information about the range which is appropriate for that customer.

  4. (4)

    If a firm holds itself out as giving advice on investments to private customers on packaged products from the whole market (or the whole of any sector of that market; see (5)), the firm's selection for this purpose will need to be sufficiently large to enable the firm to satisfy the suitability requirement in COB 5.3.9 R (Requirement for suitability: whole-of-market advisers). One way in which such firm may wish to satisfy this requirement is by using "panels" of product providers which are sufficient for the purpose of giving advice from the whole market and which are reviewed on a regular basis. A firm which provides advice on investments from the whole market (or from the whole of a sector of the market) should ensure that its analysis of the market and the available packaged products is kept adequately up to date.

  5. (5)

    References to a firm advising on packaged products from the whole of a sector of the market are to a firm which, though holding itself out as giving advice on investments from the whole market, advise on investments in practice only on a relatively limited selection of packaged products which are available to meet the needs of a specialist sector or niche market (for example pension annuities). In such circumstances the quality of the firm's analysis of the sector or niche market should be commensurate with that which a firm would apply for the purposes of selecting products from the market as a whole.

  6. (6)

    IPRU(INS) 1.3 (Restriction of business to insurance) in practice restricts the range of packaged products that a long-term insurer may have and CIS 16.5.1 R (Managers of UCITS schemes) restricts the range of packaged products that a manager of a UCITS scheme may have.

  7. (7)

    If a firm gives advice on investments to a private customer on a packaged product produced by another person, the key features must be "appropriate" (see COB 6.2.7 (Provision of key features: life policies) COB 6.2.22R (1) (Provision of key features: schemes) and COB 6.4.15 (Stakeholder pension schemes)). Therefore, if the terms of the packaged product are different from the terms of the product for which the key features was originally prepared by the product provider, for example there are additional charges, then the key features will need to be amended.

  8. (8)

    There are restrictions on communicating and approving a financial promotion relating to a life policy produced by an unauthorised person (see COB 3.13.1 R (Additional requirements for financial promotions for an overseas long-term insurer)).

  9. (9)

    When a firm gives advice on investments relating to a packaged product which is not produced by the firm, it is responsible for the advice on investments given. The product provider is responsible for the relevant terms and conditions of the packaged product.

  10. (10)

    The rules in COB 5.1 are mainly concerned to ensure that firms can offer a wide range of advisory services in relation to packaged products. In the course of giving such advice a firm'srepresentative may also need to consider the merits of whether a customer should give up, surrender or cease contributing to an existing packaged product and the rules in this section do not place a restriction on this (subject always to such advice on investments being suitable having regard to the customer's circumstances).

Range of packaged products: appointed representatives2

COB 5.1.6CR
  1. (1)

    2A firm must maintain in writing and keep up to date a statement of:

    1. (a)

      the scope of advice on investments (within the meaning of COB 5.1.6AR (1)) which each of its appointed representatives is, through its contract with the firm, permitted to give; and including

    2. (b)

      the range (or ranges) of packaged products on which each appointed representative advises.

  2. (2)

    In applying the rules in COB to a firm in respect of its appointed representatives, references to a firm's scope or range of packaged products are to be taken as references to the scope (or scopes) and to the range (or ranges) of its appointed representatives.

COB 5.1.6DG

2An appointed representative's range of packaged products may be defined by a particular category of packaged product or by individual product, as long as it is clear (for example, "all pension products of ABC Co Limited"). It may be set out in a document separate from the appointed representative's contract of appointment and should, in any event, be separate from the main body of the contract for clarity.

Range of packaged products: records2

COB 5.1.6ER
  1. (1)

    2A firm must make, and keep up to date, a record of the scope (or scopes) of the advice (within the meaning of COB 5.1.6AR (1)) which it provides, its range (or ranges) of packaged products and the associate or ranges of each of its appointed representatives (if different from the firm's).

  2. (2)

    The record in (1) must be retained for six years from the date on which it was superseded by a more up-to-date record.

  3. (3)

    The record for distribution to a customer must be the particular range of packaged products which is appropriate for the services provided to that customer and include details of:

    1. (a)

      the identity of the product providers within the range whose packaged products the firm may sell; and

    2. (b)

      a list of the categories of their products the firm may sell.

  4. (4)

    In the case of a firm whose scope of advice on investments is the selection of packaged products from the whole of the market (or from the whole of a sector of the market) and which provides no other scope of advice on investments, it will be sufficient if the firm's record is restricted to confirming that the advice on investments it provides is given on this basis (and in the case of a firm which provides advice on investments on the whole of a sector of the market, confirms the nature and parameters of that sector).

  5. (5)

    For the purposes of the record in (1), (3) and (6), in relation to the packaged products within a particular category available from a product provider:

    1. (a)

      where a firm provides services to a particular customer in relation to all of the products within that category the record may refer simply to that category and the product provider and not each particular product within the category; and

    2. (b)

      notwithstanding (3)(b), where a firm does not provide services to a particular customer in relation to all of the products within that category the record must give details of each of the products in the category on which it does provide services.

  6. (6)

    A firm must maintain a record of the particular range of packaged products on which its advice on investments to each private customer is based and such a record must be kept for six years from the date on which the advice on investments is given.

Branding packaged products2

COB 5.1.6FR

2If a firm gives advice on investments to a private customer on a packaged product produced by another person, it must not:

  1. (1)

    hold itself out as the packaged product's producer; or

  2. (2)

    do or say anything which might reasonably lead a private customer to be mistaken as to the identity of the product's producer.

COB 5.1.6GR

2A firm must display the brand of the product provider at least as prominently as any other brand in the documentation that it makes available to its customer's in relation to a packaged product.

Staying within the range of advice of packaged products2

COB 5.1.7R
  1. (1)

    A firm must, subject to (2), take reasonable steps to ensure that neither it nor any of its representatives gives advice on investments to a private customer about the purchase of a packaged product unless the product is:2

    1. (a)

      within the firm'srange (or ranges) of packaged products; and2

    2. (b)

      is within the particular range of packaged products on which advice on investments is given to that customer.2

  2. (2)

    The restriction in (1) does not apply where COB 5.3.8A R (Suitability of packaged products: out-of-range recommendations) applies.2

COB 5.1.8R

2[deleted]

COB 5.1.9G

COB 5.1.7 R (1) does not inhibit the sale by a firm:2

  1. (1)

    where the sale does not involve the provision of advice on investments to a private customer; a firm may act as an intermediary for a transaction in a packaged product where that transaction is an execution-only transaction (long-term insurers are reminded of IPRU(INS) 1.3 (Restriction of business to insurance) and managers of UCITS schemes are reminded of CIS 16.5.1 R (Managers of UCITS schemes); or2

  2. (2)

    when the firm acts a discretionary investment manager.2

COB 5.1.10G

COB 5.1.7 R (1) applies to advice on investments given to private customers about the components of an ISA which are packaged products.

COB 5.1.11R

2[deleted]

2Restriction on holding out

COB 5.1.11AR
  1. (1)

    2A firm that, in relation to packaged products, provides advice on investments to a private customer, must not hold itself out as acting independently unless it intends to:

    1. (a)

      provide advice on investments to that customer that is on packaged products from the whole market (or the whole of a sector of the market); and

    2. (b)

      offers the customer the opportunity of paying fee for the provision of such advice.

  2. (2)

    A firm which in accordance with (1) holds itself out as independent must ensure that the advice on investments subsequently given to the private customer concerned is on packaged products from the whole market (or the whole of a sector of the market).

  3. (3)

    A firm will not contravene (2) and does not need to offer the option of fee based advice on investments in accordance with (1), if it acts in accordance with COB 4.3.27 R.

COB 5.1.11BG
  1. (1)

    2COB 5.1.11A R stipulates what a firm must do if it is to hold itself out to any particular client that it will act independently. Firms which wish to hold themselves out generally as acting independently should ensure that doing so (for example through a trading name or advertising) is consistent with the kind of service which private customers receive in relation to packaged products.

  2. (2)

    A firm that carries on business both in relation to packaged products and regulated mortgage contracts can do so in relation to the whole market and therefore be "independent" for one but offer only a limited service for the other. If this is the case the firm should explain the different nature of the services in a way which meets the requirement for clear, fair and not misleading communications in COB 2.1.3 R (Clear, fair and not misleading communications).

  3. (3)

    COB 5.1.11AR (1)(b) means that a firm wishing to hold itself out as independent will need to give customers a purely fee based option for paying for its services. Such a fee may be offered on a contingent basis so that it does not become payable if the customer does not acquire a product. A firm offering a fee-based service may, in addition, provide the customer with other payment options, such as by commission.

2Representatives to have access to whole range

COB 5.1.12R
  1. (1)

    A firm must, subject to (2), take reasonable steps to ensure that those of its representatives who give advice on investments on packaged products are able to sell with advice on investments each packaged product within the particular range of packaged products from which products are selected for a customer.21

  2. (2)

    A firm may restrict the packaged products it authorises a particular representative to sell, if:2

    1. (a)

      that representative is not sufficiently competent to sell certain types of product; and

    2. (b)

      it requires that representative to identify instances when another packaged product within the relevant rangepackaged products ought to be recommended; the representative must then be required to refer the private customer to another representative of the firm who is authorised and competent to sell that product.2

2Remuneration structure and referrals

COB 5.1.13R

2A firm must take reasonable steps to ensure that none of its representatives:2

  1. (1)

    is likely to be influenced by the structure of his or her remuneration to give unsuitable advice on investments to a private customer; and2

  2. (2)

    refers private customers to another firm in circumstances which would amount to the provision of an inducement under COB 2.2.3 R (Prohibition of inducements).2

2Excess charges on price-capped products

COB 5.1.14R

A firm must, if it gives advice on investments to a private customer on a stakeholder pensions scheme or other price capped product for which the firm is not the product provider, ensure that it does so only in accordance with arrangements under which the firm discloses any charges imposed by the firm in excess of those charged by the producer of the packaged product.2

COB 5.1.14AG

2Products subject to price caps within COB 5.1.14 R would include ISAs marketed as "CAT standard".

COB 5.1.15R

2[deleted]

COB 5.1.16R

2[deleted]

COB 5.1.17R

2[deleted]

COB 5.1.18R

2[deleted]

COB 5.1.19R

2[deleted]

COB 5.1.20R

2[deleted]

COB 5.1.21G

2[deleted]

COB 5.1.22G

2[deleted]

COB 5.1.23G

2[deleted]