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COBS 6.1B 4Retail investment product provider, operator of an electronic system in relation to lending, and platform service provider requirements relating to adviser charging and remuneration11

Application - Who? What?

COBS 6.1B.1RRP
  1. (1)

    1This section applies to:24

    1. (a)

      a firm which is a retail investment product provider; 11

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    2. (b)

      in relation to COBS 6.1B.9 R, COBS 6.1B.10 G and COBS 6.1B.11 G, a platform service provider; 11and

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    3. (c)

      11a firm which is an operator of an electronic system in relation to lending;

    in circumstances where a retail client receives a personal recommendation in relation to a retail investment product or P2P agreement11 and also where a retail investment product transaction is executed by a platform service provider and no personal recommendation has been made.104

  2. (2)

    This section does not apply to a retail investment product provider in circumstances where a firm gives advice or provides services to an employer in connection with a group personal pension scheme or group stakeholder pension scheme.2

COBS 6.1B.1AG

8Guidance on the regulated activity of advising in relation to a new or existing investment can be found in PERG 8.24 to PERG 8.29. Although the guidance in PERG 8.29.7 G relates to advising on investments (except P2P agreements) 11under article 53(1) 11of the Regulated Activities Order, exactly the same answers apply to a personal recommendation because the examples given relate to the relationship between a firm and a particular client and advice given to that specific client. A firm wishing to know when it will be giving advice but not making a personal recommendation should refer to PERG 13.3. The guidance in PERG 8.24 to PERG 8.29 does not apply to the regulated activity of advising on P2P agreements. 11

COBS 6.1B.1BG

11In this section, COBS 6.1B.5AR and COBS 6.1B.7AR are not relevant in circumstances where a retail client receives a personal recommendation in relation to a P2P agreement.

COBS 6.1B.2RRP

This section does not apply to a firm when a retail client receives basic advice in accordance with the basic advice rules.

COBS 6.1B.2ARRP

3This section does not apply to a firm in circumstances where a retail client receives a personal recommendation in relation to one of7 the firm's Holloway sickness policies,7 provided that the Holloway policy special application conditions are met.

COBS 6.1B.3GRP

This section applies to a firm when it makes a personal recommendation on a retail investment product or P2P agreement 11and where a retail investment product for which it is the retail investment product provider or P2P agreement which it facilitates as the operator of an electronic system in relation to lending 11is the subject of a personal recommendation made by another firm.

Application - Where?

COBS 6.1B.4RRP

This section does not apply if the retail client is outside the United Kingdom.

Requirement not to offer commissions

COBS 6.1B.5RRP

Except as specified in COBS 6.1B.5A R,5 a firm must not offer or pay (and must ensure that none of its associates offers or pays) any commissions, remuneration or benefit of any kind to another firm, or to any other third party for the benefit of that firm, in relation to a personal recommendation (or any related services), except those that facilitate the payment of adviser charges from a retail client's investments in accordance with this section.

COBS 6.1B.5ARRP

5A firm and its associates may:

  1. (1)

    offer and pay a commission, remuneration or benefit of any kind in the circumstances set out in COBS 6.1B.5 R if:

    1. (a)

      the personal recommendation was made on or before 30 December 2012;

    2. (b)

      the offer and payment was permitted by the rules in force on 30 December 2012;

    3. (c)

      the contract under which the right to receive the commission, remuneration or benefit of any kind was entered into on or before 30 December 2012;

    4. (d)

      the terms of that contract as at 30 December 2012 included the right to receive the commission, remuneration or benefit of any kind; and

    5. (e)

      the retail client enters into the transaction in respect of which the personal recommendation was given within a reasonable time of the personal recommendation being given; and

  2. (2)

    enter into an arrangement under which the right to receive the commission, remuneration or benefit of any kind in (1) is transferred to another firm or its associate.

COBS 6.1B.5BGRP

8A firm may continue paying commission, remuneration or benefits of any kind to another firm in relation to a personal recommendation made by that other firm in circumstances where that other firm may accept that commission, remuneration or benefit of any kind (see COBS 6.1A.4A R and COBS 6.1A.4AA G).

COBS 6.1B.6G

[deleted]9

Distinguishing product and P2P platform charges from adviser charges

COBS 6.1B.7RRP

A firm must:

  1. (1)

    take reasonable steps to ensure that its retail investment product charges or its charges as an operator of an electronic system in relation to lending 11are not structured so that they could mislead or conceal from a retail client the distinction between those charges and any adviser charges payable in respect of its retail investment products or investments in P2P agreements made through the system of which it is the operator of an electronic system in relation to lending; 11

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  2. (2)

    not include in any marketing materials in respect of its retail investment products, the service it offers as an operator of an electronic system in relation to lending11 or facilities for collecting adviser charges any statements about the appropriateness of levels of adviser charges that a firm could charge in making personal recommendations or providing related services in relation to its retail investment products or investments through the system in relation to which it is the operator of an electronic system in relation to lending11 ; and9

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  3. (3)

    9not defer, discount or rebate retail investment product charges or its charges as an operator of an electronic system in relation to lending 11in a way that offsets or may appear to offset any adviser charges or platform charges that are payable, including by maintaining retail investment product charges or its charges as an operator of an electronic system in relation to lending 11at a level such that a cash rebate, other than a cash rebate permitted by COBS 6.1B.7A R or10 COBS 6.1E.10R (2), is payable to the retail client.

COBS 6.1B.7ARRP

10A retail investment product provider may maintain retail investment product charges at a level such that a cash rebate is payable to the retail client if:

  1. (1)

    the retail investment product transaction was agreed on or before 5 April 2014 and executed within a reasonable time of that agreement; and

  2. (2)

    the retail client's right to receive the cash rebate arose on or before 5 April 2014; and

  3. (3)

    on or after 6 April 2014 no change is made to that product, or, where there is such a change on or after 6 April 2014, only in relation to the unchanged part of that product.

COBS 6.1B.7BGRP

10In the FCA's view, if the platform service provider retained any part of a rebate on or before 5 April 2014, the retail client is unlikely to have had a right to receive that part of the rebate.

COBS 6.1B.7CGRP

10The following examples do not entail changes to the retail investment product:

  1. (1)

    no change is made to the retail client's investment in the relevant product or to the level of the retail client's regular contributions into that product;

  2. (2)

    the retail client's investment in, or regular contribution to, the relevant product is reduced: the retail investment product provider may continue to pay the cash rebate associated with the reduced investment amount;

  3. (3)

    the retail client's investment in the relevant product is transferred from accumulation units to income units or vice versa;

  4. (4)

    part of the retail client's investment is switched between funds within a retail investment product, such as a SIPP, or a retail investment product wrapper, such as an ISA: the retail investment product provider may continue to pay the cash rebate associated with the part of the retail client's investment which has not been switched into another fund;

  5. (5)

    the level of cash rebate payable to the retail client is reduced;

  6. (6)

    the product is converted to a share class which does not pay a commission, remuneration or benefit of any kind to a firm and is otherwise unchanged.

COBS 6.1B.8GRP

COBS 6.1B.7 R does not prevent a firm from offering a promotional discount to a retail client in the form of extra units or additional investment, but a firm should not offer to invest more than 100% of the retail client's investment.9

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Requirements on firms facilitating the payment of adviser charges

COBS 6.1B.9RRP

COBS 6.1B.7 R does not prevent a firm from offering a promotional discount to a retail client in the form of extra units or additional investment, but a9 firm that offers to facilitate, directly or through a third party, the payment of adviser charges, including6 by means of a platform service must:4

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  1. (1)

    obtain and validate instructions from a retail client in relation to an adviser charge;

  2. (2)

    offer sufficient flexibility in terms of the adviser charges it facilitates; and

  3. (3)

    not pay out or advance adviser charges to the firm to which the adviser charge is owed over a materially different time period, or on a materially different basis to that in which it recovers the adviser charge from the retail client (including paying any adviser charges to the firm that it cannot recover from the retail client).

COBS 6.1B.9AGRP

6A firm facilitates the payment of adviser charges for the purposes of COBS 6.1B.9 R if the adviser charge is not paid directly by the retail client, but is instead paid on behalf of the retail client via the firm.

COBS 6.1B.9BGRP

6A firm may facilitate the payment of adviser charges for the purposes of COBS 6.1B.9 R by:

  1. (1)

    selling all or part of the retail client's retail investment product to pay the adviser charge; or

  2. (2)

    disposing of or reducing all or part of the retail client's rights under the retail investment product (for example, by way of a part disposal which creates benefits under a life policy) to pay the adviser charge; or

  3. (3)

    separating out an amount or amounts for the payment of the adviser charge from the amount received from the retail client to be invested or from the premium in the case of a life policy; or

  4. (4)

    paying the adviser charge from the retail client's cash account.

COBS 6.1B.10GRP

A firm should consider whether the flexibility in levels of adviser charges it offers to facilitate is sufficient so as not to unduly influence or restrict the charging structure and adviser charges that the firm providing the personal recommendation or related services can use.

COBS 6.1B.11GRP

COBS 6.1B.9R(3) does not prevent a firm, if this is in the retail client's best interests, from entering into an agreement with another firm which is providing a personal recommendation to a retail client, or with a retail client of such a firm, to provide it with credit separately in accordance with the rules on providing credit and other benefits to firms that advise on retail investment products or P2P agreements 11(COBS 2.3.12 E and COBS 2.3.12A G).