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COBS 6.1 Information about the firm and compensation information

Application

COBS 6.1.1 R
  1. (1)

    1This section applies to a firm that carries on designated investment business for:

    1. (a)

      a retail client; and

    2. (b)

      in the case of MiFID or equivalent third country business, a client.

  2. (2)

    If expressly provided, this section also applies to ancillary services not covered by (1), but only in the course of MiFID or equivalent third country business carried on with or for a client.

COBS 6.1.2 R

If a firm provides basic advice on stakeholder products in accordance with the basic advicerules, this section does not apply to that service.

COBS 6.1.3 G

This section imposes requirements relating to disclosure of information to clients that are additional to the general requirement in COBS 2.2.

Information about a firm and its services

COBS 6.1.4 R

A firm must provide a retail client with the following general information, if relevant:

  1. (1)

    the name and address of the firm, and the contact details necessary to enable a client to communicate effectively with the firm;

  2. (2)

    in the case of MiFID or equivalent third country business, the languages in which the client may communicate with the firm, and receive documents and other information from the firm;

  3. (3)

    the methods of communication to be used between the firm and the client including, where relevant, those for the sending and reception of orders;

  4. (4)

    a statement of the fact that the firm is authorised and the name of the competent authority that has authorised it;

  5. (5)

    in the case of MiFID or equivalent third country business, the contact address of the competent authority that has authorised the firm;

  6. (6)

    if the firm is acting through an appointed representative or, where applicable, a tied agent, a statement of this fact specifying the EEA State in which that appointed representative or tied agent is registered;

  7. (7)

    the nature, frequency and timing of the reports on the performance of the service to be provided by the firm to the client in accordance with the rules on reporting to clients on the provision of services (COBS 16);

  8. (8)
    1. (a)

      in the case of a common platform firm3, a description, which may be provided in summary form, of the conflicts of interest policy;

    2. (b)

      other than in the case of a common platform firm, when a material interest or conflict of interest may or does arise, the manner in which the firm will ensure fair treatment of the client;

  9. (9)

    in the case of a common platform firm, at any time that the client requests it, further details of the conflicts of interest policy.

[Note: article 30(1) of the MiFID implementing Directive]

COBS 6.1.5 G

A firm disclosing details of its authorisation should refer to the appropriate forms of words set out in GEN 4 Annex 1 R or GEN 4 Annex 1A R as appropriate6.

COBS 6.1.6 R
  1. (1)

    A firm that manages investments for a client must establish an appropriate method of evaluation and comparison such as a meaningful benchmark, based on the investment objectives of the client and the types of designated investments included in the client portfolio, so as to enable the client to assess the firm's performance.

  2. (2)

    If a firm proposes to manage investments for a retail client, the firm must provide the client with such of the following information as is applicable:

    1. (a)

      information on the method and frequency of valuation of the designated investments in the client portfolio;

    2. (b)

      details of any delegation of the discretionary management of all or part of the designated investments or funds in the client portfolio;

    3. (c)

      a specification of any benchmark against which the performance of the client portfolio will be compared;

    4. (d)

      the types of designated investments that may be included in the client portfolio and types of transaction that may be carried out in those designated investments, including any limits; and

    5. (e)

      the management objectives, the level of risk to be reflected in the manager's exercise of discretion, and any specific constraints on that discretion.

[Note: articles 30(2) and (3) of the MiFID implementing Directive]

Information concerning safeguarding of designated investments belonging to clients and client money

COBS 6.1.7 R
  1. (1)

    A firm that holds designated investments or client money for a retail client subject to the custody chapter or the client money chapter must provide that client with the following information:

    444
    1. (a)

      if applicable,

      1. (i)

        that the designated investments or client money of that client may be held by a third party on behalf of the firm;

      2. (ii)

        the responsibility of the firm under the applicable national law for any acts or omissions of the third party; and

      3. (iii)

        the consequences for the client of the insolvency of the third party;

    2. (b)

      if applicable, that the designated investments belonging to the retail client may be held in an omnibus account by a third party and a prominent warning of the resulting risks;

    3. (c)

      if it is not possible under national law for designated investments belonging to a client held with a third party to be separately identifiable from the proprietary designated investments of that third party or of the firm, that fact and a prominent warning of the resulting risks;

    4. (d)

      if applicable, that accounts that contain designated investments or client money belonging to that client are or will be subject to the law of a jurisdiction other than that of a EEA State, an indication that the rights of the client relating to those instruments or money may differ accordingly;

    5. (e)

      a summary description of the steps which it takes to ensure the protection of any designated investments belonging to the client or client money it holds, including summary details of any relevant investor compensation or deposit guarantee scheme which applies to the firm by virtue of its activities in an EEA State.

  2. (2)

    A firm that holds designated investments or client money for a retail client must inform the client:

    1. (a)

      if applicable, about the existence and the terms of any security interest or lien which the firm has or may have over the client'sdesignated investments or client money, or any right of set-off it holds in relation to the client'sdesignated investments or client money; and

    2. (b)

      if applicable, that a depositary may have a security interest or lien over, or right of set-off in relation to those instruments or money.

  3. (3)

    A firm within (1) must also, before entering into securities financing transactions in relation to designated investments held by it on behalf of a retail client, or before otherwise using such designated investments for its own account or the account of another client, in good time before the use of those designated investments provide the client, in a durable medium, with clear, full and accurate information on the obligations and responsibilities of the firm with respect to the use of those designated investments, including the terms for their restitution, and on the risks involved.

  4. (4)

    A firm within (1) that holds clientdesignated investments or client money for a professional client must provide that client with the information in paragraphs (1)(3d3) and (2)(a) and(b).

[Note: articles 29(3), 30(1)(g) and 32 of the MiFID implementing Directive]

COBS 6.1.7A G

5 Firms subject to either or both the custody rules and the client money rules are reminded of the information requirements concerning custody assets and client money in CASS 9.3 (Prime brokerage agreement disclosure annex) and CASS 9.4 (Information to clients concerning custody assets and client money).

COBS 6.1.8 G

[deleted]4

4

Information about costs and associated charges

COBS 6.1.9 R

A firm must provide a retail client with information on costs and associated charges including, if applicable:

  1. (1)

    the total price to be paid by the client in connection with the designated investment or the designated investment business or ancillary services, including all related fees, commissions, charges and expenses, and all taxes payable via the firm or, if an exact price cannot be indicated, the basis for the calculation of the total price so that the client can verify it. The commissions charged by the firm must be itemised separately in every case;

  2. (2)

    if any part of the total price referred to (1) is to be paid in or represents an amount of foreign currency, an indication of the currency involved and the applicable currency conversion rates and costs;

  3. (3)

    notice of the possibility that other costs, including taxes, related to transactions in connection with the designated investment or the designated investment business may arise for the client that are not paid via the firm or imposed by it; and

  4. (4)

    the arrangements for payment or other performance.

[Note: article 33 of the MiFID implementing Directive]

COBS 6.1.10 G

The rules on inducements in COBS 2.3 may also require a firm to disclose information to a client in relation to benefits provided to the firm.

Timing of disclosure

COBS 6.1.11 R
  1. (1)

    A firm must provide a client with the information required by this section in good time before the provision of designated investment business or ancillary services unless otherwise provided by this rule.

  2. (2)

    A firm may instead provide that information immediately after starting to provide designated investment business or ancillary services if:

    1. (a)

      the firm was unable to comply with (1) because, at the request of the client, the agreement was concluded using a means of distance communication2 which prevented the firm from doing so; and

    2. (b)

      in any case where the rule on voice telephony communications (COBS 5.1.12 R)2 does not otherwise apply, the firm complies with that rule in relation to the retail client, as if that client were a consumer.

[Note: article 29(2), 29(3) and 29(5) of the MiFID implementing Directive]

COBS 6.1.12 G

A firm should take into account COBS 8.1.3 R (1), which requires earlier disclosure of some items of information covered in this section.

Medium of disclosure

COBS 6.1.13 R

Except where expressly provided, a firm must provide the information required by this section in a durable medium or via a website (where it does not constitute a durable medium) where the website conditions are satisfied.

[Note: article 29(4) of the MiFID implementing Directive]

Keeping the client up to date

COBS 6.1.14 R
  1. (1)

    A firm must notify a client in good time about any material change to the information provided under this section which is relevant to a service that the firm is providing to that client.

  2. (2)

    A firm must provide this notification in a durable medium if the information to which it relates was given in a durable medium.

[Note: article 29(6) of the MiFID implementing Directive]

Existing clients

COBS 6.1.15 G
  1. (1)

    A firm need not treat each of several transactions in respect of the same type of financial instrument as a new or different service and so does not need to comply with the disclosure rules in this chapter in relation to each transaction.

    [Note: recital 50 to the MiFID implementing Directive]

  2. (2)

    But a firm should ensure that the client has received all relevant information in relation to a subsequent transaction, such as details of product charges that differ from those disclosed in respect of a previous transaction.

Compensation information

COBS 6.1.16 R
  1. (1)

    A firm carrying on MiFID business must make available to a client, who has used or intends to use those services, information necessary for the identification of the compensation scheme or any other investor-compensation scheme of which the firm is a member (including, if relevant, membership through a branch) or any alternative arrangement provided for in accordance with the Investor Compensation Directive.

  2. (2)

    The information under (1) must include the amount and scope of the cover offered by the compensation scheme and any rules laid down by the EEA State pursuant to article 2 (3) of the Investor Compensation Directive.

  3. (3)

    A firm must provide, on the client's request, information concerning the conditions governing compensation and the formalities which must be completed to obtain compensation.

  4. (4)

    The information provided for in this rule must be made available in a durable medium or via a website if the website conditions are satisfied in the official language or languages of the EEA State.

[Note: article 10(1) and (2) of the Investor Compensation Directive]

Record keeping: information about the firm and compensation information

COBS 6.1.17 G

Firms are reminded of the general record-keeping requirements in SYSC 3.2 and SYSC 9.

COBS 6.1A Adviser charging and remuneration

Application - Who? What?

COBS 6.1A.1 R
  1. (1)

    1This section applies to a firm which makespersonal recommendations to retail clients in relation to retail investment products12or P2P agreements.

    1111
  2. (2)

    This section does not apply to a firm giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme.2

COBS 6.1A.1A G

8 Guidance on the regulated activity12of 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)12under article 53(1) 12of 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. 12

COBS 6.1A.1B G

12In this section, COBS 6.1A.4AR, COBS 6.1A.4ABR and COBS 6.1A.4BR are not relevant to a firm making personal recommendations in relation to P2P agreements.

COBS 6.1A.2 R

This section does not apply to a firm when it gives basic advice in accordance with the basic advicerules.

COBS 6.1A.2A R

4This section does not apply to a firm when it makes a personal recommendation to a retail client in relation to a Holloway sickness policy, provided that the Holloway policy special application conditions are met.

Application - Where?

COBS 6.1A.3 R

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

Requirement to be paid through adviser charges

COBS 6.1A.4 R

Except as specified in COBS 6.1A.4A R, COBS 6.1A.4AB R, COBS 6.1A.4AC G11 and COBS 6.1A.4B R, a firm must:6

  1. (1)

    only be remunerated for the personal recommendation (and any other related services provided by the firm) by adviser charges; and

  2. (2)

    not solicit or accept (and ensure that none of its associates solicits or accepts) any other commissions, remuneration or benefit of any kind in relation to the personal recommendation or any other related service, regardless of whether it intends to refund the payments or pass the benefits on to the retail client; and

  3. (3)

    not solicit or accept (and ensure that none of its associates solicits or accepts) adviser charges in relation to the retail client'sretail investment product or P2P agreement12which are paid out or advanced by another party over a materially different time period, or on a materially different basis, from that in or on which the adviser charges are recovered from the retail client.

COBS 6.1A.4A R

6A firm and its associates may:

  1. (1)

    solicit and accept a commission, remuneration or benefit of any kind in the circumstances set out in COBS 6.1A.4 R if:

    1. (a)

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

    2. (b)

      the solicitation and acceptance of the commission, remuneration or benefit of any kind 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 that firm or its associate.

COBS 6.1A.4AA G
  1. (1)

    8A firm may continue to accept a commission, remuneration or benefit of any kind after 30 December 2012 if there is a clear link between the payment and an investment in a retail investment product which was made by the retail client following a personal recommendation made, or a transaction executed, on or before 30 December 2012. This is the case even if the firm makes a personal recommendation to the same retail client after 30 December 2012 to the extent that the continued payment can properly be regarded as linked to the pre 31 December 2012 personal recommendation or transaction, rather than the new personal recommendation. Of course this is dependent upon the terms of the contract contemplating the continued receipt of such payments.

  2. (2)

    Examples of circumstances where a commission, remuneration or benefit is clearly linked to the retention of an investment in a retail investment product and can therefore continue to be accepted include (in each case where the terms of the contract contemplate a continued payment of the kind referred to in (1)):

    1. (a)

      no change is made to the retail client's investment in the relevant retail investment product;

    2. (b)

      the retail client's investment in, or regular contribution to, the relevant retail investment product is reduced; the firm may continue to accept the payment associated with the reduced investment amount;

    3. (c)

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

    4. (d)

      the retail client transfers all or part of his investment between funds within a life policy.

  3. (3)

    If a firm makes a personal recommendation to a retail client and wishes to:

    1. (a)

      receive remuneration for that personal recommendation in addition to any commission, remuneration or benefit of any kind it receives in the circumstances contemplated by (1); or

    2. (b)

      be paid additional amounts for any actions which are linked to a new amount invested by the retail client in the relevant retail investment product;

it should only be paid those additional amounts for that personal recommendation or for those actions by adviser charges.

  1. (4)

    A firm may offset against any adviser charges which are payable by the retail client any commission, remuneration or benefit of any kind it receives in the circumstances contemplated in (1).

COBS 6.1A.4AB R

11A firm and its associates may solicit and accept a commission, remuneration or benefit of any kind from a discretionary investment manager in the circumstances in COBS 6.1A.4 R if:

  1. (1)

    the firm or its associates recommended the discretionary investment manager to a retail client on or before 30 December 2012;

  2. (2)

    the solicitation and acceptance of the commission, remuneration or benefit of any kind was permitted by the rules in force on 30 December 2012;

  3. (3)

    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. (4)

    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. (5)

    the retail client agreed an investment mandate with the discretionary investment manager within a reasonable time of the recommendation to use the discretionary investment manager being made.

COBS 6.1A.4AC G
  1. (1)

    11If a firm makes a recommendation of a discretionary investment manager to a retail client and wishes to:

    1. (a)

      receive remuneration for that recommendation in addition to any commission, remuneration or benefit of any kind it receives in the circumstances contemplated by COBS 6.1A.4AB R; or

    2. (b)

      be paid additional amounts for any actions linked to a new amount invested by the retail client through the same discretionary investment manager;

    it should only be paid those additional amounts for that recommendation or for those actions by adviser charges.

  2. (2)

    A firm may offset against any adviser charges which are payable by the retail client any commission, remuneration or benefit of any kind it receives in the circumstances contemplated in COBS 6.1A.4AB R.

Re-registration of commission when a retail client moves to a new adviser

COBS 6.1A.4B R

6If a retail client chooses to become a client of a firm and that firm or its associate enters into an arrangement in COBS 6.1A.4AR (2), the firm must:

  1. (1)

    before the arrangement is entered into, disclose to the retail client that the transfer of the commission, remuneration or benefit of any kind will be requested by the firm or its associate;

  2. (2)

    throughout the period during which the firm or its associate receives the commission, remuneration or benefit of any kind, provide the retail client with an ongoing service; and

  3. (3)

    as soon as reasonably practicable after it makes the disclosure in (1):

    1. (a)

      disclose to the retail client, as a cash amount or percentage of funds under management, the amount of the commission, remuneration or benefit of any kind it expects to receive and any it has received; and

    2. (b)

      provide the retail client with a description of the ongoing service it will provide to the retail client in accordance with (2).

COBS 6.1A.5 G

A firm may receive an adviser charge that is no longer payable (for example, after the service it is received in payment for has been amended or terminated) provided the firm refunds any such payment to the retail client.

Related and other services

COBS 6.1A.6 R

7‘Related service(s)’ for the purposes of COBS 6.1A includes:

  1. (1)

    arranging or executing a transaction which has been recommended to a retail client by the firm, an associate or another firm in the same group or conducting administrative tasks associated with that transaction; or

  2. (2)

    managing a relationship between a retail client (to whom the firm provides personal recommendations on retail investment products or P2P agreements) 12and a discretionary investment manager or providing a service to such a client in relation to the investments managed by such a manager; or7

  3. (3)

    7recommending a discretionary investment manager to a retail client (to whom the firm provides personal recommendations or other services in relation to11retail investment products or P2P agreements).12

    11
COBS 6.1A.6A G

11‘Other services’ in COBS 6.1A.6R (3) includes:

  1. (1)

    providing information relating to retail investment products, P2P agreements or operators of electronic systems in relation to lending12 to the retail client, for example, general market research; or

  2. (2)

    passing on information from the discretionary investment manager to the retail client.

Guidance on the requirement to be paid through adviser charges

COBS 6.1A.7 G

The requirement to be paid through adviser charges does not prevent a firm from making use of any facility for the payment of adviser charges on behalf of the retail client offered by another firm or other third parties provided that the facility complies with the requirements of COBS 6.1B.9R.

COBS 6.1A.8 G

Examples of payments and benefits that should not be accepted under the requirement to be paid through adviser charges include:

  1. (1)

    a share of the retail investment product charges or platform service provider's charges, or5retail investment product provider’s or platform service provider's5 revenues or profits; 12

    5
  2. (2)

    a commission set and payable by a retail investment product provider or an operator of an electronic system in relation to lending12 in any jurisdiction12; and

  3. (3)

    12a share of the operator of the electronic system in relation to lending’s charges, revenues or profits.

Requirements on a retail investment product provider or operator of an electronic system in relation to lending making a personal recommendation in respect of its own retail investment products or P2P agreements

COBS 6.1A.9 R

If the firm or its associate is the retail investment product provider or operator of an electronic system in relation to lending12, the firm must ensure that the level of its adviser charges is at least reasonably representative of the services associated with making the personal recommendation (and related services).

COBS 6.1A.10 G

An adviser charge is likely to be reasonably representative of the services associated with making the personal recommendation if:

  1. (1)

    the expected long term costs associated with making a personal recommendation and distributing the retail investment product do not include the costs associated with manufacturing and administering the retail investment product;

  2. (2)

    the allocation of costs and profit to adviser charges and product charges is such that any cross-subsidisation is not significant in the long term; and

  3. (3)

    were the personal recommendation and any related services to be provided by an unconnected firm, the level of adviser charges would be appropriate in the context of the service being provided by the firm.

Requirement to use a charging structure

COBS 6.1A.11 R

A firm must determine and use an appropriate charging structure for calculating its adviser charge for each retail client.

COBS 6.1A.12 G

A firm can use a standard charging structure.

COBS 6.1A.13 G

In determining its charging structure and adviser charges a firm should have regard to its duties under the client's best interests rule. Practices which may indicate that a firm is not in compliance with this duty include:

  1. (1)

    varying its adviser charges inappropriately according to provider or, for substitutable and competing retail investment products, the type of retail investment product; or

  2. (2)

    allowing the availability or limitations of services offered by third parties to facilitate the payment of adviser charges to influence inappropriately its charging structure or adviser charges12; or

  3. (3)

    12varying its adviser charges inappropriately according to operator of an electronic system in relation to lending.

COBS 6.1A.14 R

A firm must not use a charging structure which conceals the amount or purpose of any of its adviser charges from a retail client.

COBS 6.1A.14A R

9A firm must not make a personal recommendation to a retail client in relation to a retail investment product or P2P agreement12if it knows, or ought to know, that:

  1. (1)

    the product’s charges,12 the platform service provider's charges or the operator of the electronic system in relation to lending’s charges 12are presented in a way that offsets or may appear to offset any adviser charges or platform charges that are payable by that retail client; or

  2. (2)

    the product’s charges or other payments are maintained by the retail investment product provider or operator of the electronic system in relation to lending12at a level such that a cash rebate, other than a cash rebate permitted by COBS 6.1B.7A R or10COBS 6.1E.10R (2), is payable to the retail client.

COBS 6.1A.15 G

A firm is likely to be viewed as operating a charging structure that conceals the amount or purpose of its adviser charges if, for example:

  1. (1)

    it makes arrangements for amounts in excess of its adviser charges to be deducted from a retail client's investments from the outset, in order to be able to provide a cash refund to the retail client later; or

  2. (2)

    it provides other services to a retail client (for example, advising on a home finance transaction or advising on an equity release transaction), and its adviser charges do not represent a reasonable proportion of the costs associated with the personal recommendation for the retail investment product or P2P agreement12and its related services.

Calculation of the cost of adviser services to a client

COBS 6.1A.16 G

In order to meet its responsibilities under the client's best interests rule and Principle 6 (Customers’ interests), a firm should consider whether the personal recommendation or any other related service7 is likely to be of value to the retail client when the total charges the retail client is likely to be required to pay are taken into account.

Initial information for clients on the cost of adviser services

COBS 6.1A.17 R

A firm must disclose its charging structure to a retail client in writing, in good time before making the personal recommendation (or providing related services).

COBS 6.1A.18 G

A firm may wish to consider disclosing as its charging structure a list of the advisory services it offers with the associated indicative charges which will be used for calculating the adviser charge for each service.

COBS 6.1A.19 G

In order to meet the requirement in the rule on information disclosure before providing services (COBS 2.2.1 R), a firm should ensure that the disclosure of its charging structure is in clear and plain language and, as far as is practicable, uses cash terms. If a firm's charging structure is in non-cash terms, examples in cash terms should be used to illustrate how the charging structure will be applied in practice.

COBS 6.1A.20 G

A firm is unlikely to meet its obligations under the fair, clear and not misleading rule and the client's best interests rule unless it ensures that:

  1. (1)

    the charging structure it discloses reflects, as closely as is practicable, the total adviser charge to be paid; for example, the firm should avoid using a wide range; and

  2. (2)

    if using hourly rates in its charging structure, it states whether the rates are indicative or actual hourly rates, provides the basis (if any) upon which the rates may vary and provides an approximate indication of the number of hours that the provision of each service is likely to require.

COBS 6.1A.21 G

[deleted]13

Ongoing payment of adviser charges

COBS 6.1A.22 R

A firm must not use an adviser charge which is structured to be payable by the retail client over a period of time unless (1) or (2) applies:

  1. (1)

    the adviser charge is in respect of an ongoing service for the provision of personal recommendations or related services and:

    1. (a)

      the firm has disclosed that service along with the adviser charge; and6

    2. (b)

      the retail client is provided with a right to cancel the ongoing service, which must be reasonable in all the circumstances, without penalty and without requiring the retail client to give any reason; or6

  2. (2)

    the adviser charge relates to a retail investment product or arrangement with an operator of an electronic system in relation to lending12for which an instruction from the retail client for regular payments is in place and the firm has disclosed that no ongoing personal recommendations or service will be provided.3

COBS 6.1A.22A G

6To comply with the rule on providing a retail client with the right to cancel an ongoing service for the provision of personal recommendations or related services without penalty (COBS 6.1A.22R (1)(b)) a firm should:

  1. (1)

    ensure that any notice period of the retail client's right of cancellation is reasonable;

  2. (2)

    not make any charge in respect of cancellation of the ongoing service except for an amount which is in proportion to the extent of the service already provided by the firm up to the date of cancellation of the ongoing service; and

  3. (3)

    not make cancellation conditional on, for example, requiring the retail client to sell any retail investment products or to assign any P2P agreements12to which the ongoing service relates.

COBS 6.1A.22B R

6If a retail client exercises his right to cancel an ongoing service, the firm must clearly disclose to the retail client whether charges for other services provided by the firm, such as custody services, will continue to be payable by the retail client.

COBS 6.1A.23 R

If COBS 6.1A.22R(1) or (2) do not apply, a firm may not offer credit to a retail client for the purpose of paying adviser charges unless this would be in the best interests of the retail client.

Disclosure of total adviser charges payable

COBS 6.1A.24 R
  1. (1)

    A firm must agree with and disclose to a retail client the total adviser charge payable to it or any of its associates by a retail client.

  2. (2)

    A disclosure under (1) must:

    1. (a)

      be in cash terms (or convert non-cash terms into illustrative cash equivalents);

    2. (b)

      be as early as practicable;

    3. (c)

      be in a durable medium or through a website (if it does not constitute a durable medium) if the website conditions are satisfied; and

    4. (d)

      if there are payments over a period of time, include the amount and frequency of each payment due, the period over which the adviser charge is payable and the implications for the retail client if the retail investment product or arrangement with the operator of an electronic system in relation to lending12is cancelled before the adviser charge is paid and, if there is no ongoing service, the sum total of all payments.

COBS 6.1A.24A G

3If the price of the retail investment product may vary as a result of fluctuations in the financial markets and the adviser charge is expressed as a percentage of that price, a firm need not disclose to the retail client the total adviser charge payable to the firm or any of its associates by the retail client until after execution of the transaction, provided it then does so promptly.

COBS 6.1A.25 G

A firm may include the information required by the rule on disclosure of total adviser charges (COBS 6.1A.24 R) in a suitability report.

COBS 6.1A.26 G

To comply with the rule on disclosure of total adviser charges (COBS 6.1A.24 R) and the fair, clear and not misleading rule, a firm's disclosure of the total adviser charge should:

  1. (1)

    provide information to the retail client as to which particular service an adviser charge applied to;

  2. (2)

    include information as to when payment of the adviser charge is due;

  3. (3)

    inform the retail client if the total adviser charge varies materially from the charge indicated for that service in the firm's charging structure;

  4. (4)

    if an ongoing adviser charge is expressed as a percentage of funds under management, clearly reflect in the disclosure that the adviser charge may increase as the fund grows; and3

  5. (5)

    if an ongoing adviser charge applies for an ongoing service, clearly confirm the details of the ongoing service, its associated charges, and how the retail client can cancel this service and cease payment of the associated charges.

Record keeping

COBS 6.1A.27 R

A firm must keep a record of:

  1. (1)

    its charging structure;

  2. (2)

    the total adviser charge payable by each retail client; and

  3. (3)

    if the total adviser charge paid by a retail client has varied materially from the charge indicated for that service in the firm's charging structure, the reasons for that difference.

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.1 R
  1. (1)

    1This section applies to:24

    1. (a)

      a firm which is a retail investment product provider; 11

      4
    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

      4
    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.1A G

8 Guidance 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.1B G

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.2 R

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

COBS 6.1B.2A R

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'sHolloway sickness policies,7 provided that the Holloway policy special application conditions are met.

COBS 6.1B.3 G

This section applies to a firm when it makes a personal recommendation on a retail investment product or P2P agreement11and 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 lending11is the subject of a personal recommendation made by another firm.

Application - Where?

COBS 6.1B.4 R

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

Requirement not to offer commissions

COBS 6.1B.5 R

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.5A R

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.5B G

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.6 G

[deleted]9

Distinguishing product and P2P platform charges from adviser charges

COBS 6.1B.7 R

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 lending11are 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

    9
  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

    9
  3. (3)

    9not defer, discount or rebate retail investment product charges or its charges as an operator of an electronic system in relation to lending11in 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 lending11at a level such that a cash rebate, other than a cash rebate permitted by COBS 6.1B.7A R or10COBS 6.1E.10R (2), is payable to the retail client.

COBS 6.1B.7A R

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.7B G

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.7C G

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.8 G

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

9

Requirements on firms facilitating the payment of adviser charges

COBS 6.1B.9 R

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 a9firm that offers to facilitate, directly or through a third party, the payment of adviser charges, including6 by means of a platform service must:4

9
  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.9A G

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.9B G

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'sretail 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.10 G

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.11 G

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 agreements11(COBS 2.3.12 E and COBS 2.3.12A G).

COBS 6.1C Consultancy charging and remuneration

Application - Who? What?

COBS 6.1C.1 R
  1. (1)

    1This section applies to a firm that gives advice, or provides services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme.

  2. (2)

    Without prejudice to (1), this section does not apply to a firm that makes a personal recommendation to a retail client in relation to a retail investment product.

Application - Where?

COBS 6.1C.2 R

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

Interpretation

COBS 6.1C.3 R

In this section ‘giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme’ includes:

  1. (1)

    giving advice or assistance to an employer on the operation of such a scheme;

  2. (2)

    taking, or helping the employer to take, the steps that must be taken to enable an employee of the employer to become a member of such a scheme; and

  3. (3)

    giving advice to an employee, pursuant to an agreement between the employer and the adviser, about the benefits that are, or might be, available to the employee if he is, or if he becomes, a member of such a scheme.

Requirement to be paid through consultancy charges

COBS 6.1C.4 G

COBS 6.1C.1 (Application - Who? What?) and COBS 6.1C.3 (Interpretation) mean (for example) that the cost of any advice given to an employee pursuant to an agreement between the employer and the adviser about the benefits that are, or might be, available to the employee if he is, or if he becomes, a member of a group personal pension scheme or group stakeholder pension scheme are subject to the rules in this section, not the rules on adviser charging (COBS 6.1A).

COBS 6.1C.5 R

Except as specified in COBS 6.1C.5A R,4COBS 6.1C.5B R and COBS 6.1C.5C R4,3 a firm must:

4
  1. (1)

    only be remunerated for giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme by consultancy charges or by a fee payable by the employer;

  2. (2)

    not solicit or accept (and ensure that none of its associates solicits or accepts) any other commissions, remuneration or benefit of any kind in relation to that advice, or those services, regardless of whether it intends to refund the payments or pass the benefits on to the group personal pension scheme or group stakeholder pension scheme; and

  3. (3)

    not solicit or accept (and ensure that none of its associates solicits or accepts) consultancy charges which are paid out or advanced by another party over a materially different time period, or on a materially different basis, from that in or on which the consultancy charges are recovered from the relevant group personal pension scheme or group stakeholder pension scheme.

COBS 6.1C.5A R

3A firm and its associates may, except in relation to a qualifying scheme: 4

  1. (1)

    solicit and accept a commission, remuneration or benefit of any kind in the circumstances set out in COBS 6.1C.5 R if:

    1. (a)

      the employer’s part of the relevant scheme was established on or before 30 December 2012; and

    2. (b)

      the solicitation and acceptance of the commission, remuneration or benefit of any kind was permitted by the rules in force on 30 December 2012; and

  2. (2)

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

Re-registration of commission when an employer moves to a new adviser

COBS 6.1C.5B R

3If an employer chooses to appoint a firm to provide advice or services in connection with a group personal pension scheme or a group stakeholder pension scheme and that firm or its associate enters into an arrangement in COBS 6.1C.5AR (2), the firm must:

  1. (1)

    before the arrangement is entered into, disclose to the employer that the transfer of the commission, remuneration or benefit of any kind will be requested by the firm or its associate;

  2. (2)

    throughout the period during which the firm or its associate receives the commission, remuneration or benefit of any kind, provide the employer with an ongoing service; and

  3. (3)

    as soon as reasonably practicable after it makes the disclosure in (1):

    1. (a)

      disclose to the employer the basis and amount of the commission, remuneration or benefit of any kind it expects to receive and any it has received; and

    2. (b)

      provide the employer with a description of the ongoing service it will provide to the employer in accordance with (2).

COBS 6.1C.5C R

4In connection with a qualifying scheme, a firm may only solicit or accept consultancy charges from an operator of a qualifying scheme if the operator has confirmed that express agreement has been given by members of that scheme under COBS 19.6.4 R.

COBS 6.1C.6 G

A firm may receive a consultancy charge that is no longer payable (for example, after the service it is received in payment for has been amended or terminated) provided the firm passes any such payments to the relevant group personal pension scheme or group stakeholder pension scheme.

COBS 6.1C.7 G

The requirement to be paid through consultancy charges does not prevent a firm from making use of any facility for the payment of consultancy charges provided by another firm or other third parties provided that the facility complies with the requirements of COBS 6.1D.9 R.

COBS 6.1C.8 G

Examples of payments and benefits that should not be accepted under the requirement only to be paid through consultancy charges include:

  1. (1)

    a share of the charges applied to a group personal pension scheme, group stakeholder pension scheme or the scheme provider’s revenues or profits (except if the firm providing the advice to an employer in relation to such a scheme is the scheme provider);

  2. (2)

    a commission set and payable by a retail investment product provider in any jurisdiction.

Requirements on a product provider giving advice to an employer in respect of the product provider’s own group personal pension scheme or group stakeholder pension scheme products.

COBS 6.1C.9 R

If the firm or its associate is the group personal pension scheme or group stakeholder pension scheme provider, the firm must ensure that the level of its consultancy charges is at least reasonably representative of the cost associated with giving the advice to the employer in relation to the relevant scheme.

COBS 6.1C.10 G

A consultancy charge is likely to be reasonably representative of the services associated with giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme if:

  1. (1)

    the expected long term costs associated with advising the employer in relation to the group personal pension scheme or group stakeholder pension scheme

    do not include the costs associated with establishing and operating that scheme;

  2. (2)

    the allocation of costs and profits to consultancy charges and product charges is such that any cross-subsidisation between the different activities is not significant in the long term; and

  3. (3)

    (were the services to be provided by an unconnected firm), the level of consultancy charges would be appropriate in the context of the service being provided by the firm.

Requirement to use a charging structure

COBS 6.1C.11 R

A firm must determine and use an appropriate charging structure for calculating its consultancy charge for each employer.

COBS 6.1C.12 G

A firm can use a standard charging structure.

COBS 6.1C.13 G
  1. (1)

    In determining its charging structure and consultancy charges a firm should have regard to the best interests of the employer and the employer’s employees.

  2. (2)

    A firm may not be acting in the best interests of the employer and the employer’s employees if it:

    1. (a)

      varies its consultancy charges inappropriately according to product provider; or

    2. (b)

      allows the availability or limitation of services offered by third parties to facilitate the payment of consultancy charges to influence inappropriately its charging structure or consultancy charges.

  3. (3)

    Firms are reminded that the client's best interests rule may also apply.

COBS 6.1C.14 R

A firm must not use a charging structure which conceals the amount or purpose of any of its consultancy charges from an employer or an employee.

COBS 6.1C.15 G

A firm is likely to be viewed as operating a charging structure that conceals the amount or purpose of its consultancy charges if, for example, it makes arrangements for amounts in excess of its consultancy charges to be deducted from an employee’s investments from the outset, in order to be able to provide a cash payment to the employer or employee later.

Initial information for clients on the cost of consultancy services

COBS 6.1C.16 R

A firm must disclose its charging structure to an employer in writing, in good time before giving advice, or providing services, to the employer in connection with a group personal pension scheme or group stakeholder pension scheme.

COBS 6.1C.17 G

A firm should ensure that the disclosure of its charging structure is in clear and plain language and, as far as is practicable, uses cash terms. If a firm's charging structure is in non-cash terms, examples in cash terms should be used to illustrate how the charging structure will be applied in practice.

Disclosure of total consultancy charges payable

COBS 6.1C.18 R
  1. (1)

    A firm must agree with and disclose to an employer the total consultancy charge payable to it or any of its associates.

  2. (2)

    A disclosure under (1) must:

    1. (a)

      be in cash terms (or convert non-cash terms into illustrative cash equivalents);

    2. (b)

      be made as early as practicable and, in any event, before the employer:

      1. (i)

        selects a particular group personal pension scheme or group stakeholder pension scheme for the benefit of its employees; or

      2. (ii)

        if applicable, reviews its group personal pension scheme or group stakeholder pension scheme arrangements;

    3. (c)

      be in a durable medium or through a website (if it does not constitute a durable medium) if the website conditions are satisfied;

    4. (d)

      if there are payments over a period of time, include:

      1. (i)

        the amount and frequency of each payment due; and

      2. (ii)

        the period over which the consultancy charge is payable;

      3. (iii)

        an explanation of the implications for the employer and its employees if an employee leaves the employer’s service; and

      4. (iv)

        an explanation of the implications for the employer and its employees if contributions to the group personal pension scheme or group stakeholder pension scheme are cancelled before the consultancy charge is fully paid.

COBS 6.1C.19 G

To comply with the rule on disclosure of total consultancy charges payable (COBS 6.1C.18R) and the fair, clear and not misleading rule, a firm's disclosure of the total consultancy charge should:

  1. (1)

    provide information to the employer as to which particular service a consultancy charge applies;

  2. (2)

    include information as to when payment of the consultancy charge is due;

  3. (3)

    if an ongoing consultancy charge is expressed as a percentage of funds under management, clearly reflect in the disclosure how that consultancy charge may increase as the fund grows.2

Requirement not to make a consultancy charge in certain circumstances

COBS 6.1C.20 R

When an employer asks a firm to provide advice to the employer’s employees, the firm:

  1. (1)

    may make a consultancy charge for the cost of preparing and giving advice to each employee who chooses to accept his employer’s offer of advice;

  2. (2)

    must not make a consultancy charge for the cost of preparing or giving advice to an employee who chooses not to accept the offer of advice;

  3. (3)

    (if the firm prepares generic advice to be given to more than one employee) must not make more than one consultancy charge for preparing that advice.

Disclosure to employees

COBS 6.1C.20A R

5A firm must take reasonable steps to ensure that its representatives, when making contact with an employee with a view to giving a personal recommendation on his or her employer’s group personal pension scheme and/or group stakeholder pension scheme, inform the employee:

  1. (1)

    that the firm will be providing a personal recommendation on a group personal pension scheme and/or group stakeholder pension scheme provided by the employer;

  2. (2)

    whether the employee will be provided with a personal recommendation that is restricted to the group personal pension scheme or group stakeholder pension scheme provided by the employer or the recommendation will also cover other products; and

  3. (3)

    that the employee will have to pay an adviser charge (if applicable) unless the representative is making contact pursuant to an agreement made between the firm and the employer under which the firm is remunerated by consultancy charging or a fee payable by the employer.

Record-keeping

COBS 6.1C.21 R

A firm must keep a record of:

  1. (1)

    its charging structure;

  2. (2)

    the consultancy charges payable by each employer and each of the employer’s employees; and

  3. (3)

    if the consultancy charge for a particular service has varied materially from that indicated in the firm's charging structure, the reasons for that difference.

COBS 6.1D Product provider requirements relating to consultancy charging and remuneration

Application - Who? What?

COBS 6.1D.1 R

This section applies to a firm that is a group personal pension scheme or group stakeholder pension scheme provider, but only if the firm providing the relevant scheme (or another firm) gives advice, or provides services, to an employer in connection with that scheme.

Application - Where?

COBS 6.1D.2 R

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

Interpretation

COBS 6.1D.3 R

In this section ‘giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme' includes:

  1. (1)

    giving advice or assistance to an employer on the operation of such a scheme;

  2. (2)

    taking, or helping the employer to take, the steps that must be taken to enable an employee of the employer to become a member of such a scheme; and

  3. (3)

    giving advice to an employee, pursuant to an agreement between the employer and the advisor, about the benefits that are, or might be, available to the employee if he is, or if he becomes, a member of such a scheme.

Requirement not to offer commission, provide factoring or offer credit to a third party

COBS 6.1D.4 R
  1. (1)

    Except as specified in COBS 6.1D.6A R,1 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, an employee benefit consultant or to any other third party for the benefit of that firm, employee benefit consultant or third party in relation to the sale or purchase of:

    1. (a)

      a group personal pension scheme or group stakeholder pension scheme, whether or not that sale or purchase is accompanied or facilitated by advice given to the purchasing employer or the employer's employees; or

    2. (b)

      an investment, if that sale or purchase is, or was, for the benefit of an occupational pension scheme established as an alternative to a group personal pension scheme or group stakeholder pension scheme.

  2. (2)

    Except in connection with a qualifying scheme, paragraph3 (1)(a) does not prevent a firm from making a payment to a third party that has facilitated the payment of a consultancy charge from a group personal pension scheme or group stakeholder pension scheme, provided that that payment is only in respect of that facilitation.

    3
  3. (3)

    For the purposes of (1)(b) only, an occupational pension scheme will be established as an alternative to a group personal pension scheme or group stakeholder pension scheme if, in order to meet the most material of its objectives, an employer could reasonably have chosen to establish an occupational pension scheme on the one hand, or a group personal pension scheme or group stakeholder pension scheme on the other, and it chose to establish an occupational pension scheme.

COBS 6.1D.5 G

The requirement not to offer or pay commission does not prevent a firm from making a payment to a third party in respect of administration or other charges incurred, for example a payment to a fund supermarket or a third party administrator.

COBS 6.1D.6 R

A firm that produces a group personal pension scheme or group stakeholder pension scheme must not offer or make any credit available out of its own funds, and to or for the benefit of another firm, an employee benefit consultant or another third party.

COBS 6.1D.6A R

1A firm and its associates may, except in connection with a qualifying scheme: 3

  1. (1)

    offer and pay a commission, remuneration or benefit of any kind in the circumstances set out in COBS 6.1D.4 R if:

    1. (a)

      the employer’s part of the relevant scheme was established on or before 30 December 2012; and

    2. (b)

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

Distinguishing product charges from consultancy charges

COBS 6.1D.7 R

A firm must:

  1. (1)

    take reasonable steps to ensure that its group personal pension scheme and group stakeholder pension scheme charges are not structured so that they could mislead or conceal from an employer the distinction between those charges and any consultancy charges payable in respect of the scheme; and

  2. (2)

    not include in any marketing materials in respect of its group personal pension schemes or group stakeholder pension schemes any statements about the appropriateness of levels of consultancy charges that a firm could charge in giving advice to an employer in relation to a such a scheme.

COBS 6.1D.8 G

A firm should not offer to invest more than 100% of the retail client's contribution to a group personal pension scheme or group stakeholder pension scheme.

Requirements on firms facilitating the payment of consultancy charges

COBS 6.1D.9 R

A firm that offers to facilitate, directly or through a third party, the payment of consultancy charges must:2

  1. (1)

    obtain and validate instructions from the relevant employer in relation to the consultancy charge;

  2. (2)

    offer sufficient flexibility in terms of the consultancy charges it facilitates;

  3. (3)

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

  4. (4)

    ensure that the consultancy charges levied do not exceed those agreed between the employee’s employer and the relevant adviser (unless the prior written consent of the employee is obtained).

COBS 6.1D.9A G

2A firm facilitates the payment of consultancy charges for the purposes of COBS 6.1D.9 R if the consultancy charge is not paid directly by the employee, but is instead paid on behalf of the employee via the firm.

COBS 6.1D.9B G

2A firm facilitates the payment of consultancy charges for the purposes of COBS 6.1D.9 R by:

  1. (1)

    selling all or part of, or rights under, the employee’s investment in a group personal pension scheme or group stakeholder pension scheme to pay the consultancy charge; or

  2. (2)

    disposing of or reducing all or part of the employee’s rights under the group personal pension scheme or group stakeholder pension scheme (for example, by way of a part disposal which creates benefits under a life policy) to pay the consultancy charge; or

  3. (3)

    separating out an amount or amounts for the payment of the consultancy charge from the amount received from the employer on behalf of the employee or from the premium in the case of a life policy.

COBS 6.1D.10 G

A firm should consider whether the flexibility in levels of consultancy charges it offers to facilitate is sufficient so as not to unduly influence or restrict the charging structure and consultancy charges that the firm providing advice to an employer in relation to a group personal pension scheme or group stakeholder pension scheme can use.

Disclosure of total consultancy charges payable

COBS 6.1D.11 R

A firm must, in good time, provide an employee with sufficient information on the total consultancy charge payable by the employee.

COBS 6.1D.12 G

To comply with COBS 6.1D.11R, a firm's disclosure should be in cash terms (or convert non-cash terms into illustrative cash equivalents) and should:

  1. (1)

    include information as to the period over which the consultancy charge is payable;

  2. (2)

    provide information on the implications for the employee if the employee leaves the employer’s service or their contributions to the group personal pension scheme or group stakeholder pension scheme are cancelled before the consultancy charge is fully paid.

COBS 6.1D.13 G

A firm may provide the disclosure in COBS 6.1D.11R at the same time as it provides a key features document.

COBS 6.1E Platform services: platform charges and using a platform service for advising2

Platform service providers: platform charges2

COBS 6.1E.-1 R

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

COBS 6.1E.1 R
  1. (1)

    1A2platform service provider must clearly disclose the total platform charge to the retail client32 in a durable medium in good time before the provision of designated investment business.

    22
  2. (2)

    In the event that it is not possible to make the disclosure in (1) in good time before the provision of designated investment business, the disclosure must be made as soon as practicable thereafter.

COBS 6.1E.2 G

A2platform service provider should pay due regard to its obligations under Principle 6 (Customers’ interests), Principle 7 (Communications with clients) and the client's best interests rule, and ensure that it presents retail investment products without bias.

2 2 3 2
COBS 6.1E.3 G

2A platform service provider should pay due regard to its obligations under Principle 6 (Customers’ interests) and the client's best interests rule and not vary its platform charges inappropriately according to provider or, for substitutable and competing retail investment products, the type of retail investment product.

Requirement to be paid through platform charges

COBS 6.1E.4 R

2Except as specified in COBS 6.1E.6 R and COBS 6.1E.7 R, a platform service provider must:

  1. (1)

    only be remunerated for its platform service (and any other related services it provides), by platform charges; and

  2. (2)

    ensure that none of its associates accepts any remuneration in respect of those services.

COBS 6.1E.5 G

2Examples of remuneration that should not be accepted by a platform service provider or its associates include (but are not limited to):

  1. (1)

    a share of an annual management charge; and

  2. (2)

    any payment (other than a product charge or a platform charge) made to a platform service provider in its capacity as a retail investment product provider where the relevant retail investment product is distributed to retail clients by its platform service.

Exceptions

COBS 6.1E.6 R

2A platform service provider or its associates may solicit and accept payments from:

  1. (1)

    a firm, other than a retail investment product provider, which is in the business of making personal recommendations to retail clients in relation to retail investment products; and/or

  2. (2)

    a firm, other than a retail investment product provider, which is in the business of arranging or dealingretail investment products for retail clients.

COBS 6.1E.7 R

2Other than in COBS 6.1E.6 R, a3platform service provider or its associates may solicit and accept payments from any3firm, including a retail investment product provider,3 which are only for:

  1. (1)

    pricing error corrections;

  2. (2)

    administering corporate actions;

  3. (3)

    research carried out by the platform service provider and management information; and

  4. (4)

    advertising;

provided that:

  1. (5)

    the services are available to firms at a price which does not vary inappropriately according to firm;

  2. (6)

    the payments are reasonable and proportionate for the service; and

  3. (7)

    the payments or service could not reasonably be expected to result in a channelling of business to the firm other than through the normal effect of general advertising.

Distinguishing platform charges from product charges and adviser charges

COBS 6.1E.8 R

2A platform service provider must not arrange for a retail client to buy a retail investment product if:

  1. (1)

    the product’s charges are presented in a way that offsets or may appear to offset any adviser charges or platform charges that are payable by that retail client; or

  2. (2)

    the platform service provider's charges are presented in a way that offsets or may appear to offset any product charges or adviser charges that are payable by the retail client; or

  3. (3)

    the product’s charges or other payments are maintained by the retail investment product provider at a level such that a cash rebate, other than a cash rebate permitted by COBS 6.1E.10R (2), is payable to the retail client.

Using a platform service when advising

COBS 6.1E.9 R

2A firm must not use a platform service as part of a personal recommendation to a retail client in relation to a retail investment product unless it has satisfied itself that the platform service provider, and its associates, only receive remuneration for business carried on in the UK which is permitted by the rules in this section.

Providing additional units or payment in cash to a retail client

COBS 6.1E.10 R

2 COBS 6.1E.4 R does not prevent a platform service provider receiving a share of an annual management charge from an authorised fund manager if the platform service provider passes that share on to the retail client in the form of:

  1. (1)

    additional units; or

  2. (2)

    cash, provided that it does not offset or appear to offset any adviser charges or platform charges.

COBS 6.1E.11 G

2Examples of a cash share of an annual management charge that would not offset or appear to offset any adviser charges or platform charges are:

  1. (1)

    where the retail client has redeemed his retail investment product; or

  2. (2)

    where the value of the payment made to the retail client in each month does not exceed £1 for each fund.

COBS 6.1E.12 G

2If a platform service provider passes a share of an annual management charge on to a retail client by way of additional units or cash, it should pay due regard to its obligations under Principle 7 (Communications with clients).

COBS 6.1F Using a platform service for arranging and advising

Client’s best interests rule and using a platform service

COBS 6.1F.-1 R

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

COBS 6.1F.1 R

1A firm which:

2
  1. (1)

    arranges for retail clients to buy retail investment products or makes personal recommendations to retail clients in relation to retail investment products; and2

    2
  2. (2)

    uses a platform service for that purpose;

must take reasonable steps to ensure that it uses a platform service which presents its retail investment products without bias.

COBS 6.1F.2 G

When selecting and using a platform service for the purpose described in COBS 6.1F.1 R, a firm should be mindful of its duty to comply with the client's best interests rule and the rule on inducements (COBS 2.3.1 R).

COBS 6.1G Re-registration of title to retail investment products

COBS 6.1G.1 R

1If a client requests a firm (F) to transfer the title to a retail investment product which is held by F directly, or indirectly through a third party, on that client's behalf to another person (P), and F may lawfully transfer the title to that retail investment product to P, F must execute the client's request within a reasonable time and in an efficient manner.

COBS 6.1G.2 R

A firm acting as a registrar should carry out a request by F for the re-registration of ownership of a retail investment product to P within a reasonable time.

COBS 6.2A Describing advice services

Application - Who? What?

COBS 6.2A.1 R
  1. (1)

    1This section applies to a firm that either:

    1. (a)

      makes a personal recommendation to a retail client in relation to a retail investment product; or

    2. (b)

      provides basic advice to a retail client.

  2. (2)

    This section does not apply to a firm when it makes a personal recommendation or provides basic advice to an employee, if that recommendation or advice is provided under the terms of an agreement between the firm and that employee’s employer which is subject to the rules on consultancy charges (COBS 6.1C).2

COBS 6.2A.1A R

4This section does not apply to a firm when it makes a personal recommendation to a retail client in relation to a Holloway sickness policy, provided that the Holloway policy special application conditions are met.

COBS 6.2A.1B G

7 P2P agreements are not retail investment products. This section does not apply to a firm when it is advising on P2P agreements.

Application - Where?

COBS 6.2A.2 R

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

Firms holding themselves out as independent

COBS 6.2A.3 R
  1. (1)

    A firm must not hold itself out to a retail client as acting independently unless the only personal recommendations in relation to retail investment products it offers to that retail client are:

    1. (a)

      based on a comprehensive and fair analysis of the relevant market; and

    2. (b)

      unbiased and unrestricted.

  2. (2)

    Paragraph (1) does not apply to group personal pension schemes if a firm discloses information to a client in accordance with the rule on group personal pension schemes (COBS 6.1C.20AR9).

COBS 6.2A.4 G
  1. (1)

    A firm that provides both independent advice and restricted advice should not hold itself out as acting independently for its business as a whole.

    6
  2. (1A)

    6A firm that offers an unlimited range of regulated mortgage contracts, or gives advice in relation to contracts of insurance on the basis of a fair analysis, but offers restricted advice on retail investment products should not hold itself out as acting independently for its business as a whole, for example by holding itself out as an independent financial adviser. However, it may disclose that it offers an unlimited range for regulated mortgage contracts or gives advice in relation to contracts of insurance on the basis of a fair analysis provided it makes clear in accordance with the fair, clear and not misleading rule that it provides restricted advice for retail investment products.

  3. (2)

    A firm whose relevant market is relatively narrow should not hold itself out as acting independently in a broader sense. For example, a firm “Greenfield”, which specialises in ethical and socially responsible investments could not hold itself out as “Greenfield Independent Financial Advisers”. “Greenfield - providing independent advice on ethical products” may be acceptable.

  4. (3)

    A firm that provides basic advice on stakeholder products may still use the facilities and stationery it uses for other business in accordance with the rule on basic advice on stakeholder products: other issues (COBS 9.6.17 R (2)).

COBS 6.2A.4A R

5In complying with COBS 6.2A.3 R, a firm which:

  1. (1)

    holds itself out to a retail client as acting independently; and

  2. (2)

    relies upon a single platform service to facilitate the majority of its personal recommendations in relation to retail investment products;

must take reasonable steps to ensure that, as appropriate, the platform service provider bases its selection of retail investment products on a comprehensive, fair and unbiased analysis of the relevant market.

COBS 6.2A.4B G

5When a firm considers whether a platform service provider's selection of retail investment products is based on an unbiased analysis of the relevant market, a firm should take into account any fees, commission or non-monetary benefits the platform service provider receives in relation to those retail investment products.

Describing the breadth of a firm’s advice service

COBS 6.2A.5 R

A firm must disclose in writing to a retail client, in good time before the provision of its services in respect of a personal recommendation or basic advice in relation a retail investment product, whether its advice will be:

  1. (1)

    independent advice; or

  2. (2)

    restricted advice.

Content and wording of disclosure

COBS 6.2A.6 R
  1. (1)

    A firm must include the term “independent advice” or “restricted advice” or both, as relevant, in the disclosure.

  2. (2)

    If a firm provides independent advice in respect of a relevant market that does not include all retail investment products, a firm must include in the disclosure an explanation of that market, including the types of retail investment products which constitute that market.

  3. (3)

    If a firm provides restricted advice, its disclosure must explain the nature of the restriction.3

  4. (4)

    If a firm provides both independent advice and restricted advice, the disclosure must clearly explain the different nature of the independent advice and restricted advice services.

Medium of disclosure

COBS 6.2A.7 R

A firm must provide the disclosure information required by the rule on describing the breadth of a firm's advice service (COBS 6.2A.5 R) in a durable medium or through a website (if it does not constitute a durable medium) provided the website conditions are satisfied.

COBS 6.2A.8 G

[deleted]8

Additional oral disclosure for firms providing restricted advice

COBS 6.2A.9 R

If a firm provides restricted advice and engages in spoken interaction with the retail client, a firm must disclose orally in good time before the provision of its services in respect of a personal recommendation that it provides restricted advice and the nature of that restriction.

COBS 6.2A.10 G

Examples of statements which would comply with COBS 6.2A.9 R include:

  1. (1)

    “I am a [Firm X] adviser offering restricted advice, which means that my advice is restricted to advice on [Firm X] [products/stakeholder products] only” or

  2. (2)

    “I am a [Firm X] adviser offering restricted advice, which means that my advice is restricted to advice on [products/stakeholder products] from a limited number of companies that [Firm X] has selected”.

Guidance on what constitutes a relevant market

COBS 6.2A.11 G

A relevant market should comprise all retail investment products which are capable of meeting the investment needs and objectives of a retail client.

COBS 6.2A.12 G

A relevant market can be limited by the investment needs and objectives of the retail client. For example, ethical and socially responsible investments or Islamic financial products could both be relevant markets. However, a firm would be expected to consider all retail investment products within those investment parameters.

COBS 6.2A.13 G

For a firm not specialising in a particular market, the relevant market will generally include all retail investment products.

Guidance on providing unbiased and unrestricted advice

COBS 6.2A.14 G

A personal recommendation on a retail investment product that invests in a number of underlying investments would not of itself meet the requirements for providing unbiased and unrestricted advice even if the retail investment product invests in a wide range of underlying investments.

COBS 6.2A.15 G

In order to satisfy the rule on firms holding themselves out as independent (COBS 6.2A.3 R) a firm should ensure that it is not bound by any form of agreement with a retail investment product provider that restricts the personal recommendation the firm can provide or imposes any obligation that may limit the firm's ability to provide a personal recommendation which is unbiased and unrestricted.

COBS 6.2A.16 G

A firm may be owned by, or own in whole or part, or be financed by or provide finance to, a retail investment product provider without contravening the ‘unbiased, unrestricted’ requirement provided the firm ensures that that ownership or finance does not prevent the firm from providing a personal recommendation which is unbiased and unrestricted.

COBS 6.2A.17 G

In providing unrestricted advice a firm should consider relevant financial products other than retail investment products which are capable of meeting the investment needs and objectives of a retail client, examples of which could include national savings and investments products and cash deposit ISAs.

Guidance on using panels and/or third parties to provide a comprehensive and fair analysis of the market

COBS 6.2A.18 G

A firm may provide a personal recommendation on a comprehensive and fair analysis basis required by the rule on firms holding themselves out as independent (COBS 6.2A.3 R) by using ‘panels’. A firm would need to ensure that any panel is sufficiently broad in its composition to enable the firm to make personal recommendations based on a comprehensive and fair analysis, is reviewed regularly, and that the use of the panel does not materially disadvantage any retail client.

COBS 6.2A.19 G

When using a panel a firm may exclude a certain type or class of retail investment product from the panel if, after review, there is a valid reason consistent with the client's best interests rule, for doing so.

COBS 6.2A.20 G

If a firm chooses to use a third party to conduct a fair and comprehensive analysis of its relevant market, the firm is responsible for ensuring the criteria used by the third party are sufficient to meet the requirement. For example, criteria which selected retail investment product providers on the basis of payment of a fee (or facilitation of adviser charges), whilst excluding those not paying a fee (or such a facilitation) would not meet the comprehensive and fair analysis requirement.

Record keeping

COBS 6.2A.21 G

Firms are reminded of the general record keeping requirements in SYSC 3.2 and SYSC 9. A firm should keep appropriate records of the disclosures required by this section.

Systems and controls

COBS 6.2A.22 G
  1. (1)

    Firms are reminded of the systems and controls requirements in SYSC.

  2. (2)

    A firm providing restricted advice should take reasonable care to establish and maintain appropriate systems and controls to ensure that if there is no retail investment product in the firm's range of products which meets the investment needs and objectives of the retail client, no personal recommendation should be made.

  3. (3)

    A firm specialising in a relevant market should take reasonable care to establish and maintain appropriate systems and controls to ensure that it does not make a personal recommendation if there is a retail investment product outside the relevant market which would meet the investment needs and objectives of the retail client.

COBS 6.4 Disclosure of charges, remuneration and commission

Application

COBS 6.4.1 R

1This section applies to a firm when it sells or arranges the sale of a packaged product to a retail client and the firm's services to sell or arrange are not in connection with the provision of a personal recommendation2.

2
COBS 6.4.2 G

Under the territorial application rules in COBS 1, the rules in this section apply to:

  1. (1)

    a UK firm's business carried on from an establishment in an EEA State other than the United Kingdom for a retail client in the United Kingdom unless, if the office from which the activity is carried on were a separate person, the activity:

    1. (a)

      would fall within the overseas persons exclusion in article 72 of the Regulated Activities Order; or

    2. (b)

      would not be regarded as carried on in the United Kingdom.

  2. (2)

    a firm's business carried on from an establishment in the United Kingdom carried on for a client in an other EEA state.

Disclosure of commission (or equivalent) for packaged products

COBS 6.4.3 R
  1. (1)

    If a firm sells or arranges the sale of a packaged product to a retail client, and subsequently if the retail client requests it, the firm must disclose to the client in cash terms:

    2
    1. (a)

      any commission receivable by it or any of its associates in connection with the transaction;

    2. (b)

      if the firm is also the product provider, any commission or commission equivalent payable in connection with the transaction; and

    3. (c)

      if the firm or any of its associates is in the same immediate group as the product provider, any commission equivalent in connection with the transaction.

  2. (2)

    Disclosure "in cash terms" in relation to commission does not include the value of any indirect benefits listed in the table at COBS 2.3.15 G.

  3. (3)

    In determining the amount to be disclosed as commission equivalent, a firm must put a proper value on the cash payments, benefits and services provided to its representatives in connection with the transaction.

  4. (4)

    This rule does not apply if:

    1. (a)

      the firm is acting as an investment manager; or

    2. (b)

      the retail client is not present in the EEA at the time of the transaction; or

    3. (c)

      the firm provides the client with a key features document, a simplified prospectus, a key investor information document or EEA key investor information document,4 in accordance with COBS 14, provided that the firm discloses to the client the actual amount or value of commission or equivalent within five business days of effecting the transaction.

      4
  5. (5)

    If the terms of a packaged product are varied in a way that results in a material increase in commission or commission equivalent, a firm must disclose to a retail client in writing any consequent increase in commission or equivalent receivable by it in relation to that transaction.

COBS 6.4.4 G

Where a firm is required to disclose the value of commission equivalent, the value will be at least as high as the amount of any commission.

COBS 6.4.4A R

3If the firm or its associate is the pure protection contractinsurer, it may comply with COBS 6.4.3R (1)(b) and (c) by disclosing to the consumer an indicative adviser charge as an alternative to a commission equivalent.

COBS 6.4.4B R

3The indicative adviser charge must be at least reasonably representative of the services associated with making the personal recommendation in relation to the pure protection contract.

COBS 6.4.4C G

3An indicative adviser charge is likely to be reasonably representative of the services associated with making the personal recommendation if:

  1. (1)

    the expected long term costs associated with making a personal recommendation and distributing the pure protection contract do not include the costs associated with manufacturing and administering the pure protection contract;

  2. (2)

    the allocation of costs and profit to the indicative adviser charge and product charges is such that any cross-subsidisation is not significant in the long term; and

  3. (3)

    the personal recommendation and any related services were to be provided by an unconnected firm, the level of the indicative adviser charge would be appropriate in the context of the service being provided by an unconnected firm.

COBS 6.4.5 R
  1. (1)

    A firm must make the disclosure required by the rule on disclosure of commission or equivalent (COBS 6.4.3 R) as close as practicable to the time that it sells or arranges the sale of a packaged product.

    2
  2. (2)

    The firm must make the disclosure:

    1. (a)

      in a durable medium; or

    2. (b)

      when a retail client does not make a written application to enter into a transaction, orally. In these circumstances, the firm must give written confirmation as soon as possible after the date of the transaction, and in any event within five business days.

COBS 6.4.6 E
  1. (1)

    When determining the value of cash payments, benefits and services under the rule on disclosure of commission equivalent (COBS 6.4.3 R), a firm should follow the provisions of COBS 6 Annex 6.

  2. (2)

    Compliance with this evidential provision may be relied on as tending to establish compliance with COBS 6.4.3 R; and

  3. (3)

    Contravention of this evidential provision may be relied on as tending to establish contravention of COBS 6.4.3 R.

Guidance on disclosure requirements for packaged products.

COBS 6.4.7 R

A firm must not enter into an arrangement to pay commission other than to the firm responsible for a sale, unless:

  1. (1)

    the firm responsible for the sale has passed on its right to receive the commission to the recipient; or

  2. (2)

    [deleted]2

    2
  3. (3)

    the commission is paid following the sale of a packaged product by the firm in response to a financial promotion communicated by that firm to a client of the recipient firm; or

  4. (4)

    the arrangement is with a firm in the same immediate group.

COBS 6.4.8 G

A disclosure made under this section should indicate the timing of any payment. For example, if a firm exchanges its right to future commission payments for a lump sum, whether by way of a loan or other commercial arrangement, it should disclose the amount of commission receivable by it that has been exchanged for the lump sum.

COBS 6.4.9 G

The rules in this section build on the disclosure of fees, commissions and non-monetary benefits made under the rule on inducements (COBS 2.3.1 R).

2
COBS 6.4.10 G

If the precise rate or value of commission or equivalent is not known in advance, the firm should estimate the rate likely to apply to the representative in respect of the transaction.

COBS 6.4.11 G

Commission or equivalent disclosure statements: content and wording

A firm should consider including the following in its written statement of commission:

(1)

Amounts or values of commission rounded as appropriate to help the client understand the document (for example, large amounts might be rounded to three significant figures).

(2)

The names of the firms involved in paying and receiving commission or commission equivalent.

(3)

A plain language description of whether remuneration takes the form of commission or commission equivalent. Commission equivalent could, for example, be described as "remuneration and services received from XYZ Ltd".

(4)

The timing of payments and period over which they are paid.

(5)

For payments relating to the client's fund, examples of how much money might be taken, such as:

(a)

where the commission or equivalent is on an increasing basis, the amount to be taken in the first and tenth year in which it is paid; or

(b)

where the commission or equivalent is a percentage of the fund, the amount that would taken if the fund was worth a certain value and the amount that would be taken if the fund was worth twice that value.

COBS 6 Annex 1 Services and costs disclosure document described in COBS 6.3.7G(1) [deleted]

G

3 3 3 4 5

COBS 6 Annex 2 3 5 9 9Combined initial disclosure document described in COBS 6.3, ICOBS 4.5 and MCOB 4.4A.20G [deleted]

5 5 6 7 8 9

COBS 6 Annex 3 3[deleted]3

G

3

COBS 6 Annex 4 2[deleted]2

COBS 6 Annex 5 2[deleted]2

COBS 6 Annex 6 Calculating commission equivalent

E

1This table forms part of COBS 6.4.6 E.

Calculating commission equivalent

This table sets out the basis on which the firm should determine the value of cash payments, benefits and services to be disclosed as commission equivalent. Benefits and services, as set out in parts B and C below, need be included only if their value is such that they could not be provided to a firm as a non-monetary benefit listed in the table in COBS 2.3.15 G. The result of the calculation should be that the amounts disclosed as commission equivalent are, as far as possible, the same as the amounts and value of commission which would be paid in a corresponding sale.

Part A: Cash payments

1.

These cover all payments by a firm to a representative, appointed representative or, where applicable, a tied agent, or a firm in the same immediate group in relation to a transaction in a packaged product. This includes bonus payments, manager's overrides, extra earnings from other transactions and other payments conditional on amounts of new business.

2.

In determining the amounts to be included in the calculation, a firm should have regard to the following:

(a)

when the precise rate of commission equivalent is not known in advance (for example, if retrospective volume overrides apply), the firm should estimate the rate likely to apply to the representative in question. When an identical commission equivalent scale applies to all representatives (although they might earn differing percentages of it), the same average amount of commission equivalent (and the value of other benefits and services) in respect of identical transactions may be disclosed, regardless of the percentage of the scale paid to each individual representative. Averaging should not be used for appointed representatives, or, where applicable, tied agents.

(b)

all credits to an account from which periodic withdrawals may be made should be included.

(c)

when a payment is made before the firm receives the premium or the investment monies to which it relates (for example, indemnity commission equivalent), it should be included as being received at the time of payment. Firms that wish to explain this arrangement to the clients are free to do so, provided this does not detract from the required disclosure.

(d)

when the firm arranges for a third party to make a payment to a representative in exchange for the income stream to which the representative is entitled, or to make a loan to the representative on the security or expectation of future payments from the firm, this should be treated as if it were a payment from the firm at the time of the transaction.

(e)

when a firm provides, or arranges for a third party to provide, a loan to a representative, on the security of, or in the expectation of, future payments from the firm, the amounts to be included are the payments to the representative on which the provision of the loan is based, as if they were received at the time the transaction was effected, irrespective of their actual timing.

(f)

when an agent is employed and remunerated by the firm'sappointed representative, or, where applicable, tied agent, the payments to be included should be those made by the firm to the appointed representative or tied agent, not those made by the appointed representative or tied agent to its own agent.

Part B: Benefits

3.

Benefits include the cost to the firm of all non-monetary benefits provided by it to a representative. A benefit should be included whether or not the representative is liable to income tax on it and whether it is chargeable to tax. Examples of benefits include the use of a car, attendance at conferences, subsidised loans, contributions to pension schemes, national insurance contributions, and the value of shareoption (taking into account any discount on issue and assuming that the shares in question grow at a reasonable rate in line with other investments).

Part C: Services

4.

Services include benefits which are not indirect benefits within the table in COBS 2.3.15 G.

5.

The following services should be included:

(a)

office accommodation and equipment, including telephone, photocopying and fax;

(b)

loans where a commercial rate of interest is not charged, including commission equivalent advances overdue for repayment;

(c)

general stationery and mailing or distribution costs;

(d)

computer hardware and software (except software which specifically relates to the firm'spackaged product, such as software used for producing illustrations, projection and product information);

(e)

clerical and administrative support;

(f)

business insurance cover, including professional indemnity and fidelity guarantee;

(g)

recruitment;

(h)

compliance monitoring;

(i)

client services;

(j)

business planning services;

(k)

line management.

6.

To put a value on these services, the following costs should be included:

(a)

all overheads attributable to a particular cost item (for example, the cost of a compliance official);

(b)

salary costs pro rata if individuals are only engaged part-time on relevant business;

(c)

rent and associated premises costs at an appropriately reduced rate if the premises are also used for other business activities;

(d)

only that proportion of the cost of lead generation promotions attributable to the generation of relevant business (but including the placing of any financial promotion, and its mailing or provision of access to third party clients);

(e)

only the marginal additional compliance costs of ensuring that representatives and their support and training material comply with relevant rules;

(f)

the commercial value of a service which is the use of an asset owned by the firm (for example in the case of a property, its full market rent);

(g)

in respect of appointed representative, or, where applicable tied agent, the costs of any promotion in a newspaper or elsewhere and the provision of representative-specific literature in connection with a financial promotion;

(h)

in respect of a firm in the same immediate group and connected appointed representatives or, where applicable, tied agents, where the name of the company is included in the financial promotion, the costs of any promotion in a newspaper or elsewhere and the provision of literature specific to the representative in connection with a financial promotion.

7.

The following costs should be excluded:

(a)

the cost of corporate awareness advertising;

(b)

training costs;

(c)

costs of developing and maintaining computer systems for the provision of projections of benefits, client-specific key features documents, simplified prospectuses or other product information;

(d)

costs of compensating clients;

(e)

the costs of head office and branch level management and support, other than payments to managers falling under Part 1, for representatives, if these services could also be provided to a firm not in the same immediate group, for example, broker consultants and 'inspectors'.

Part D: Calculation methodology

8.

Estimating commission equivalent

The cost of benefits and services should normally be based on the most recent relevant experience of the firm, except if the firm has grounds to believe that the commission equivalent for the period concerned will be higher or lower than that implied by the experience or no such experience is available. In such a case, the estimate should be based on and evidenced by business plans which the firm is satisfied are achievable.

9.

Firms that receive or expect to receive:

(a)

commission in respect of packaged products which are not its own products or the products of a product provider who is in the same immediate group; and

(b)

commission equivalent in respect of its own products;

must ensure that the costs and benefits attributed to these products do not exceed the amounts that can be financed from that commission.

Construction of commission equivalent scales

10.

The total costs of cash payments, benefits and services should be assessed and the normal approach is to split them into new business costs and after sale servicing costs. The costs of each of these functions should be assessed directly in relation to the work carried out by the representatives.

11.

(a)

The total commission equivalent costs identified in 10 should be spread across the business using a new business commission equivalent scale and a servicing commission equivalent scale respectively.

(b)

The commission equivalent scales should distinguish between products for which the commission equivalent of representatives is likely to be different.

12.

If the representative'scommission equivalent includes a cash payment related to volume and/or value of the transactions sold (which payment must be in accordance with the client's best interest rule), the following method would be appropriate:

(a)

The payment scales should be grossed up by new business uplift factors or servicing uplift factors as appropriate to reflect the cost of benefits and services. The grossed up scales represent the new business and servicing commission equivalent scales, and are applied to each contract to derive the commission equivalent to be disclosed.

(b)

If servicing costs are expected to be incurred in any year in which no servicing payments are to be made on a contract, disclosure should still be made, for example by using a technique similar to that described in 14.

13.

(a)

When a representative receives a salary, or other payment unrelated to volume or sales:

(i) this should be amalgamated with the cost of benefits and services; and

(ii) the total costs should be apportioned over individual transactions in a way that reflects the value of a contract to a firm or the firm'simmediate group.

(b)

If a firm is a distributor for a product provider within the same immediate group, the firm must apportion total costs over individual transactions in a way that reflects the value of the contract to the firm'simmediate group.

14.

If a representative agrees to forgo part of his or her normal payment to improve the terms of the contract, the disclosure may be reduced in such a way that fairly reflects the overall effect of the amount foregone.

15.

The firm should review the commission equivalent scales if at any time it becomes aware that the commission equivalent figures have become misleading. A review should take place at least annually.

Payments to associates

16.

If a firm pays commission equivalent to another firm in the same immediate group, or an appointed representative or, where applicable tied agent, which is an associate of the firm, it should ensure that the calculation of the sum to be disclosed is the higher of:

(a)

all payments, benefits and services provided to the firm or appointed representative or tied agent, from whatever source, plus an additional allowance for profit of 15% - unless the firm can demonstrate that another figure (higher or lower) is more appropriate; and

(b)

the cash payments actually paid by the firm, plus the value of services provided.