COBS 9.4 Suitability reports

Providing a suitability report1

COBS 9.4.1RRP

1A firm must provide a suitability report to a retail client if the firm makes a personal recommendation to the client and the client:

  1. (1)

    acquires a holding in, or sells all or part of a holding in:

    1. (a)

      a regulated collective investment scheme;

    2. (b)

      an investment trust where the relevant shares have been or are to be acquired through an investment trust savings scheme;

    3. (c)

      an investment trust where the relevant shares are to be held within an ISA which has been promoted as the means for investing in one or more specific investment trusts; or

      2
  2. (2)

    buys, sells, surrenders, converts or cancels rights under, or suspends contributions to, a personal pension scheme or a stakeholder pension scheme; or

  3. (3)

    elects to make income withdrawals, an uncrystallised funds pension lump sum payment6 or purchase a short-term annuity; or

  4. (4)

    enters into a9 pension opt-out.

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COBS 9.4.2RRP

If a firm makes a personal recommendation in relation to a life policy, it must provide the client with a suitability report.

[Note: first and third paragraphs of article 20(1) of the IDD8]

COBS 9.4.2AR

9If a firm makes a personal recommendation in relation to a pension transfer or pension conversion, it must provide the client with a suitability report.

COBS 9.4.3RRP

The obligation to provide a suitability report does not apply:

  1. (1)

    if the firm, acting as an investment manager for a retail client, makes a personal recommendation relating to a regulated collective investment scheme;

  2. (2)

    if the client is habitually resident outside the EEA and the client is not present in the United Kingdom at the time of acknowledging consent to the proposal form to which the personal recommendation relates;

  3. (3)

    [deleted]8

  4. (4)

    if the personal recommendation is to increase a regular premium to an existing contract;

  5. (5)

    if the personal recommendation is to invest additional single premiums or single contributions to an existing packaged product to which a single premium or single contribution has previously been paid.

Timing

COBS 9.4.4RRP

A firm must provide the suitability report to the client:

  1. (1)

    in the case of a life policy, before the contract is concluded8; or

  2. (2)

    in the case of a personal pension scheme or stakeholder pension scheme that is not a life policy8, where the rules on cancellation (COBS 15) require notification of the right to cancel, no later than the fourteenth day after the contract is concluded; or

  3. (3)

    in any other case, when or as soon as possible after the transaction is effected or executed.

[Note: first and third paragraphs of article 20(1) of the IDD8]

COBS 9.4.5RRP

[deleted]8

COBS 9.4.6RRP

In the case of telephone selling of a life policy, when the only contact between a firm and its client before conclusion of a contract is by telephone, the suitability report must be given in accordance with COBS 7.4.8

[Note: article 23(7) of the IDD8]

Contents

COBS 9.4.7RRP

The suitability report must, at least:

  1. (1)

    specify, on the basis of the information obtained from the client,8 the client's demands and needs;

  2. (2)

    explain why the firm has concluded that the recommended transaction is suitable for the client having regard to the information provided by the client; 8

  3. (3)

    explain any possible disadvantages of the transaction for the client; and8

  4. (4)

    in the case of a life policy, include a personalised recommendation explaining why a particular life policy would best meet the client’s demands and needs.8

[Note: first and third paragraphs of article 20(1) of the IDD8]

COBS 9.4.8RRP

8A firm must ensure the details are modulated according to the complexity of the transaction or the proposed contract of insurance and the type of client.

[Note: article 20(2) of the IDD8]

COBS 9.4.8AR

8Where a friendly society has given a personal recommendation on a small life policy in COBS 9.2.9R(2), the suitability report must include, at least, the information required by COBS 9.4.7R(1) and (4).[Note: first and third paragraphs of article 20(1) of the IDD]

Means of communication (life policies)

COBS 9.4.9RRP

If a firm is providing a suitability report in the course of insurance distribution activity8, the information must be in accordance with COBS 7.4.8

[Note: article 23 of the IDD8]

Additional content for income withdrawals

COBS 9.4.10GRP

When a firm is making a personal recommendation to a retail client about income withdrawals or purchase of short-term annuities or making uncrystallised funds pension lump sum payments,6 explanation of possible disadvantages in the suitability report should include the risk factors involved in entering into an income withdrawal, purchase of a short-term annuity or making uncrystallised funds pension lump sum payments6. These may include:

  1. (1)

    the capital value of the fund may be eroded;

  2. (2)

    the investment returns may be less than those shown in the illustrations;

  3. (3)

    annuity or scheme pension rates may be at a worse level in the future;

  4. (4)

    the levels of income provided may not be sustainable; and5

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  5. (5)

    there may be tax implications.5

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