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COBS 9.4 Suitability reports

Providing a suitability report1

COBS 9.4.1R

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

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  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 a pension transfer, pension conversion 4 or pension opt-out.

[Note: article 19(8) of MiFID]

COBS 9.4.2R

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

[Note: article 12(3) of the Insurance Mediation Directive]

COBS 9.4.3R

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)

    to any personal recommendation by a friendly society for a small life policy sold by it with a premium not exceeding £50 a year or, if payable weekly, £1 a week;

  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 9.4.4R

A firm must provide the suitability report to the client:

  1. (1)

    in the case of a life policy, before the contract is concluded unless the necessary information is provided orally or immediate cover is necessary; or

  2. (2)

    in the case of a personal pension scheme or stakeholder pension scheme, 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: article 12(3) of the Insurance Mediation Directive]

COBS 9.4.5R

If, in respect of a life policy, the firm gives necessary information orally or gives immediate cover, it must provide a suitability report to the client in a durable medium immediately after the contract is concluded.

[Note: article 13(2) of the Insurance Mediation Directive]

COBS 9.4.6R

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:

  1. (1)

    comply with the distance marketing disclosure rules (COBS 5.1);

  2. (2)

    be provided immediately after the conclusion of the contract; and

  3. (3)

    be in a durable medium.

[Note: article 13(3) of the Insurance Mediation Directive]

Contents

COBS 9.4.7R

The suitability report must, at least:

  1. (1)

    specify 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; and

  3. (3)

    explain any possible disadvantages of the transaction for the client.

[Note: article 12(3) of the Insurance Mediation Directive]

COBS 9.4.8G

A firm should give the client such details as are appropriate according to the complexity of the transaction.

[Note: article 12(3) of the Insurance Mediation Directive]

COBS 9.4.9R

If a firm is providing a suitability report in the course of insurance mediation activity, the information must be provided:

  1. (1)

    in a durable medium which is available and accessible to the client;

  2. (2)

    in a clear and accurate manner, comprehensible to the client; and

  3. (3)

    in an official language of the State of the commitment in which the contract of insurance is made or in any other language agreed by the parties.

[Note: article 13 of the Insurance Mediation Directive]

Additional content for income withdrawals

COBS 9.4.10G

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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