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COBS 9.1 Application and purpose provisions

4

Application

COBS 9.1.1 R RP
COBS 9.1.1A G

4 COBS 9A contains suitability requirements which apply in respect of insurance-based investment products, or5 in respect of a firm’s MiFID, equivalent third country or optional exemption business involving the provision of investment advice or portfolio management.

Providing basic advice on a stakeholder product

COBS 9.1.2 R RP

If a firm to which this chapter applies5 makes a personal recommendation in relation to a stakeholder product5 it may choose to give basic advice under the rules in section 9.6 of this chapter instead of the rules in the remainder of this chapter.

P2P agreements

COBS 9.1.3 R RP

[deleted]4

COBS 9.1.3A G RP

3This chapter does not apply to a firm which manages investments when that firm takes a decision to trade for a client and that decision relates to a P2P agreement. This is because the regulated activity of managing investments does not extend to the management of assets where those assets are P2P agreements.

COBS 9.1.4 R RP

[deleted]4

Life policies for professional clients

COBS 9.1.5 R RP

If the firm makes a personal recommendation to a professional client to take out a life policy which is not an insurance-based investment product5, this chapter applies, but4 only those rules which implemented6 the requirements of the IDD5.

COBS 9.1.6 G RP

If a rule implemented6 a requirement of the IDD5, a Note (“Note:”)5 follows the rule indicating which provision was6 being implemented. COBS 2.1 (acting honestly fairly and professionally), COBS 2.6 (additional insurance distribution obligations, COBS 4 (communicating with clients), COBS 6 (information about the firm, its services and remuneration) and COBS 14 (product information) contains contain further rules which implemented6 the IDD5

COBS 9.1.7 G RP

[deleted]5

Related rules

COBS 9.1.8 G RP

For a firm making personal recommendations in relation to pensions:7

  1. (1)

    COBS 19.1 contains additional provisions relevant to assessing suitability and the contents of suitability reports for full pension transfer or conversion advice; and7

  2. (2)

    COBS 19.1A contains additional provisions relevant to assessing suitability and the contents of suitability reports for abridged advice.7

COBS 9.1.9 G RP

COBS 6.1ZA 5 (Insurance mediation) contains requirements relating to the basis on which certain recommendations may be made, including requirements relating to fair analysis and range and scope.

COBS 9.2 Assessing suitability

[Note: The FCA has also issued non-Handbook guidance for firms who advise on pension transfers. See https://www.fca.org.uk/publication/finalised-guidance/fg21-3.pdf]

Assessing suitability: the obligations

COBS 9.2.1 R RP
  1. (1)

    A firm must:3

    1. (a)

      take reasonable steps to ensure that a personal recommendation, or a decision to trade, is suitable for its client; and3

    2. (b)

      ensure that any life policy proposed is consistent with the client’s insurance demands and needs.3

  2. (2)

    When making the personal recommendation or managing his investments, the firm must obtain the necessary information regarding the client's:

    1. (a)

      knowledge and experience in the investment field relevant to the specific type of designated investment or service;

    2. (b)

      financial situation; and

    3. (c)

      investment objectives;

    so as to enable the firm to make the recommendation, or take the decision, which is suitable for the client and for a life policy, to propose a contract that is consistent with the client’s insurance demands and needs3.

[Note:2 recital 44 to, and second paragraph of article 20(1), of the IDD3]

COBS 9.2.1A G

3A client’s insurance demands and needs are those which would need to be obtained under COBS 7.3 where a contract is sold without the provision of a personal recommendation.

COBS 9.2.2 R RP
  1. (1)

    A firm must obtain from the client such information as is necessary for the firm to understand the essential facts about him and have a reasonable basis for believing, giving due consideration to the nature and extent of the service provided, that the specific transaction to be recommended, or entered into in the course of managing:

    1. (a)

      meets his investment objectives;

    2. (b)

      is such that he is able financially to bear any related investment risks consistent with his investment objectives; and

    3. (c)

      is such that he has the necessary experience and knowledge in order to understand the risks involved in the transaction or in the management of his portfolio.

  2. (2)

    The information regarding the investment objectives of a client must include, where relevant, information on the length of time for which he wishes to hold the investment, his preferences regarding risk taking, his risk profile, and the purposes of the investment.

  3. (3)

    The information regarding the financial situation of a client must include, where relevant, information on the source and extent of his regular income, his assets, including liquid assets, investments and real property, and his regular financial commitments.

2

COBS 9.2.3 R RP

The information regarding a client’s knowledge and experience in the investment field includes, to the extent appropriate to the nature of the client, the nature and extent of the service to be provided and the type of product or transaction envisaged, including their complexity and the risks involved, information on:

  1. (1)

    the types of service, transaction and designated investment with which the client is familiar;

  2. (2)

    the nature, volume, frequency of the client’s transactions in designated investments and the period over which they have been carried out;

  3. (3)

    the level of education, profession or relevant former profession of the client.

2

COBS 9.2.4 R RP

A firm must not encourage a client not to provide information for the purposes of its assessment of suitability.

2

Reliance on information1

COBS 9.2.5 R RP

A firm is entitled to rely on the information provided by its clients unless it is aware that the information is manifestly out of date, inaccurate or incomplete.

2

Insufficient information1

COBS 9.2.6 R RP

If a firm does not obtain the necessary information to assess suitability, it must not make a personal recommendation to the client or take a decision to trade for him.

2

COBS 9.2.7 G RP

Although a firm may not be permitted to make a personal recommendation or take a decision to trade because it does not have the necessary information, its client may still ask the firm to provide another service such as, for example, to arrange a deal or to deal as agent for the client. If this happens, the firm should ensure that it receives written confirmation of the instructions. The firm should also bear in mind the client's best interests rule and any obligation it may have under the rules relating to appropriateness when providing the different service (see COBS 10, Appropriateness (for non-advised services)) and COBS 10A, Appropriateness (for non-advised services) (MiFID and insurance-based investment products 3provisions)).2

COBS 9.2.8 R RP

[deleted]2

Friendly society life policies

COBS 9.2.9 R RP
  1. (1)

    When recommending a small friendly societylife policy, a firm, for the purpose of assessing suitability, need only obtain details of the net income and expenditure of the client and his dependants.

  2. (2)

    A friendly societylife policy is small if the premium:

    1. (a)

      does not exceed £50 a year; or

    2. (b)

      if payable weekly, £1 a week.

  3. (3)

    The firm must keep for five years a record of the reasons why the recommendation is considered suitable.

COBS 9.3 Guidance on assessing suitability

COBS 9.3.1 G RP
  1. (1)

    A transaction may be unsuitable for a client because of the risks of the designated investments involved, the type of transaction, the characteristics of the order or the frequency of the trading.

  2. (2)

    In the case of managing investments, a transaction might also be unsuitable if it would result in an unsuitable portfolio.

[deleted]5

Churning and switching

COBS 9.3.2 G RP
  1. (1)

    A series of transactions that are each suitable when viewed in isolation may be unsuitable if the recommendation or the decisions to trade are made with a frequency that is not in the best interests of the client.

  2. (2)

    A firm should have regard to the client's agreed investment strategy in determining the frequency of transactions. This would include, for example, the need to switch a client within or between packaged products.

[deleted]5

Income withdrawals, short-term annuities and uncrystallised funds pension lump sum payments3

COBS 9.3.3 G RP

When a firm is making a personal recommendation to a retail client about income withdrawals, uncrystallised funds pension lump sum payments3 or purchase of short-term annuities, it should consider all the relevant circumstances including:

  1. (1)

    the client's investment objectives, need for tax-free cash and state of health;

  2. (2)

    current and future income requirements, existing pension assets and the relative importance of the plan, given the client’s financial circumstances;

  3. (3)

    the client’s attitude to risk, ensuring that any discrepancy is clearly explained between his or her3 attitude to an income withdrawal, uncrystallised funds pension lump sum payment3 or purchase of a short-term annuity and other investments.

COBS 9.3.3A G
  1. (1)

    79When a firm is making a personal recommendation to a retail client about the investment of funds in the client’s capped drawdown pension fund or flexi-access drawdown pension fund its suitability assessment under COBS 9.2.1R(1)(a) should include consideration of pathway investments.

  2. (2)

    Pathway investments do not need to be considered where the personal recommendation is to purchase a fixed-term product that:

    1. (a)

      provides a guaranteed income, a guaranteed capital return or both; and

    2. (b)

      does not expose the client to investment risk, if the client remains in the product for the fixed term.

Loans and mortgages

COBS 9.3.4 G RP

When considering the suitability of a particular investment product which is linked directly or indirectly to any form of loan, mortgage or home reversion plan, a firm should take account of the suitability of the overall transaction. The firm should also have regard to any applicable suitability rules in MCOB.

2Investments subject to restrictions on retail distribution2

COBS 9.3.5 G RP
  1. (1)

    Firms should note that restrictions and specific requirements apply to the retail distribution of certain investments:2

    12
    1. (a)

      non-mass market investments12 are subject to a restriction on financial promotions (see section 238 of the Act12 and COBS 4.12B12);

    2. (b)

      restricted mass market investments12 are subject to a restriction on direct offer financial promotions12 (see COBS 4.12A12);

    3. (c)

      contingent convertible instruments and CoCo funds are subject to a restriction on sales and on promotions (see COBS 22.3);

    4. (d)

      mutual society shares are subject to specific requirements in relation to dealing and arranging activities (see COBS 22.3);4

    5. (e)

      deferred shares issued by a credit union are subject to specific requirements in relation to dealing and arranging activities (see CREDS 3A.5);4

    6. (f)

      credit union subordinated debt is subject to a restriction on direct offer financial promotions (see CREDS 3A.5).12

      411
    7. (g)

      [deleted]12

      118
  2. (2)

    A firm should be satisfied that an exemption is available before recommending an investment subject to a restriction on distribution to a retail client, noting in particular that a personal recommendation to invest will generally incorporate a financial promotion.2

  3. (3)
    1. (a)

      In addition to assessing whether the promotion is permitted, a firm giving advice on a designated investment subject to a restriction on distribution 2 should comply with their obligations in COBS 9 and ensure any personal recommendation is suitable for its client.

      2
    2. (b)
        2
      1. (i)

        In considering its obligations under COBS 9, a firm purchasing a designated investment subject to a restriction on distribution on behalf of a retail client as part of a discretionary management agreement should exercise particular care to ensure the transaction is suitable and in that client’s best interests, having regard to the FCA’s view that such designated investments pose particular risks of inappropriate distribution.2

      2. (ii)

        A restriction on promotion does not affect a transaction where there has been no prior communication with the client in connection with the investment by the firm or a person connected to the firm. Nonetheless, if promotion of a designated investment to a retail client would not have been permitted, then the discretionary manager’s decision to purchase it on behalf of the retail client should be supported by detailed and robust justification of his assessment of suitability.2

Pension transfers, conversions and opt-outs

COBS 9.3.6 G

6 Guidance on assessing suitability when a firm is making a personal recommendation for a retail client who is, or is eligible to be, a member of a pension scheme with safeguarded benefits and who is considering whether to transfer, convert or opt-out is contained in COBS 19.1.6G (in respect of full pension transfer or conversion advice or advice on a pension opt-out) and COBS 19.1A.11G (in respect of abridged advice).10

COBS 9.4 Suitability reports

Providing a suitability report1

COBS 9.4.1 R RP

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 a9pension opt-out.

    4

7

COBS 9.4.2 R RP

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 9.4.2A R
  1. (1)

    If a firm makes a personal recommendation in relation to a pension transfer or pension conversion, it must provide:11

    1. (a)

      the client with a suitability report; and11

    2. (b)

      (except where the only safeguarded benefit involved is a guaranteed annuity rate) a one page summary at the front of the12suitability report.11

9
COBS 9.4.3 R RP

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 United Kingdom10 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 9.4.4 R RP

A firm must provide the suitability report to the client:

  1. (1)

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

  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;11

  3. (2A)

    in the case of a pension transfer or pension conversion, in good time before the transaction is effected; or 11

  4. (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 9.4.5 R RP

[deleted]8

COBS 9.4.6 R RP

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 9.4.7 R RP

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 9.4.8 R RP

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 9.4.8A R

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 9.4.9 R RP

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 9.4.10 G RP

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

    5
  5. (5)

    there may be tax implications.5

    35

Additional content for pension transfers and conversions

COBS 9.4.11 R
  1. (1)

    11A firm must include a one page summary at the front of the suitability report when making a personal recommendation in relation to a pension transfer or a pension conversion, except where the only safeguarded benefit involved is a guaranteed annuity rate.

  2. (2)

    The one page summary must include the following:

    1. (a)

      a summary of the personal recommendation;

    2. (b)

      a statement as to whether the recommendation is in relation to abridged advice or full pension transfer or conversion advice;

    3. (c)

      information about the ongoing advice and/or services (if any) the firm, or any other person, proposes to provide to the client after the execution of the pension transfer or pension conversion;

    4. (d)

      the risks associated with pension transfers or pension conversions as set out in COBS 19.1.6G(4)(b), and an invitation to the client to consider whether they fully understand those risks and, if so, sign the one page summary to confirm that;

    5. (e)

      all of the ongoing advice charges, all other ongoing charges and any additional charges expected to be incurred by the client if they proceed with the pension transfer or pension conversion, together with a comparison to the charges and revalued monthly income in the ceding arrangement and to the charges in any default arrangement in any available qualifying scheme; and

    6. (f)

      information about the amounts payable (in cash terms) in relation to the initial advice on the pension transfer or pension conversion, and the number of months (rounded up to the nearest whole month) it would take to pay that amount out of the revalued monthly income the client would receive from the ceding arrangement.

  3. (3)

    Where the firm only gave abridged advice:

    1. (a)

      the information in (2)(c), (d) and (e) is not required;

    2. (b)

      the information in (2)(f) must clearly state that this is only relevant if the client wishes to obtain full pension transfer or conversion advice; and

    3. (c)

      the one page summary must also set out:

      1. (i)

        that the firm has not given full pension transfer or conversion advice, and provide a summary of the difference between it and abridged advice; and

      2. (ii)

        that where the full pension transfer or conversion advice is within the scope of the requirement in section 48 of the Pension Schemes Act 2015, no firm can arrange a pension transfer or a pension conversion unless the client receives full pension transfer or conversion advice.

  4. (4)

    The summary in (2)(a) must:

    1. (a)

      set out whether the recommendation is to effect a pension transfer or pension conversion or to remain in the client’s current scheme or arrangement;

    2. (b)

      set out where in the suitability report the client can obtain a more detailed explanation of the recommendation;

    3. (c)

      invite the client to consider whether they accept or do not accept the recommendation and, if so, sign the one page summary to confirm that; and

    4. (d)

      where the firm provides full pension transfer or conversion advice and any advice on investments (whether by the firm or any other person) in connection with the pension transfer or pension conversion, set out the summary of the advice given by the firm and/or any other person for both services.

  5. (5)

    The information in (2)(c) must:

    1. (a)

      set out that the client is not required to accept ongoing advice and/or services proposed (if any);

    2. (b)

      explain that the client can opt out of receiving ongoing advice and/or services at any time;

    3. (c)

      set out, in cash terms, the monthly and annual charges associated with receiving ongoing advice and/or services whether by the firm or any other person;

    4. (d)

      where the firm proposes that it or another firm offers ongoing advice and/or services to the client, invite the client to consider whether they wish to receive this ongoing advice and/or services proposition, and whether they agree to the associated charges, and if so, sign the one page summary to consent to receiving the ongoing advice and/or12 services,12 and agree to the associated12 charges; and

    5. (e)

      where the client declines to sign the one page summary for any of the proposals in (d), set out that the client is not required to accept ongoing advice and/or services, and explain that additional charges and/or other amounts may be payable by the client if they wish to receive ongoing advice and/or services from another person.

  6. (6)

    The summary of the anticipated charges associated with the pension transfer or pension conversion in (2)(e) must include the anticipated first-year charges after the pension transfer or pension conversion and be set out:

    1. (a)

      in cash terms;

    2. (b)

      alongside any charges associated with the client’s ceding arrangement (and presented as nil if there are no charges); and

    3. (c)

      alongside any charges associated with any default arrangement in any qualifying scheme available to the client, if the client chose to transfer to that scheme.

  7. (7)

    The revalued monthly income in the ceding arrangement referred to in (2)(e) must:

    1. (a)

      (where the client has not passed the normal retirement age) be calculated by:

      1. (i)

        revaluing the future income benefits to the date the client12 would normally be paid in accordance with COBS 19 Annex 4B 1R(1)(1); and

      2. (ii)

        discounting the value of the future income benefits to the calculation date in accordance with the assumption in COBS 19 Annex 4C 1R(4)(d);

    2. (b)

      (where the client has passed the normal retirement age) be calculated in line with the current income in the ceding arrangement.

COBS 9.4.12 G
  1. (1)

    11If the personal recommendation to the client is to remain in the ceding arrangement, and the client declines to sign the one page summary to confirm that they intend to accept the personal recommendation in accordance with COBS 9.4.11R(4)(c), the firm should follow the insistent client guidance in COBS 9.5A (Additional guidance for firms with insistent clients).

  2. (2)

    If the client declines to sign the one page summary of the advice to confirm their understanding of the risks in COBS 9.4.11R(2)(d), the firm should take further steps to establish whether the client has fully understood the risks, and if not, consider changing its personal recommendation.

  3. (3)

    The other ongoing charges in COBS 9.4.11R(2)(e) include (but are not limited to):

    1. (a)

      ongoing product charges, including those in relation to investments within the product;

    2. (b)

      discretionary fund management charges; and/or

    3. (c)

      platform charges.

  4. (4)

    The additional charges in COBS 9.4.11R(2)(e) include initial product charges, charges associated with accessing existing funds or moving funds to a different scheme.

COBS 9.5 Record keeping and retention periods for suitability records

COBS 9.5.1 G RP

A3firm to which SYSC 9 applies 3is required to keep orderly records of its business and internal organisation (see SYSC 9, General rules on record-keeping). Other firms are 3 required to take reasonable care to establish and maintain such systems and controls as are appropriate to their 3business (see SYSC 3, Systems and controls). The records may be expected to reflect the different effect of the rules in this chapter depending on whether the client is a retail client or a professional client: for example, in respect of the information about the client which the firm must obtain and whether the firm is required to provide a suitability report.

3 3 3
COBS 9.5.2 R RP

A1firm must retain its records relating to suitability for a minimum of the following periods:

  1. (1)

    if relating to a pension transfer, pension conversion, 4pension opt-out or FSAVC, indefinitely;

  2. (2)

    if relating to a life policy, personal pension scheme, stakeholder pension scheme or6 benefits in a defined contribution occupational pension scheme (unless otherwise falling in (1) above),6 five years; and

    225
  3. (3)

    [deleted]5

  4. (4)

    in any other case, three years.

COBS 9.5.3 R RP

A firm need not retain its records relating to suitability if the client does not proceed with the recommendation5

COBS 9.5A Additional guidance for firms with insistent clients

Purpose

COBS 9.5A.1 G

1The guidance in this section is relevant where a client of a firm becomes an insistent client. The purpose of the guidance is to set out how a firm, when dealing with an insistent client, can comply with its obligations under:

  1. (1)

    the Principles (see PRIN 2);

  2. (2)

    the client’s best interests rule (see COBS 2.1.1R);

  3. (3)

    the fair, clear and not misleading rule (see COBS 4.2.1R);

  4. (4)

    the rules on suitability in this chapter (COBS 9 (Suitability (including basic advice)); and

  5. (5)

    the rules on record-keeping (see COBS 9.5 (Record keeping and retention periods for suitability reports) and SYSC 9 (General rules on record-keeping)).

Who is an insistent client?

COBS 9.5A.2 G

In this section, a client should be considered an insistent client where:

  1. (1)

    the firm has given the client a personal recommendation;

  2. (2)

    the client decides to enter into a transaction which is different from that recommended by the firm in the personal recommendation; and

  3. (3)

    the client wishes the firm to facilitate that transaction.

Information to be communicated to an insistent client

COBS 9.5A.3 G
  1. (1)

    Where a firm proceeds to execute a transaction for an insistent client which is not in accordance with the personal recommendation given by the firm, the firm should communicate to the insistent client, in a way which is clear, fair and not misleading, and having regard to the information needs of the insistent client so that the client is able to understand, the information set out in (2).

  2. (2)

    The information which the firm should communicate to the insistent client is:

    1. (a)

      that the firm has not recommended the transaction and that it will not be in accordance with the firm’spersonal recommendation;

    2. (b)

      the reasons why the transaction will not be in accordance with the firm’spersonal recommendation;

    3. (c)

      the risks of the transaction proposed by the insistent client; and

    4. (d)

      the reasons why the firm did not recommend that transaction to the client.

Acknowledgement from the insistent client

COBS 9.5A.4 G
  1. (1)

    The firm should obtain from the insistent client an acknowledgement that:

    1. (i)

      the transaction is not in accordance with the firm’spersonal recommendation; and

    2. (ii)

      the transaction is being carried out at the request of the client.

  2. (2)

    Where possible, the acknowledgment should be in the client’s own words.

Further personal recommendations given to an insistent client

COBS 9.5A.5 G

Where a firm gives a further personal recommendation in relation to the transaction proposed by the insistent client, the firm should make clear to the client that this personal recommendation is distinct from, but does not affect the conclusions of, the initial personal recommendation.

Record keeping

COBS 9.5A.6 G
  1. (1)

    A firm dealing with an insistent client should retain a record of:

    1. (a)

      the advice and transaction process followed, including the communications with the client; and

    2. (b)

      the acknowledgment from the client referred to in COBS 9.5A.4G.

COBS 9.5A.7 G

A firm dealing with an insistent client should also refer to the record keeping requirements in COBS 9.5 (Record keeping and retention periods for suitability records) and SYSC 9.1 (General rules on record-keeping).

COBS 9.6 Special rules for giving basic advice on a stakeholder product1

COBS 9.6.1 G RP

This section applies to a firm giving basic advice, which has chosen to comply with the rules in this section instead of the other rules in this chapter (see COBS 9.1.2 R).1

Range1

COBS 9.6.2 R RP

A firm is permitted to maintain more than one range of stakeholder products.1

COBS 9.6.3 R RP

A range of stakeholder products:1

  1. (1)

    may include more than one deposit-based stakeholder product;1

  2. (2)

    may include the stakeholder products of more than one stakeholder product provider;1

  3. (3)

    must not include any more than one:1

    1. (a)

      CISstakeholder product or linked life stakeholder product; or1

    2. (b)

      stakeholder CTF; or1

    3. (c)

      stakeholder pension scheme.1

COBS 9.6.4 R RP

When a firm provides basic advice it must:1

  1. (1)

    explain why it chose the stakeholder products and stakeholder product providers that appear in the relevant range; and1

  2. (2)

    give the client a list of the stakeholder products and stakeholder product providers that appear in that range;1

if the client asks it do so.1

Requirements on first contact1

COBS 9.6.5 R RP

When a firm first has contact with a retail client with a view to giving basic advice on a stakeholder product, it must give the retail client:1

  1. (1)

    the basic advice initial disclosure information (COBS 9 Annex 1), in a durable medium, together with an explanation of that information, unless:1

    1. (a)

      it has already done so and the basic advice initial disclosure information is likely still to be accurate and appropriate; or1

    2. (b)

      the contact is not face to face and is using a means of communication which makes it not practicable to provide the basic advice initial disclosure information in a durable medium; and1

  2. (2)

    an explanation of how the advice will be paid for and the fact that any commission will be disclosed.1

COBS 9.6.6 G RP

[deleted]4

COBS 9.6.6A G RP

3A firm will meet the requirements in respect of its obligation to provide written disclosure in the rules on describing the breadth of advice (COBS 6.2B.33R5) by providing its basic advice initial disclosure information (in COBS 9 Annex 1 R).

COBS 9.6.7 R RP

[deleted]4

2 2 2 1
COBS 9.6.8 R RP

If a firm's first contact with a retail client is not face to face, it must:1

  1. (1)

    inform the client at the outset:1

    1. (a)

      (if the communication is initiated by or on behalf of a firm), of the name of the firm and the commercial purpose of the communication;1

    2. (b)

      [deleted]3

      3
    3. (c)

      that the firm will provide the retail client with basic advice without carrying out a full assessment of the retail client's needs and circumstances; and1

    4. (d)

      that such information will be confirmed in writing; and1

  2. (2)

    (if not provided at first contact) send the client the basic advice initial disclosure information (COBS 9 Annex 1) in a durable medium as soon as reasonably practicable following the conclusion of the first contact;13

  3. (3)

    3(unless the relevant product is a deposit-based stakeholder product) if the contact is by spoken interaction, provide the client with the disclosure required by the rules on additional oral disclosure for firms providing restricted advice (COBS 6.2B.38R5).3

Sales process1

COBS 9.6.9 R RP

When a firm gives basic advice, it must do so using:1

  1. (1)

    a single range of stakeholder products; and1

  2. (2)

    a sales process that includes putting pre-scripted questions to the client.1

COBS 9.6.10 R RP

When a firm gives basic advice it must not:1

  1. (1)

    describe or recommend a stakeholder product outside the firm'srange; or1

  2. (2)

    describe or recommend a smoothed linked long term stakeholder product; or1

  3. (3)

    describe fund choice, or recommend a particular fund, if a stakeholder product offers a choice of funds; or1

  4. (4)

    recommend the level of contributions required to be made to a stakeholder pension scheme to achieve a specific income in retirement; or1

  5. (5)

    recommend or agree that a client makes a contribution to an ISA which exceeds the HM Revenue & Customs ISA limits.1

COBS 9.6.11 R RP
  1. (1)

    If a firm starts the sales process for a stakeholder product that is not a deposit-based stakeholder product, it must not depart from that process unless it has advised the retail client that it will not provide basic advice on stakeholder products during the period of departure. A firm that does that must not provide basic advice during the departure period.1

  2. (2)

    Before a firm returns to the sales process for stakeholder products, it must tell the retail client that that process is about to recommence.1

Suitability of recommendations1

COBS 9.6.12 R RP

1A firm must only recommend a stakeholder product to a retail client if:

  1. (1)

    it has taken reasonable steps to assess the client's answers to the scripted questions and any other facts, circumstances or information disclosed by the client during the sales process;

  2. (2)

    (unless the relevant product is a deposit-based stakeholder product) having done so, it has reasonable grounds for believing that the stakeholder product is suitable for the client; and

  3. (3)

    the firm reasonably believes that the client understands the firm's advice and the basis on which it was provided.

COBS 9.6.13 G RP

1 COBS 9 Annex 2 gives guidance on the steps a firm could take to help it meet these suitability obligations.

COBS 9.6.14 R RP

1If a firm giving basic advice recommends to a retail client to acquire a stakeholder product, it must ensure that, before the conclusion of the contract, its representative:

  1. (1)

    (unless the relevant product is a deposit-based stakeholder product) explains to the client, if necessary in summary form, but always in a way that will allow the client to make an informed decision about the firm's recommendation:

    1. (a)

      the nature of the stakeholder product; and

    2. (b)

      the "aims", "commitment" and "risks" sections of the appropriate key features document;

  2. (2)

    provides the client with a summary sheet, which is in a durable medium and sets out, for each product it recommends:

    1. (a)

      the specific amount the client wishes to pay into the product; and

    2. (b)

      the reasons for the recommendation, including the client's attitude to risk and any information provided by the client on which the recommendation is based; and

  3. (3)

    informs the client that in determining any subsequent complaint, the Ombudsman may take into account the limited information on which the recommendation was based and the fact that it was not tailored to take account of those aspects of the client's financial needs and circumstances not covered by the firm's sales process.

COBS 9.6.15 R RP

1Notwithstanding COBS 9.6.14R (2) a firm may provide the summary sheet (COBS 9.6.14R (2)) as soon as reasonably practicable after the conclusion of the contract if the client asks it to do so, or the contract will be concluded using a means of distance communication that does not enable the provision of the summary sheet in a durable medium before the conclusion of the contract, but only if the firm:

  1. (1)

    reads the summary sheet to the client before it concludes the contract; and

  2. (2)

    sends the summary sheet to the client as soon as practicable after the conclusion of the contract.

Concluding the contract1

COBS 9.6.16 R RP

1If a firm concludes a contract for a stakeholder product with or for a retail client it must provide a copy of the completed questions and answers to the client in a durable medium as soon as reasonably practicable afterwards.

Basic advice on stakeholder products: other issues1

COBS 9.6.17 R RP
  1. (1)

    [deleted]3

    3
  2. (2)

    When a firm provides basic advice on a stakeholder product, it3 may use the facilities and stationery it uses for other business in respect of which it does hold itself out as acting or advising independently.

    33
COBS 9.6.18 R RP

1A firm must ensure that none of its representatives:

  1. (1)

    is likely to be influenced by the structure of his or her remuneration to give unsuitable basic advice on stakeholder products to a retail client; or

  2. (2)

    refers a retail client to another firm in circumstances which would amount to the provision of any fee, commission or non-monetary benefit.

COBS 9.6.18A R
  1. (1)

    6A firm providing basic advice on a stakeholder product that is a life policy must, in addition to providing the statement of demands and needs required under COBS 7.3.1R, provide the client with a personalised explanation of why a particular life policy would best meet the client’s demands and needs.

  2. (2)

    The details must be modulated according to the complexity of the life policy proposed and the type of client.

  3. (3)

    The information in (1) must be provided in accordance with COBS 7.4.

[Note: third paragraph of article 20(1) and 20(2) of the IDD]

Records1

COBS 9.6.19 R RP

1A firm must record that it has chosen to give basic advice to a retail client and make a record of the range used and the summary sheet (COBS 9.6.14R (2)) prepared for each retail client. That record must be retained for at least five years from the date of the relevant basic advice.

COBS 9.6.20 R RP
  1. (1)

    1A firm must make an up-to-date record of:

    1. (a)

      its scope of basic advice, and the scope of basic advice used by its appointed representatives (if any); and

    2. (b)

      its range (or ranges) of stakeholder products, and the range (or ranges) used by its appointed representatives (if any).

  2. (2)

    Those records must be retained for five years from the date on which they are replaced by a more up-to-date record.

COBS 9 Annex 1 Basic advice initial disclosure information1

R

1This Annex belongs to COBS 9.6.5R (1)

Information that comprises the following:

1.

the name and address (head office or principal place of business if more appropriate) of the firm;

2.

[deleted]2

2

3.

a statement that the service being offered is basic advice on a limited range of stakeholder products by asking questions about income, savings and other circumstances but without carrying out a full assessment of the retail client's needs and without offering advice on whether a non-stakeholder product may be more suitable;

4.

a statement, in accordance with GEN 45 that the firm is regulated by the FCA5 (or if an appointed representative, a statement of whom it is an appointed representative and that that firm is regulated by the FCA)5 to give basic advice, together with the registration number of the firm and the fact that the firm's status can be checked with the FCA5 on 0800 111 6768 or on the FCA5 website at http://www.fca.org.uk5;

5 5 5 5 5 5

5.

a statement disclosing any product provider loans (where such credit exceeds 10% of share and loan capital) and direct or indirect ownership (where that ownership exceeds 10% of share capital or voting power) either by, or of, a single product provider or operator; (See also notes 32-352 in COBS 6 Annex 1 and notes 45-502 of COBS 6 Annex 2)

2 2 2

6.

a2 description of the arrangements concerning complaints and the circumstances in which the retail client can refer the matter to the Financial Ombudsman Service; (See also notes 36-372 in COBS 6 Annex 1 and notes 51-542 of COBS 6 Annex 2)

2 2 2

7.

a description of the circumstances and the extent to which the2firm is covered by the compensation scheme and the retail client will be entitled to compensation from the compensation scheme;2 (See also notes 38-392 of COBS 6 Annex 1 and notes 55-582 of COBS 6 Annex 2)

2 2 2

28.

any relevant disclosure required by the rules on describing the breadth of advice (COBS 6.2B.33R3).

[Note: in respect of 7, article4 10 of the Investors compensation directive]

COBS 9 Annex 2 Sales processes for stakeholder products

This Annex gives guidance on the standards and requirements to which a firm may have regard in designing a sales process for stakeholder products and assumes that firms will provide basic advice to retail clients who have no practical knowledge of investing in stakeholder products or investments.

General Standards – all sales

1.

A sales process for stakeholder products may allow the representative administering it to depart from scripted questions where this is desirable to enable the retail client to better understand the points that need to be made provided this is compatible with the representative's competence and the degree of support offered by the firm's software and other systems. A software-based system is more likely to provide an adaptable means of providing prompts and support for representatives which may accordingly support a more flexible sales process.

2.

Questions, statements and warnings provided should be short, simple and in plain language. Questions should address one issue at a time.

3.

The sales process should enable the retail client to exit freely and without pressure at any stage. It should also allow the representative to terminate the process at any stage if it appears unlikely (for affordability, mis-match, risk or other reasons) that there is a suitable product for the retail client.

4.

Where necessary the sales process should incorporate procedures to allow uncertainties in the retail client's answers to be addressed before proceeding and should generally reflect caution about proceeding if clarification or further information cannot be obtained during the process (for example if a retail client cannot confirm whether he or she is eligible for membership of an occupational pension scheme).

Preliminary - all sales

5.

The retail client should be given the following preliminary information:

(a)

the retail client will only be given basic advice about stakeholder products;

(b)

stakeholder products are intended to provide a relatively simple and low-cost way of investing and saving;

(c)

the range of stakeholder products on which the representative will give advice to that retail client;1

(d)

the retail client will be asked a series of questions about his or her needs and circumstances and, at the end of the procedure, he or she may be recommended to acquire a stakeholder product;

(e)

the assessment of whether a stakeholder product is suitable will be made without a detailed assessment of the retail client's needs but will be based only on the information disclosed during the questioning process; and

(f)

the retail client's answers will be noted and, at the end of the process, if a recommendation to acquire a stakeholder product is made, the retail client will be provided with a copy of the completed questionnaire.

6.

Following 5, the retail client should be asked if he or she wishes to proceed and, if not, the sales process should cease.

Affordability - all sales

7.

If it appears that the retail client is unlikely to be able to afford a stakeholder product, the sale should be terminated and the retail client given an explanation together with a copy of the questions and answers completed to that point.

Financial Priorities and Debt - all sales

8.

A retail client should be assessed to ascertain other possible financial priorities -for example, does the retail client need (a) insurance protection; (b) access to liquid cash to meet an emergency; or (c) to reduce existing debts? If appropriate, the retail client should be given an unambiguous warning about the desirability of meeting those priorities before acquiring a stakeholder product.

9.

A stronger warning about the desirability of addressing debt as a priority should be given if it appears that the retail client is significantly indebted, especially if there is a strong indication that the debt commitments may render any new commitment unaffordable in the short-term. For this purpose a firm should consider using a threshold or indicator to decide whether a retail client should be excluded on the basis of affordability. Examples may include where the retail client has (a) annual unsecured debt repayments in excess of 20% of gross annual income or (b) four or more active forms of unsecured debt or (c) has consistently reached his overdraft limit. A firm should review its chosen indicator or threshold regularly to ensure that it reflects prevailing economic conditions and takes account of industry best practice.

10.

A firm should clearly explain what it needs to know about a retail client's debt and consider using a range of alternative words (eg 'loans', 'student loans', 'borrowing' and 'other forms of credit') to ensure all relevant information is obtained. A firm may use a simple reckoner to assess retail client debt, but should be conscious of the nature of, and not give the impression that it is providing more than, basic advice.

11.

If a firm gives a warning about the desirability of meeting other priorities before acquiring a stakeholder product, or about affordability, it should also invite the retail client to consider terminating the sales process.

Saving and investment objectives - all sales (except establishing a stakeholder CTF)

12.

A retail client's savings and investment objectives, including the period over which the retail client wishes to save or invest, should be ascertained including whether the retail client:

(a)

may need early access to some or all of the amount saved or invested; or1

(b)

wishes to save or invest for retirement; or

(c)

wants to accumulate a specific sum by a specific date.

13.

If that information indicates that the retail client's objective is:

(a)

to accumulate a specific sum by a specific date; or1

(b)

to save or invest only for the short term; or

(c)

early access may be required to the whole of the sum saved or invested;

the firm should not normally recommend a CIS stakeholder product, a linked life stakeholder product, a stakeholder pensionscheme or topping up of a stakeholder CTF.

Tolerance of risk - all sales

14.

If a retail client is not willing to accept any risk of the capital value of an investment being reduced then CIS stakeholder products, linked life stakeholder products and stakeholder CTFs should not usually be recommended. However, a firm may, if appropriate, explain the effect of inflation on long-term savings especially in relation to pensions and invite the retail client to consider his attitude to risk in the light of that explanation.

15.

If a retail client is willing to accept the risk of capital reduction in some circumstances but not others then, before any recommendation to acquire a CIS stakeholder product or linked life stakeholder product is made, the retail client should be reminded of the other circumstances in which he or she is unwilling to accept risk to capital.

Stakeholder pensions

16.

A stakeholder pension scheme should not be recommended, and the retail client should be advised to seek alternative or further advice, if it appears that the retail client:

(a)

has or will have access to an occupational pension scheme; or

(b)

is likely to view income in retirement from state benefits as sufficient; or

(c)

already has a pension to which he or she could make further contributions; or

(d)

wishes to retire within five years.

17.

It may also be appropriate to advise the retail client that other courses of action may be more beneficial than buying a stakeholder pension scheme (for example joining an occupational pension scheme).

18.

A firm designing a sales process for use in the workplace may take account of the benefits offered by the employer. If a firm recommends a stakeholder pensionscheme on the basis of benefits provided by an employer, then it should explain the basis of the recommendation to the retail client and suggest that the retail client seek advice if he or she has any concerns.

19.

A firm should design its processes with a view to addressing the risk that retail clients will fail to appreciate the significance of questions about their pension provision and should accordingly incorporate a range of questions and information designed to foster the retail client's understanding of the issues and to elicit appropriate information.

20.

Retail client should be told that a stakeholder pensionscheme is life-styled and what this means.

21.

2 A firm may provide a copy of the table setting out initial monthly pension amounts, found within the "Stakeholder pension decision tree" factsheet, available on 434https://www.moneyhelper.org.uk5in accordance with COBS 13 Annex 2 1.8R, but in doing so should also provide and explain the caveats and assumptions behind the table. A firm should make it clear that the decision on how much to invest is the retail client's responsibility and that they5 should get further advice if they have5 any concerns.2

3

ISAs

22.

A firm should ascertain whether the retail client has already opened a mini or maxi ISA and, if so, whether it would be appropriate for the retail client to open a non-ISA version of the same product.