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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


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.


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


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.


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


The retail client should be given the following preliminary information:


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


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


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


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;


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


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.


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


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


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.


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.


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.


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)


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:


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


wishes to save or invest for retirement; or


wants to accumulate a specific sum by a specific date.


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


to accumulate a specific sum by a specific date; or1


to save or invest only for the short term; or


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 pension scheme or topping up of a stakeholder CTF.

Tolerance of risk - all sales


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.


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


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:


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


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


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


wishes to retire within five years.


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).


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 pension scheme 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.


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.


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


2A firm may provide a copy of the table setting out initial monthly pension amounts, found within the "Stakeholder pension decision tree" factsheet, available on 434 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




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.