54(1) Investment firms shall not create any ambiguity or confusion about their responsibilities in the process when assessing the suitability of investment services or financial instruments in accordance with Article 25(2) of Directive 2014/65/EU. When undertaking the suitability assessment, the firm shall inform clients or potential clients, clearly and simply, that the reason for assessing suitability is to enable the firm to act in the client’s best interest.
[Note: first paragraph of article 54(1) of the MiFID Org Regulation]
When providing investment advice to a retail client1, a firm must, before the transaction is concluded, provide the client with a suitability report in a durable medium specifying the advice given and how that advice meets the preferences, objectives and other characteristics of the client.
Where the agreement to buy or sell a financial instrument is concluded using a means of distance communication which prevents the prior delivery of the suitability report, the firm may provide the suitability report in a durable medium immediately after the client is bound by any such agreement, provided both the following conditions are met:
Where a firm provides a portfolio management service or has informed the client that it will carry out periodic assessment of suitability, the periodic report, provided under COBS 16A.2.1R, must contain an updated statement of how the client’s investments meet the preferences, objectives and other characteristics of the client.
[Note: second, third and fourth paragraphs of article 25(6) of, and recital 82 to, MiFID]
54(12) When providing investment advice, investment firms shall provide a report to the retail client that includes an outline of the advice given and how the recommendation provided is suitable for the retail client, including how it meets the client’s objectives and personal circumstances with reference to the investment term required, client’s knowledge and experience and client’s attitude to risk and capacity for loss.
Investment firms shall draw clients’ attention to and shall include in the suitability report information on whether the recommended services or instruments are likely to require the retail client to seek a periodic review of their arrangements.
Where an investment firm provides a service that involves periodic suitability assessments and reports, the subsequent reports after the initial service is established may only cover changes in the services or instruments involved and/or the circumstances of the client and may not need to repeat all the details of the first report.
[Note: article 54(12) of the MiFID Org Regulation]
Situations that are likely to require a retail client to seek a periodic review of their arrangements include where a client is likely to need to seek advice to bring a portfolio of investments back in line with the original recommended allocation where there is a probability that the portfolio could deviate from the target asset allocation.
[Note: recital 85 to the MiFID Org Regulation]
52(5) Investments firms providing a periodic assessment of the suitability of the recommendations provided pursuant to Article 54(12) shall disclose all of the following:
(a) the frequency and extent of the periodic suitability assessment and where relevant, the conditions that trigger that assessment;
(b) the extent to which the information previously collected will be subject to reassessment; and
(c) the way in which an updated recommendation will be communicated to the client.
[Note: article 52(5) of the MiFID Org Regulation]
54(13) Investment firms providing a periodic suitability assessment shall review, in order to enhance the service, the suitability of the recommendations given at least annually. The frequency of this assessment shall be increased depending on the risk profile of the client and the type of financial instruments recommended.
[Note: article 54(13) of the MiFID Org Regulation]