PERG 8.30B Personal recommendations

1This section explains what personal recommendation means for the purpose of the definition of the regulated activity of advising on investments (except P2P agreements). PERG 8.24.1AG explains when this is relevant.

1A personal recommendation means a recommendation that:

1. (1)

   is made to a person in their capacity as:

   1. (a)

      an investor or potential investor; or

   2. (b)

      agent for an investor or a potential investor;

2. (2)

   is for the person in (1) to do any of the following (whether as principal or agent):

   1. (a)

      buy, sell, subscribe for, exchange, redeem, hold or underwrite a particular investment which is a security, a structured deposit or a relevant investment; or

   2. (b)

      exercise or not exercise any right conferred by such an investment to buy, sell, subscribe for, exchange or redeem such an investment;

3. (3)

   is:

   1. (a)

      presented as suitable for the person to whom it is made; or

   2. (b)

      based on a consideration of the circumstances of that person; and

4. (4)

   is not issued exclusively to the public.

1. (1)

   1The definition of personal recommendation in the Regulated Activities Order is based on the definition of the MiFID investment service or activity of making a personal recommendation.

2. (2)

   Personal recommendation should therefore be interpreted for the purpose of the regulated activity of advising on investments (except P2P agreements) consistently with MiFID.

3. (3)

   However the types of investments to which the recommendation relates (as listed in PERG 8.30B.2G(2)) are not limited to ones covered by MiFID.

1This section draws on the document “Question & Answers: Understanding the definition of advice under MiFID” (CESR/10-293), published by the Committee Of European Securities Regulators (now ESMA).

1. (1)

   1PERG 8 Annex 1 sets out some examples of what is and is not a personal recommendation.

2. (2)

   The notes at the start of the tables explain which parts of the tables are relevant to the issues in this section.

1. (1)

   1PERG 8.25 to PERG 8.30A deal with the meaning of advising on investments (except P2P agreements) in PERG 8.24.1G, where it is not relevant whether there is a personal recommendation. That material also applies to whether the conditions in PERG 8.30B.2G(1) and (2) are met, as explained in (2) and (3).

2. (2)

   If something is regulated advice under PERG 8.25 to PERG 8.30A it meets the conditions in PERG 8.30B.2G(1) and (2). However it is not a personal recommendation unless it also meets the conditions in PERG 8.30B.2G(3) and (4).

3. (3)

   If something is not regulated advice under PERG 8.25 to PERG 8.30A it is not a personal recommendation as it does not meet the conditions in PERG 8.30B.2G(1) and (2).

1Therefore:

1. (1)

   for a communication to be a personal recommendation it must:

   1. (a)

      relate to an investment which is a security, a structured deposit or a relevant investment, as described in PERG 8.25;

   2. (b)

      be about a particular investment, as described in PERG 8.26;

   3. (c)

      be given to persons in their capacity as investors or potential investors, as described in PERG 8.27 (although the material in PERG 8.27.5G about advice given in a periodical or website is not relevant);

   4. (d)

      be advice (that is, not just information), as described in PERG 8.28; and

   5. (e)

      relate to the merits of buying, holding or selling the investment, as described in PERG 8.29;

2. (2)

   the medium used to give advice should make no difference to whether or not the communication comes within PERG 8.30B.2G(1) and (2), as described in PERG 8.30 (but advice given in periodicals, broadcasts and other news or information services will generally not be a personal recommendation for the reasons described in PERG 8.30B.22G to PERG 8.30B.24G);

3. (3)

   the points in PERG 8.30A about whether pre-purchase questioning or filtering involves regulated advice are also relevant to whether the requirements in PERG 8.30B.2G(1) and (2) are met; and

4. (4)

   a communication is not a personal recommendation unless it also meets the conditions in PERG 8.30B.2G(3) and (4).

1An investment might be presented as suitable for a customer in an explicit way using words such as, for example, “this product would be the best option for you”. This meets the condition in PERG 8.30B.2G(3)(a).

1. (1)

   1However, it is not necessary for a firm to tell a customer explicitly that a recommendation it is making is suitable for the customer in order for it to be a personal recommendation. If the firm implicitly presents an investment to the customer as suitable, that can still be a personal recommendation.

2. (2)

   The following are examples of implicit recommendations of this type:

   1. (a)

      a firm may present several investments, with one of them highlighted for the customer by a phrase such as “people like you tend to buy this product”; and

   2. (b)

      a firm may contact customers that hold units in a particular fund and say “Our research indicates that Fund X is no longer performing as our customers would wish. We have identified Fund Y as a replacement investment, which can be used to achieve the same investment outcomes”.

1An investment can be presented as suitable for an investor even if in fact the investment is not suitable or even if the firm does not think it is. While a recommendation of an investment that is unsuitable for the investor would be a breach of requirements under MiFID and the Handbook, it would not stop the recommendation from being presented as suitable.

1Information about a person’s circumstances for the purposes of PERG 8.30B.2G(3)(b) can include:

1. (1)

   factual information (for example, their address, income or marital status); or

2. (2)

   more subjective information about their wants and needs (for example, their overall risk appetite, short- and long-term investment objectives and their desire for protection from particular risks).

1Whether or not a firm will be viewed as providing a recommendation based on a consideration of a person’s circumstances is likely to depend on factors such as the nature of the information it collects and the way that it presents its questions.

1. (1)

   1For example, if:

   1. (a)

      a firm has collected information from a customer on their investment objectives or financial situation; and

   2. (b)

      the customer returns to the firm through the same channel for a follow-on service;

   it could be reasonable for the customer to expect that the firm will use this information when it makes a recommendation as part of the follow-on service.

2. (2)

   The following factors could also show that it would be reasonable for the customer to expect that the firm is using previously given information:

   1. (a)

      the contact point with the firm is the same; and

   2. (b)

      the nature of the service is similar to that given in the past.

1On the other hand, if:

1. (1)

   a customer gives a firm information when purchasing a mortgage; and

2. (2)

   the customer later makes use of an execution-only service provided by the firm through its online channel to buy securities;

the customer cannot reasonably assume that the firm makes use of the information in (1) when the firm sells the securities in (2).

1. (1)

   1If :

   1. (a)

      a firm makes a recommendation to a customer; and

   2. (b)

      the firm presents it as being based on the customer’s personal circumstances; but

   3. (c)

      the firm in fact fails to use information about that customer’s circumstances when making that recommendation;

   that recommendation is a personal recommendation.

2. (2)

   So for example, if:

   1. (a)

      a firm has accumulated relevant information on a customer’s circumstances (either during a single interview or during the course of an ongoing relationship); and

   2. (b)

      it would be reasonable for the customer to expect that this information is being taken into account (see PERG 8.30B.13G to PERG 8.30B.14G);

   any recommendation will be treated as being based on a consideration of the customer’s circumstances.

1If a firm makes a recommendation to multiple customers this does not automatically mean that it is not a personal recommendation.

1To assess whether a communication made to several customers is a personal recommendation, the following factors are relevant:

1. (1)

   the target audience (PERG 8.30B.18G);

2. (2)

   the content of the message (PERG 8.30B.19G); and

3. (3)

   the language used (PERG 8.30B.20G).

1Target audience:

1. (1)

   For example, when the internal procedures of a firm specify that an investment may only be sold to a sample of customers selected on the basis of certain factors, such as customers under a certain age or who hold no similar products, the selection of the target audience will not automatically mean that the firm is providing personal recommendations.

2. (2)

   However, highlighting the particular personal circumstances that led the individual to be contacted, for example, is very likely to mean that the investment is being presented as suitable for the particular investor.

3. (3)

   The key factor here is how the recommendation would appear to a reasonable investor and in particular whether it would appear to a reasonable investor contacted in this way that:

   1. (a)

      the communication from the firm was sent to that investor because the investment is suitable for that investor; or

   2. (b)

      the investor was selected because of their circumstances.

1Content of the message:

1. (1)

   If the message contains a solicitation, a recommendation, an opinion or a judgment about the advisability of a transaction, this could mean that it is a personal recommendation.

2. (2)

   This factor is also relevant to whether the message meets the requirements in PERG 8.30B.2G(1) and (2) (whether there is a recommendation).

1The tone of the message and the way it could be understood by the customer are important elements when determining whether a communication amounts to a personal recommendation.

1A disclaimer may help a firm to avoid inadvertently presenting investments as suitable for particular customers or as being based on a consideration of the customer’s circumstances. However it will not always be sufficient. For example a disclaimer is unlikely to be effective if:

1. (1)

   a firm states that the investment would suit a particular customer’s needs; or

2. (2)

   it is reasonable for the customer to expect that the recommendation is based on a consideration of their circumstances.

1A recommendation is not a personal recommendation if it is issued exclusively to the public.

1Advice about investments in a newspaper, a journal, a magazine, a website accessible to the general public or in a radio or television broadcast should not amount to a personal recommendation.

1. (1)

   1However, use of the internet does not automatically mean that a communication is made to the public and that as a result it is outside the definition of a personal recommendation.

2. (2)

   Therefore, for instance, while advice on a generally accessible website is unlikely to be a personal recommendation, an email communication provided to a specific person, or to several persons, may amount to a personal recommendation.

3. (3)

   PERG 8.30B.16G to PERG 8.30B.20G (Where the same recommendation is sent to several customers) deal with when a communication, including an email, sent to multiple customers can be a personal recommendation.

4. (4)

   See PERG 8.30B.33G(5) for an example of when the output of a website may still be a personal recommendation even though the website is accessible to the general public.

1. (1)

   1A firm may sell products through its website and that website may allow the customer to filter products based upon factors presented by the website and selected by the customer.

2. (2)

   Someone deciding whether a filtering process meets the requirements in PERG 8.30B.2G(1) and (2) should look at PERG 8.30A (Pre-purchase questioning (including decision trees)).

3. (3)

   However, if a filtering process is treated as giving regulated advice under PERG 8.30A it must also meet the requirements in PERG 8.30B.2G(3) and (4) if it is to be a personal recommendation.

1. (1)

   1This section PERG 8.30B deals with two basic forms of filtering process.

2. (2)

   The first type involves identifying investments based on factual matters, as described in PERG 8.30A.10G.

3. (3)

   The second type involves factors incorporating opinion, judgment or recommendations, as described in PERG 8.30A.11G.

1A filtering process based on factual matters will generally not involve a personal recommendation because it does not meet the requirements in PERG 8.30B.2G(1) and (2) (see PERG 8.30A.6G (as applied by PERG 8.30B.6G)).

1In the FCA’s view, a filtering process based on a single subjective factor such as riskiness may meet the requirements in PERG 8.30B.2G(1) and (2) but still not be a personal recommendation because it does not meet the requirements in PERG 8.30B.2G(3) and (4). It need not meet those requirements for the following reasons taken together.

1. (1)

   The filter is simple because:

   1. (a)

      the number of inputs by the customer is small;

   2. (b)

      the translation from the customer’s input to the list of displayed products does not involve any opinion or complicated processing;

   3. (c)

      if the customer chooses high-risk products there is a pre-existing list of products that are displayed for that customer;

   4. (d)

      if the customer chooses low-risk products there is a pre-existing list of products that are displayed for that customer; and

   5. (e)

      the same results will be displayed for any other customer that chooses that category of risk.

2. (2)

   This sort of filtering is just a form of indexation of pre-existing information.

3. (3)

   It would be perfectly possible to arrange the investments the firm sells into categories based on riskiness in hard copy form, and to make that hard copy available to the public. However it cannot be said that a hard copy arranged and published in that way is based on the personal circumstances of the person reading it.

4. (4)

   The website output from the process does not become a personal recommendation just because it is on a website or just because the website screens out information the customer asks not to see.

5. (5)

   All the filtering does is to eliminate investments that do not fall within the specified category.

1PERG 8.30B.28G is based on the nature of the filtering process.

1. (1)

   PERG 8.30B.28G is not based on the view that an investment factor such as riskiness cannot be part of the customer’s personal circumstances. The customer’s attitude to risk can form part of the customer’s personal circumstances.

2. (2)

   PERG 8.30B.28G is not based on the view that there is no personal recommendation where the advice is about whether a product meets the customer’s objectives rather than the product being good or bad. A personal recommendation may relate to the customer’s objectives.

3. (3)

   PERG 8.30B.28G is not based solely on the fact that the website only takes into account a narrow range of factors. The fact that a firm has not considered all the customer’s circumstances does not necessarily mean that there is no personal recommendation.

1. (1)

   1The conclusion in PERG 8.30B.28G is given some support by the ESMA guidance referred to in PERG 8.30B.4G.

2. (2)

   That guidance states that where the filtering process is limited to assisting the customer to make their own choice of product with particular features which the customer regards as important, then it is unlikely that the process will involve a personal recommendation.

1. (1)

   1Whether or not a personal recommendation is given depends in part on whether the customer is led to think that one is being given.

2. (2)

   Therefore it is important that the customer understands that:

   1. (a)

      the firm is not advising on whether the products are suitable for the customer; and

   2. (b)

      instead the firm is assisting the customer to make their own choice of product with particular features which the customer regards as important.

3. (3)

   If buying the investments identified in the website’s output is positioned as the appropriate action for the customer to take, the overall service might be viewed as a personal recommendation.

4. (4)

   The customer should understand that, because the website takes into account a narrow range of the customer’s personal circumstances and preferences and because the customer rather than the firm has established what those circumstances and preferences are, the result may be that the customer ends up with products that are unsuitable for them.

1. (1)

   1As described in PERG 8.30B.21G, including a disclaimer is not enough on its own to prevent a personal recommendation.

2. (2)

   For example, if the firm says that the filtered investments displayed by the website would suit the customer’s needs, the inclusion of a disclaimer saying that this is not advice or a personal recommendation would be unlikely to change the nature of the communication.

3. (3)

   A legalistic disclaimer is unlikely to be enough to prevent a firm from giving a personal recommendation. Instead, the material should prominently and clearly explain the limited nature of the service that the firm provides and the risk that the customer will end up with unsuitable investments.

1. (1)

   1If the filtering is based on more than one factor chosen by the consumer that does not mean that the firm is making a personal recommendation.

2. (2)

   However the output from the website may be a personal recommendation if the way that the customer’s inputs interact on the website is more complicated than with a simple filtering system under which:

   1. (a)

      the firm assigns a limited number of characteristics (such as levels of riskiness) to each product;

   2. (b)

      the customer chooses the characteristics they want; and

   3. (c)

      the system displays all the products that meet all the characteristics chosen by the customer and does not show the other products.

3. (3)

   As explained in PERG 8.30A.15G (as applied by PERG 8.30B.6G), this type of filtering meets the requirements in PERG 8.30B.2G(1) and (2).

4. (4)

   This type of filtering also meets the requirements in PERG 8.30B.2G(3) and (4) because:

   1. (a)

      the factors in PERG 8.30A.15G mean that the website is going beyond simply indexing pre-existing information as described in PERG 8.30B.28G (so the approach in PERG 8.30B.28G does not apply);

   2. (b)

      if the customer has to input a large range of personal information the firm cannot argue that it has not taken into account the customer’s personal circumstances and preferences when in fact it actually has; and

   3. (c)

      either explicitly or implicitly the output is presented as meeting the customer’s requirements and wishes.

5. (5)

   A recommendation issued exclusively to the public is not a personal recommendation. But the output of the website in this paragraph PERG 8.30B.33G is not excluded from being a personal recommendation for this reason: the output of the website in this example is tailored to the individual and is only made available to them.

1. (1)

   1The approach described in PERG 8.30B.28G only applies if it is clear to the customer that the firm is presenting to the customer all the products it sells coming within the category selected by the customer (see PERG 8.28.4G (information presented on a selected basis)).

2. (2)

   For example, if the customer filters the products based on how risky they are, the firm should present to the customer all the products it sells falling within the risk category the customer chooses.

1. (1)

   1An example of PERG 8.30B.33G is a firm that presents a suggested portfolio of investments to the customer.

2. (2)

   For example, if the customer filters the products based on how risky they are, and the firm presents a number of investment products and a suggestion of what percentage of the customer’s investment should be invested in each, it is likely that the firm will be making a personal recommendation.

1The examples in PERG 8 Annex 1 include examples of a firm selling products on a website which allows the customer to filter products based on input from the customer.