23. Specialist Advice Flashcards
(30 cards)
What level of understanding should an advisor expect a retail customer to have when providing advice?
No more than a SIMPLE, GENERAL UNDERSTANDING
What is meant by an execution only sale?
A sale without a personal recommendation
- the firm has NO RESPONSIBILITY for the SUITABILITY OR AFFORDABILITY of the sale
What is Generic Advice?
What three things must Generic Advice be?
Advice which does not meet MiFID (Markets in Financial Instruments Directive, 2004) definition of advice.
Must be:
1. Balanced
2. Not expressing an opinion which could be seen as a recommendation
3. Factual
If a customer wants to make a complaint because they believe that they were given a recommendation when they should have been given generic advice, who should they direct their complaint to?
The Financial Ombudsman Service
What is the MiFID definition of Investment Advice (including insurance contracts)? What are the the main elements of this? (3)
Investment advice = personal recommendations to a customer, either upon the customer’s request or the firm’s initiative
Compromises of 3 main elements:
- Recommendation must be made TO A PERSON IN THEIR CAPACITY AS A POTENTIAL INVESTOR /AGENT ACTING ON THEIR BEHALF
- Must be SUITABLE & BASED ON INVESTOR CIRCUMSTANCES
- Must relate to either:
- Buying
- Selling
- Subscribing
- Exchanging
- Redeeming
- Holding
or
- Underwriting
Think - US HERBS
a MiFID investment
Financial Advisors must undertake exams & are subject to the FCA’s training & competence regime. This is regulated under which EU directive?
MiFID - Markets in Financial Instruments Directive
What constitutes as Focused Advice? Who decides the focus?
A personal recommendation is given on a LIMITED AREA/PRODUCT TYPE that meets a particular set of customer needs.
THE CUSTOMER REQUESTS IT & DECIDES THE LIMITED SCOPE.
What constitutes as Simplified Advice? Who decides the area of advice?
A personal recommendation is given on a LIMITED AREA/PRODUCT TYPE that meets a particular set of customer needs.
FIRM DECIDES THE SCOPE OF THE LIMITED NATURE OF SERVICE.
What type of transaction is unable to take place as a result of using simplified advice? Why?
Simplified advice cannot be used to SELL / TRANSFER AN INVESTMENT
because simplified advice recommendations MUST MEET A NEED. SELLING or TRANSFERRING something doesn’t DIRECTLY MEET A NEED.
True or false - using language such as “if it were me…” or “most people…” is considered to be advice or a recommendation?
True
What kinds of people is simplified advice suitable for? (3)
Those who:
- ALREADY HAVE THEIR PRIORITY NEEDS MET
- eg. debt reduction, liquid cash, core protection - HAVE DISPOSABLE INCOME/CAPITAL TO INVEST
- DON’T WANT A HOLLISTIC ASSESSMENT OF THEIR FINANCIAL SITUATION
- would rather have advice on just one specific investment need
If simplified advice is provided using an automated system like a decision tree, what are the rules that need to be followed specifically in relation to this? (2)
- The customer can answer questions but is NOT ALLOWED TO DISCUSS ANY ISSUES
- The advisor is allowed to answer generic questions on factual matters but CANNOT MAKE A RECOMMENDATION
What is Basic Advice? What must an advisor disclose when giving basic advice? (2)
A series of PRE-SCRIPTED QUESTION that assess a product’s SUITABILITY TO MEET THE CUSTOMER’S NEEDS
Must explain that the advice:
- Establishes only BROAD FINANCIAL PRIORITIES
- Takes LIMTIED ACCOUNT OF THE INDIVIDUAL’S PARTICULAR CIRCUMSTANCES
What are Independent Financial Advisors (IFAs)?
Advisors who are independent, i.e. they are not tied to any one financial firm
True or False - IFAs must be registered with the FCA.
True, unless they are an appointed representative of a registered firm
How are an IFA’s fees decided? Can they charge commission?
NOT ALLOWED TO RECEIVE COMMISSION
SET OWN FEES, IN ADVANCE - must agree these with customer before beginning the service
What types of products are IFAs allowed to recommend?
IFAs can recommend ALL TYPES OF PRODUCTS from across the WHOLE MARKET
i.e., unbiased, unrestricted advice
How would an IFA collect information from a customer in order to make their recommendation? What are the main types of information they need to collect? (3)
Using a Factfind.
Need details relating to the customer’s:
1. Financial Position
2. Preferences
3. Objectives
What is restricted advice?
Can an IFA give restricted advice?
Advice that CANNOT BE DESCRIBED AS INDEPENDENT
Either…
- the advisor only works with one provider and only recommends their products
or - the advisor chooses to only focus on a particular market (e.g. pensions) & consider all products from all providers, but only in that market.
IFA’s CANNOT GIVE RESTRICTED ADVICE
True or false - all advisors need to declare whether they offer independent or restricted advice to the customer.
True
What two things must IFA’s be able to demonstrate? (2)
- that they review ALL SUITABLE PRODUCTS WITHIN A MARKET
- that they give FAIR, UNBIASED, UNRESTRICTED ADVICE
What is an information-only/non-advice service?
Where an IFA offers GUIDANCE rather than advice
They just provide GENERAL INFORMATION about PRODUCTS or EXPLAIN FINANCIAL TERMINOLOGY
What is the minimum level of qualification needed by an IFA?
Level 4
What are Digital Wealth Managers?
ROBO ADVISORS that MANAGE YOUR ASSETS FOR YOU based on ALGORITHMS (mathematical rules) with VERY LITTLE HUMAN INTERVENTION
