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Flashcards in Section 10 Deck (37)
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1

Product Disclosure

Key features / Key information / key investor information documents
•Providers must produce for each packaged product
•Must be given to every retail client before application form is completed (new sales only)

•Contents includes:
o Nature of investment
o Aim of investment
o Risk factors
o Cancellation/withdrawal rights
o Compensation arrangements
o Complaints procedures

2

Solvency II Directive

•Required information includes:
o Name of life office
o Address of head office or branch
o Policy term
o Means of termination
o Premiums
o Unit linking
o Cancellation rights
o Tax arrangements
o Complaints arrangements

3

With Profits Business

•Principles and Practices of Financial Management
•Sets out how With Profit business is being managed

4

Guidance

•Helping consumers make informed choices
•Provider guidance – specific product information
•Generic guidance – generic product information
•Money and Pensions Service (MaPS) now single financial guidance body, statutory duty to develop strategy for financial capability, financial education and debt, brings together
o Pension Wise - free, impartial guidance service set up by government to understand pension choices at 55 for those with DC schemes and over 50 - website/over phone/face to face. Guidance on what to do with pension fund, different types of pension and how they work, what is tax free and what is not
o Money Advice Service – website with lots of guidance on all things personal finance-related
o The Pensions Advisory Service – information and guidance to the public on all matters pension-related

5

Fair treatment of customers (FTC) – consumer outcomes

1. Consumers should be confident that they are dealing with a firm where fair treatment of customers is central to the corporate culture
2. Products and services marketed and sold in the retail sector are designed to meet the needs of identified customer groups
3. Consumers are provided with clear information and kept appropriately informed before, during and after sale
4. Where consumers receive advice, it is suitable and takes account of circumstances
5. Consumers are provided with products that perform as led to expect
6. Consumers do not face unreasonable post sale barriers

•Firms must focus on delivering the 6 outcomes and record evidence that they are doing so e.g. press coverage or MI
•Firms should do what they can to overcome barriers to financial inclusion

6

Types of Adviser:

Independent
Restricted

•Firm must assess a sufficient range of relevant products that are sufficiently diverse in type and issuer to ensure clients’ investment objectives suitably met
•Any other advice not meeting the independent standard
•Ranges from single- tie to multi-ties

7

Intermediaries

Single-Tied Agents
•Only advise on one product provider
•If no suitable product, then can introduce to independent financial adviser
•Restricted advice

Whole of Market
•Able to select products from any provider, but there will be a restriction in terms of types of products offered
•Restricted advice

Independent Advisers
•Must assess a sufficient range of relevant products that are sufficiently diverse in type and issuer to ensure clients’ investment objectives suitably met

Multi-Tied
•Advise on products from range of providers
•Restricted advice

8

Adviser Charging

•Customer must be provided with clear charging structure and clear information on charges
•FCA does not dictate nature of charges
•Ongoing charges must be accompanied by an ongoing service
•Must disclose fees in monetary terms
•Facilitation – advice fees deducted by provider

9

Stakeholder Suite of Products

•Products sold through simplified basic sales process
•Stakeholder range includes:
o Short term product - cash deposit account
o Medium term investment product - collective or life fund
o Long term pension product - life-styled version of existing stakeholder pension

•Must explain why chose stakeholder product
•On first contact, give basic advice initial disclosure, explain how advice will be paid for and commission disclosure
•No requirement to know your customer (full fact-find not required)
•Recommended product only has to be suitable (not most suitable)
•Maximum charge medium/long term product 1.5% first 10 years, then 1%

10

Advertising and Financial Promotion

•Overriding consideration in all communications regarding regulated business is that they are ‘fair, clear and not misleading’

•Rules aimed at advertisements do not include:
o Specific communication/product to specific recipient
o Personal illustrations


•Non-Real Time Financial Promotions - all other promotions e.g. adverts, must:
o Be checked by compliance before issued
o Keep records of promotions for 6 years (life and pensions) or 5 years (other adverts for MiFID firms) or 3 years (non-MiFID firms), indefinitely pension transfers
/ conversions / opt outs / FSAVCs
o Content - name of firm and address or contact point
o Past performance - if mentioned must state no guide to the future
o Tax references - must state depends on individual circumstances

•Real-Time Financial Promotions - interactive dialogue e.g. phone call, must:
o State purpose of promotion
o Identify themselves and firm
o Check agreement to proceed (if not agreed beforehand)
o Provide contact point
o Not contact at unsociable hours

•Direct Offer Financial Promotions must:
o Contain sufficient information to allow person to make informed decision
o Promotion of packaged product must contain information required by key features rules

•Cold Calling (unsolicited real time financial promotion):
o Cannot be done unless there is an established client relationship

11

E-Commerce Directive Rules

•Minimum information e.g. name and e-mail address must be easily, directly and permanently available
•Clear information on services provided
•Clear instructions on how to place an order
•Customers must be able to identify and correct input errors prior to order
•Orders must be acknowledged (though do not have to be accepted)
•All normal Conduct of Business rules also apply

12

Advice and Know Your Customer Rules

•A firm must ensure it has sufficient personal and financial information about a client before making a recommendation
•Under ‘know your client’ rules collect relevant information through fact-find
•If client declines to give information must record on fact-find
•Retain copy of fact-find (paper or electronically) for review or in case of complaint
•Revisit and update fact-find at each subsequent meeting

13

Suitability Rules

•Provider firm must not make recommendations unless it has a suitable product in its range
•Multi-tied advisers should not give advice unless they have a suitable product in their range

14

Suitability Report

•Required when client:
o Buys / sells collective, IT or ISA
o Buys, sells, surrenders, converts, cancels/suspends premiums on personal / stakeholder pension
o Takes income withdrawals from a pension / UFPLS
o Pension opt-out or conversion
o Purchases a short-term annuity
o Makes a personal recommendation in relation to a life policy

•Report specifies client demands and needs and should include
o Why transaction is suitable
o Explanation of possible disadvantages
o Summary of main consequences
o Avoid technical terms

15

Issuing report

•Life contract
o Before policy starts

•Pension contract
o No later than 14 days after policy starts

•Other contracts
o As soon as possible

16

Existing Investments

•Surrender or retain
•Ethical issue - must be in client’s best interest
•Legal issue - cannot churn

17

Duty of Care

•In formulating recommendation ensure client understands nature of any inherent risks

18

Unsuitable Transactions

•Adviser can decline transaction or if proceed then document on fact-find and client to sign

19

Application Forms

•Clients should complete own application form
•Failing to disclose material fact could lead to contract being void
•If adviser completes form, then good practice for client to sign statement agreeing with information recorded
•Must be signed by client unless Power of Appointment

20

Customers Understanding of Risk and Clear Communications

•Critical to ascertain clients understanding of risk
•Explain risk in terms client can understand
•Clients’ attitude to risk may change over time (so need to review investments)
•In-depth discussions required not just scale 1-10
•Consider existing investments in making recommendations
•Communication should be clear, fair and not misleading

21

Investment Business

•Requirement to establish client status - either:
o Retail client
o Professional client
o Eligible counterparty

•Requirements for disclosure and protection of retail clients higher than the other two categories
•Professional clients and eligible counterparties are either ‘elective’ or ‘per se’
•Client is ‘per se’ professional client by virtue of characteristics e.g. local or public authority or another authorised firm
•Clients can elect to be professional client after firm completes assessment of knowledge
•Client is ‘per se’ eligible counterparty if e.g. government of another country or central bank of a country
•Financial advisers unlikely to classify any client as eligible counterparty

22

Accepting Business

Status of client - firm must take reasonable steps to establish status of client (above)

23

Home finance

•All referred to as customers

24

Fiduciary relationships

•Adviser owes duty of care, confidentiality and primacy of client interest to client

25

Status Disclosure

•On first contact with retail client a firm must provide client with specific information (initial disclosures) about the firm and relationship with client
o The firm’s regulatory status
o Independent or restricted
o Details of the service
o How the firm is paid
o Details of loans and ownership
o How to complain
o Coverage by the FSCS

•Do not have to give above information in writing if:
o Already been given to client and still valid
o Initial contact via phone (although need to give information verbally and later in writing)
o For execution only transactions in non-life packaged investments

•Charges
o Must be disclosed, including any remuneration payable
o Must put proper value on benefits / services received

26

Client Agreements/Terms of Business

•Sets out basis for conducting business e.g.
o Investment objectives
o Conflicts of interest
o Status
o Complaints
o Restrictions

•Not required for direct offer financial promotions or life offices selling life and pension policies as principal
•Records of client agreements - keep for longer of:
o 5 years
o Duration of client relationship
o Pensions transfers, opt-outs and FSAVCs - keep indefinitely

27

Best Execution

•Mainly applies to firms dealing in stocks and shares
•Firm must take all sufficient steps to obtain best possible result for customer
•Execute order as soon as possible
•Sellers - highest price/buyers - lowest price

28

Execution Only

•Investor states what they want with no advice sought or given
•Adviser arranges deal
•No requirement for fact-find or suitability
•Client loses ability to refer to Financial Ombudsman Service (FOS)

29

Limited Advice

•Client requests advice on particular subject

30

Non-advised

•No personal recommendation made
•Client knows what they want
•Or firm offers information and client makes own informed decision