Topic 10 - The regulatory advice framework Flashcards
What is an eligible counterparty and what are some examples of them
Organisation (counterparty) that requires a limited service (straightforward transactions). Lowest level of investor protection
* Banks
* Insurance companies
* Investment firms
What is a professional client
All bodies that would be an ‘eligible counterparty’, but require more services
Higher level of investor protection
What is a retail client
‘Normal people’, most customers fall into this category
Highest level of investor protection
What are the 4 drivers of vulnerability identified by the FCA
- Health conditions
- Life events
- Resilience (ability to withstand financial shocks)
- Capability (low knowledge of financial matters)
How many people in the UK have characteristics of vulnerability
24 million
What are the sort of problems that vulnerable clients face
- Financial exclusion
- Difficulty accessing services due to no suitable commmunication channels
- Inability to manage products and services
- Over-indebtedness
- Buying wrong products due to misunderstanding
- Scams and financial abuse
What structures and processes does the FCA expect firms to put in place to help vulnerable clients
- Senior management create a good culture
- Create good systems to support good customer service
- Tell vulnerable customers about help and support options
- Provide straightforward options
- Ensure client-dealing staff are appropriately trained
- Consider vulnerable customers when designing products
- Set up in-house teams for support of vulnerable clients
What is a fiduciary relationship
Relationship between Fidcuiary (agent/provider of service) and the customer
Although general UK law covers some fidcuiary duties, what are the 3 main fiduciary duties in financial services
- The duty of care
- Confidentiality
- Primacy of customers interests
What are the 3 main elements of a ‘personal recommendation’
What must happen in a personal rec. for it to be a personal rec.
- there must be a recommendation made to a person who is an investor or potential investor (or their agent);
- the recommendation must relate to buying, selling, retaining, subscribing or underwriting a particular investment, or exercising any rights given by that investment;
- the recommendation must be presented as suitable for that person, based on their circumstances.
If a firm is not approved to give advice, they can give guidance, but what are the key features of this
- Provide product and general information
- Information must be balanced
- Provider must not express an opinion
- Information allows customer to make their own informed decision
What 2 types of advice does the term ‘streamlined advice’ describe
- Focused
- Simplified
What is focused advice
- Personal recommendation relating to specific need
- Firm must ensure that any personal rec. is suitable for the customer
More focused than simplified advice
What is simplified advice
- Personal rec. that is limited to one or more of the customers specific needs
- Does not involve analysis of any circumstances that are not directly relevant to the needs
- For customers who have already met their priority needs
- Cannot be advice on selling or transferring of investment product
- Can be provided using automated system (decision tree)
What is basic advice
- For firms offering stakeholder products
- Uses pre-scripted questions to assess suitability
- Provider must disclose that basic advice only establishes broad priorities, limited account of personal circumstances
When must a firm tell customers the ‘type or scope’ of advice they give
Before any business commences
What are the 2 broad categories of advice the FCA rule out
Relating to type or scope of advice
- Independent
- Restricted
What is independent advice
- Firm provides recommendations from the WHOLE MARKET
- Must be fair, unrestricted and unbiased
- Can use a panel of providers but must be reviewed and updated regularly
What is restricted advice
- Also known as non-indepedent advice
- Provides advice on products from ONE OR A LIMITED NUMBER OF COMPANIES
- Includes ‘basic advice’
If a customer expresses a need outside of the firm’s and FCAs scope, such as… …adviser must be careful as there is no recourse for the adviser or client
- Taxation
- Wills
- Trusts
- Certain unregulated investments
What does Initial Disclosure COBS 6 introduce
In good time before doing any business, firms must disclose:
* Info about the firm
* Categories they operate in
* Services they provide
* Their costs
What is the main content in an initial disclosure
- the name and address of the firm
- methods of communication between the customer and the firm
- a statement that the firm is authorised and regulated by the Financial Conduct Authority (in full);
- the type of service provided – independent, focused independent, restricted and the nature of the restriction;
- the nature, frequency and timing of reports on the performance of the service that will be provided by the firm;
- where the firm manages investments for the customer
- costs and fees for the service
- information about the Financial Services Compensation Scheme if it applies to the service
What is a client agreement
COBS 8
- Agreement similar to an ‘initial disclosure’ that recognises that the services provided put more reliance on adviser
- Used for designated investment business other than purely advising on packaged investments
What investments do not require a client agreement
- Discretionary investment management services
- Transactions in futures and options
- Packaged investments (PRIIPs)
- Pensions
- Life policies
