COBS 10 Annex 3 Assessing appropriateness: units in a long-term asset fund

1This Annex belongs to COBS 10.2.9G(1)(m).

When determining whether a retail client has the necessary knowledge to understand the risks involved in relation to a long-term asset fund, a firm should consider asking the client questions that cover, at least, the following matters:

1. (1)

   the possibility that the client could see the value of the amount they invest go down;

2. (2)

   the potential illiquidity of LTAFs and their underlying assets;

3. (3)

   the possibility that it could take the client many years to make a profit on the money they invest, and (where relevant) that payments of income may be limited or non-existent;

4. (4)

   that due to the dealing frequency and notice period after a redemption request has been accepted (see COLL 15.8.12R (Dealing: redemption of units):

   1. (a)

      the client will not know the value of the proceeds of redemption until the end of the notice period; and

   2. (b)

      it will take at least [period of time] for the client to receive the proceeds of redemption;

5. (5)

   the risk of the LTAF’s investments failing and the associated risk of the client losing all of the money invested;

6. (6)

   the extent to which the protection of the Financial Ombudsman Service or FSCS apply to the investment activity (including the fact that these services do not protect investors against poor investment performance);

7. (7)

   the nature of the client’s contractual relationships with the authorised fund manager (including its role in assessing and making underlying investments);

8. (8)

   the benefits of diversification and that retail clients should not generally invest more than 10% of their net assets in restricted mass market investments;

9. (9)

   where the units in the LTAF are, or are to be, dealt or arranged by another firm (AF):

   1. (a)

      the nature of the client’s contractual relationships with (AF);

   2. (b)

      the role of AF and the scope of the service it provides to clients (including the extent of the due diligence that AF undertakes in relation to units in LTAFs that it deals in or arranges); and

   3. (c)

      the risk to any management and administration of the client’s investment in the event of AF becoming insolvent or otherwise failing.