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COBS 4.6 Past, simulated past and future performance

Application

COBS 4.6.1RRP

  1. (1)

    Subject to (2) and (3), this section applies to a firm in relation to:1

    1. (a)

      1the provision of information in relation to its MiFID or equivalent third country business;2

      22
    2. (b)

      the communication or approval of a financial promotion;1

where such information or financial promotion is addressed to, or disseminated in such a way that it is likely to be received by, a retail client.1

  1. (2)

    If3 a communication relates to a firm's MiFID or equivalent third country business, this section does not apply:3

    1. (a)

      to the extent that the communication is a third party prospectus;

      3
    2. (b)

      if it is image advertising.

  2. (3)

    3If a communication relates to 3a firm's business that is not3 MiFID or equivalent third country business, this section does not apply:3

    1. (a)

      to the extent that it is an excluded communication;

    2. (b)

      to the extent that it is a prospectus advertisement to which PR 3.3 applies;

    3. (c)

      if it is image advertising;

    4. (d)

      to the extent that it relates to a deposit that is not a structured deposit;

    5. (e)

      to the extent that it relates to a pure protection contract that is a long-term care insurance contract.

Past performance

COBS 4.6.2RRP

A firm must ensure that information that contains an indication of past performance of relevant business, a relevant investment or a financial index, satisfies the following conditions:

  1. (1)

    that indication is not the most prominent feature of the communication;

  2. (2)

    the information includes appropriate performance information which covers at least the immediately preceding five years, or the whole period for which the investment has been offered, the financial index has been established, or the service has been provided if less than five years, or such longer period as the firm may decide, and in every case that performance information must be based on and show complete 12-month periods;

  3. (3)

    the reference period and the source of information are clearly stated;

  4. (4)

    the information contains a prominent warning that the figures refer to the past and that past performance is not a reliable indicator of future results;

  5. (5)

    if the indication relies on figures denominated in a currency other than that of the EEA State in which the retail client is resident, the currency is clearly stated, together with a warning that the return may increase or decrease as a result of currency fluctuations;

  6. (6)

    if the indication is based on gross performance, the effect of commissions, fees or other charges is disclosed.

[Note: article 27(4) of the MiFID implementing Directive]

COBS 4.6.3GRP

The obligations relating to describing performance should be interpreted in the light of their purpose and in a way that is appropriate and proportionate taking into account the means of communication and the information the communication is intended to convey. For example, a periodic statement in relation to managing investments that is sent in accordance with the rules on reporting information to clients (see COBS 16) may include past performance as its most prominent feature.

COBS 4.6.4GRP

If a financial promotion includes information referring to the past performance of a packaged product that is not a financial instrument2, a firm will comply with the rule on appropriate performance information (COBS 4.6.2R (2)) if the financial promotion includes, in the case of a scheme, unit-linked life policy, unit-linked personal pension scheme or unit-linked stakeholder pension scheme (other than a unitised with-profits life policy or stakeholder pension scheme) past performance information calculated and presented in accordance with the table in COBS 4.6.4A G.

COBS 4.6.4AG

This Table belongs to COBS 4.6.4 G

Percentage growth

[Fund name]

Quarter/Year - Quarter/Year

Quarter/Year - Quarter/Year

Quarter/ Year - Quarter/Year

Quarter/ Year - Quarter/Year

Quarter/ Year - Quarter/ Year

pgr%

pgr%

pgr%

pgr%

pgr%

Notes:

  • The table should show performance information for five (or if performance information for fewer than five is available, all) complete 12-month periods, the most recent of which ends with the last full quarter preceding the date on which the firm first communicates or approves the financial promotion.
  • For products with performance data for fewer than five 12-month periods, firms should clearly indicate that performance data does not exist for the relevant periods.
  • No allowance should be made for tax recoveries on income for pension contracts, ISAs or PEPs.
  • pgr is the percentage growth rate for the year, where: pgr = ((P1 - P0)/PO)*100 and rounded to the nearest 0.1%, with exact 0.05% rounded to the nearest even 0.1%; and where P0 is the price at the start of the 12-month period and P1 is the price on the same day in the following 12-month period.
  • The prices should allow for any net distributions to be reinvested.
  • The price at P1 must be adjusted for any charges since the date of P0 which are based on a proportion of the fund and are levied by the cancellation of units.
  • The firm should use single pricing, or (if this is not available) bid to bid prices, unless the firm has reasonable grounds to be satisfied that another basis would better reflect the past performance of the fund.
COBS 4.6.4BGRP

  1. (1)

    The firm should present the information referred to in COBS 4.6.4 G no less prominently than any other past performance information.

  2. (2)

    This guidance does not apply to a prospectus, key investor information document4 or simplified prospectus drawn up in accordance with COLL.

COBS 4.6.5GRP

  1. (1)

    In relation to a packaged product (other than a scheme, a unit-linked life policy, unit-linked personal pension scheme or a unit-linked stakeholder pension scheme (that is not a unitised with-profits life policy or stakeholder pension scheme)), the information should be given on:

    1. (a)

      an offer to bid basis (which should be stated) if there is an actual return or comparison of performance with other investments; or

    2. (b)

      an offer to offer, bid to bid or offer to bid basis (which should be stated) if there is a comparison of performance with an index or with movements in the price of units; or

    3. (c)

      a single pricing basis with allowance for charges.

  2. (2)

    If the pricing policy of the investment has changed, the prices used should include such adjustments as are necessary to remove any distortions resulting from the pricing method.

Simulated past performance

COBS 4.6.6RRP

A firm must ensure that information that contains an indication of simulated past performance of relevant business, a relevant investment or a financial index, satisfies the following conditions:

  1. (1)

    it relates to an investment or a financial index;

  2. (2)

    the simulated past performance is based on the actual past performance of one or more investments or financial indices which are the same as, or underlie, the investment concerned;

  3. (3)

    in respect of the actual past performance, the conditions set out in paragraphs (1) to (3), (5) and (6) of the rule on past performance (COBS 4.6.2 R) are complied with; and

  4. (4)

    the information contains a prominent warning that the figures refer to simulated past performance and that past performance is not a reliable indicator of future performance.

[Note: article 27(5) of the MiFID implementing Directive]

Future performance

COBS 4.6.7RRP

  1. (1)

    A firm must ensure that information that contains an indication of future performance of relevant business, a relevant investment, a structured deposit or a financial index, satisfies the following conditions:

    1. (a)

      it is not based on and does not refer to simulated past performance;

    2. (b)

      it is based on reasonable assumptions supported by objective data;

    3. (c)

      it discloses the effect of commissions, fees or other charges if the indication is based on gross performance; and

    4. (d)

      it contains a prominent warning that such forecasts are not a reliable indicator of future performance.

  2. (2)

    Other than in relation to MiFID or equivalent third country business, this rule only applies to financial promotions that relate to a financial instrument (or a financial index that relates exclusively to financial instruments) or a structured deposit.

[Note: article 27(6) of the MiFID implementing Directive]

COBS 4.6.8GRP

A firm should not provide information on future performance if it is not able to obtain the objective data needed to comply with the rule on future performance. For example, objective data in relation to EIS shares may be difficult to obtain.

COBS 4.6.9RRP
  1. (1)

    1A firm that communicates to a client a projection for a packaged product which is not a financial instrument 2must ensure that the projection complies with the projections rules in COBS 13.4, COBS 13.5 and COBS 13 Annex 2.

    2
  2. (2)

    A firm must not communicate a projection for a highly volatile product to a client unless the product is a financial instrument.