COBS 6.1A Adviser charging and remuneration

1. (1)

   1This section applies to a firm which makes personal recommendations to retail clients in relation to retail investment products, pension transfers, pension conversions, pension opt-outs 1912or P2P agreements.

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2. (2)

   This section does not apply to a firm giving advice, or providing services, to an employer in connection with a group personal pension scheme or group stakeholder pension scheme.2

This section does not apply to a firm when it gives basic advice in accordance with the basic advicerules.

4This section does not apply to a firm when it makes a personal recommendation to a retail client in relation to a Holloway sickness policy, provided that the Holloway policy special application conditions are met.

This section does not apply if the retail client is outside the United Kingdom except to the extent that the service provided is advising on conversion or transfer of pension benefits19.

Except as specified in this section,19 a firm must:

1. (1)

   only be remunerated for the personal recommendation (and any other related services provided by the firm) by adviser charges; and

2. (2)

   not solicit or accept (and ensure that none of its associates solicits or accepts) any other commissions, remuneration or benefit of any kind in connection with the firm’s business of advising16 or any other related services16, regardless of whether it intends to refund the payments or pass the benefits on to the retail client; and

3. (3)

   not solicit or accept (and ensure that none of its associates solicits or accepts) adviser charges in relation to the retail client'sretail investment product or P2P agreement12which are paid out or advanced by another party over a materially different time period, or on a materially different basis, from that in or on which the adviser charges are recovered from the retail client.

6A firm and its associates may:

1. (1)

   solicit and accept a commission, remuneration or benefit of any kind in the circumstances set out in COBS 6.1A.4 R if:

   1. (a)

      the personal recommendation was made on or before 30 December 2012;

   2. (b)

      the solicitation and acceptance of the commission, remuneration or benefit of any kind was permitted by the rules in force on 30 December 2012;

   3. (c)

      the contract under which the right to receive the commission, remuneration or benefit of any kind was entered into on or before 30 December 2012;

   4. (d)

      the terms of that contract as at 30 December 2012 included the right to receive the commission, remuneration or benefit of any kind; and

   5. (e)

      the retail client enters into the transaction in respect of which the personal recommendation was given within a reasonable time of the personal recommendation being given; and

2. (2)

   enter into an arrangement under which the right to receive the commission, remuneration or benefit of any kind in (1) is transferred to that firm or its associate.

11A firm and its associates may solicit and accept a commission, remuneration or benefit of any kind from a discretionary investment manager in the circumstances in COBS 6.1A.4 R if:

1. (1)

   the firm or its associates recommended the discretionary investment manager to a retail client on or before 30 December 2012;

2. (2)

   the solicitation and acceptance of the commission, remuneration or benefit of any kind was permitted by the rules in force on 30 December 2012;

3. (3)

   the contract under which the right to receive the commission, remuneration or benefit of any kind was entered into on or before 30 December 2012;

4. (4)

   the terms of that contract as at 30 December 2012 included the right to receive the commission, remuneration or benefit of any kind; and

5. (5)

   the retail client agreed an investment mandate with the discretionary investment manager within a reasonable time of the recommendation to use the discretionary investment manager being made.

6If a retail client chooses to become a client of a firm and that firm or its associate enters into an arrangement in COBS 6.1A.4AR (2), the firm must:

1. (1)

   before the arrangement is entered into, disclose to the retail client that the transfer of the commission, remuneration or benefit of any kind will be requested by the firm or its associate;

2. (2)

   throughout the period during which the firm or its associate receives the commission, remuneration or benefit of any kind, provide the retail client with an ongoing service; and

3. (3)

   as soon as reasonably practicable after it makes the disclosure in (1):

   1. (a)

      disclose to the retail client, as a cash amount or percentage of funds under management, the amount of the commission, remuneration or benefit of any kind it expects to receive and any it has received; and

   2. (b)

      provide the retail client with a description of the ongoing service it will provide to the retail client in accordance with (2).

19A firm may receive an employer or trustee funded pension advice charge.

1. (1)

   15For the purposes of COBS 6.1A.4R(2), a firm or its associate may solicit or accept minor non-monetary benefits which meet the requirements of:

   1. (a)

      COBS 2.3A.15R, in relation to the provision of investment services; or

   2. (b)

      paragraph (2)17, in relation to other business.

2. (2)

   An acceptable minor non-monetary benefit is one which:

   1. (a)

      is clearly disclosed prior to the provision of the relevant service to the client, which the firm may describe in a generic way;

   2. (b)

      is capable of enhancing the quality of service provided to the client;

   3. (c)

      is of a scale and nature that it could not be judged to impair the firm’s compliance with its duty to act honestly, fairly and professionally in the best interests of the client;

   4. (d)

      is reasonable, proportionate and of a scale that is unlikely to influence the firm’s behaviour in any way that is detrimental to the interests of the relevant client; and

   5. (e)

      consists of:

      1. (i)

         information or documentation relating to a specific retail investment product or a service provided in the course of carrying on related designated investment business, that is generic in nature or personalised to reflect the circumstances of an individual client;

      2. (ii)

         written material from a third party that is commissioned and paid for by a corporate issuer or potential issuer to promote a new issuance by the company, or where the third party firm is contractually engaged and paid by the issuer to produce such material on an ongoing basis, provided that the relationship is clearly disclosed in the material and that the material is made available at the same time to any firms wishing to receive it, or to the general public;

      3. (iii)

         participation in conferences, seminars and other training events on the benefits and features of a specific retail investment product or a service provided in the course of carrying on related designated investment business; and

      4. (iv)

         hospitality of a reasonable de minimis value, such as food and drink during a business meeting or a conference, seminar or other training events mentioned under (iii).

      5. (v)

         research relating to an issue of shares, debentures, warrants or certificates representing certain securities by an issuer, which is:

         1. (A)

            produced:

            (1) prior to the issue being completed; and

            (2) by a person that is providing underwriting or placing services to the issuer on that issue; and

         2. (B)

            made available to prospective investors in the issue; or

      6. (vi)

         research that is received so that the firm may evaluate the research provider’s research service, provided that:

         1. (A)

            it is received during a trial period that lasts no longer than three months;

         2. (B)

            no monetary or non-monetary consideration is due (whether during the trial period, before or after) to the research provider for providing the research during the trial period;

         3. (C)

            the trial period is not commenced with the research provider within 12 months from the termination of an arrangement for the provision of research (including any previous trial period) with the research provider; and

         4. (D)

            the firm makes and retains a record of the dates of any trial period accepted under this rule, as well as a record of how the conditions in (A) to (C) were satisfied for each such trial period.

7‘Related service(s)’ for the purposes of COBS 6.1A includes:

1. (1)

   arranging or executing a transaction which has been recommended to a retail client by the firm, an associate or another firm in the same group or conducting administrative tasks associated with that transaction; or

2. (2)

   managing a relationship between a retail client (to whom the firm provides personal recommendations on retail investment products, pension transfers, pension conversions, pension opt-outs19 or P2P agreements) 12and a discretionary investment manager or providing a service to such a client in relation to the investments managed by such a manager; or7

3. (3)

   7recommending a discretionary investment manager to a retail client (to whom the firm provides personal recommendations or other services in relation to11retail investment products, pension transfers, pension conversions, pension opt-outs19 or P2P agreements).12

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If the firm or its associate is the retail investment product provider, platform service provider14 or operator of an electronic system in relation to lending12, the firm must ensure that the level of its adviser charges is at least reasonably representative of the cost of the14 services associated with making the personal recommendation (and related services).

A firm must determine and use an appropriate charging structure for calculating its adviser charge for each retail client.

A firm must not use a charging structure which conceals the amount or purpose of any of its adviser charges from a retail client.

9A firm must not make a personal recommendation to a retail client in relation to a retail investment product or P2P agreement12if it knows, or ought to know, that:

1. (1)

   the product’s charges,12 the platform service provider's charges or the operator of the electronic system in relation to lending’s charges 12are presented in a way that offsets or may appear to offset any adviser charges or platform charges that are payable by that retail client; or

2. (2)

   the product’s charges or other payments are maintained by the retail investment product provider or operator of the electronic system in relation to lending12at a level such that a cash rebate, other than a cash rebate permitted by COBS 6.1B.7A R or10COBS 6.1E.10R (2), is payable to the retail client.

A firm must disclose its charging structure to a retail client in writing, in good time before making the personal recommendation (or providing related services) or commencement of the abridged advice process19.

1. (1)

   19Where the services to be provided in COBS 6.1A.17R include full pension transfer or conversion advice (other than where the only safeguarded benefit involved is a guaranteed annuity rate), the disclosure required under COBS 6.1A.17R must include a personalised charges communication.

2. (2)

   The personalised charges communication in (1) must include the following:

   1. (a)

      the expected amounts payable (in cash terms) for the full pension transfer or conversion advice, and, where applicable, any advice on investments (whether by the firm or any other firm) in connection with the retail client’s pension transfer or pension conversion;

   2. (b)

      where the firm is subject to the ban on contingent charging rules (see COBS 19.1B) (Ban on contingent charging)) because the client does not fall within one of the exceptions in COBS 19.1B.9R, a statement that the amount of charges payable in relation to full pension transfer or conversion advice is the same whether or not the advice is to transfer or convert or to remain in their ceding arrangement;

   3. (c)

      the estimated amount of the monthly charge (in cash terms) for ongoing advice and/or services (whether provided by the firm or any other firm) in the first year following the transfer or conversion, assuming that funds remain invested with no growth but taking into account the cost of initial advice;

   4. (d)

      whether and the extent to which the charges in the first year are lower than the charges anticipated in subsequent years;

   5. (e)

      if the charges are significantly lower in the first year compared to subsequent years, the firm must indicate the amount of the monthly charge (in cash terms) in subsequent years until the point at which the charges are no longer expected to vary significantly from year to year; and

   6. (f)

      where relevant, a statement that the expected amounts payable in (a) do not include any amounts that may be payable by the client for any related advice or services they may receive that fall outside the UK regulatory regime.

3. (3)

   Where the firm (or any other firm) offers different types of ongoing advice and/or services with different charging structures, the firm must include in the personalised charges communication, the charges for each type of ongoing advice and/or service it offers.

4. (4)

   Where a firm has reasonable grounds to believe that it is not subject to the ban on contingent charging rules (see COBS 19.1B) because the client falls within one of the exceptions in COBS 19.1B.9R:

   1. (a)

      the reasons why the firm considers that the client falls within one of the exceptions, and including a description of the evidence relied on by the firm in support;

   2. (b)

      the amounts payable (in cash terms) if the firm’s recommendation is for the client not to transfer or not to convert their pension, and the amounts payable (including any amounts recoverable by the firm (or any other firm) as part of ongoing charges) if the advice is to transfer or to convert; and

   3. (c)

      a statement that:

      1. (i)

         the reasons set out in (4a) may change after further analysis of the client’s circumstances; and

      2. (ii)

         if after further analysis of the client’s circumstances, the firm determines that it is subject to the ban on contingent charging rules because the client does not fall within one of the exceptions in COBS 19.1B.9R, then the amount of charges payable in relation to full pension transfer or conversion advice is the same whether or not the advice is to transfer or convert or to remain in their ceding arrangement.

19Where the services to be provided in COBS 6.1A.17R include abridged advice, the firm must disclose to the client in writing the amounts payable (in cash terms) in each of the following situations:

1. (1)

   the firm gives abridged advice and a personal recommendation not to transfer or convert their pension;

2. (2)

   the firm starts the abridged advice process but is unable to take a view on whether it is in the client’s best interests to transfer or convert without undertaking full pension transfer or conversion advice; and

3. (3)

   the firm gives abridged advice followed by full pension transfer or conversion advice .

A firm must not use an adviser charge which is structured to be payable by the retail client over a period of time unless (1) or (2) applies:

1. (1)

   the adviser charge is in respect of an ongoing service for the provision of personal recommendations or related services and:

   1. (a)

      the firm has disclosed that service along with the adviser charge; and6

   2. (b)

      the retail client is provided with a right to cancel the ongoing service, which must be reasonable in all the circumstances, without penalty and without requiring the retail client to give any reason; or6

2. (2)

   the adviser charge relates to a retail investment product or a pension transfer, pension conversion or pension opt-out19 or arrangement with an operator of an electronic system in relation to lending12 for which an instruction from the retail client for regular payments is in place and the firm has disclosed that no ongoing personal recommendations or service will be provided.3

6If a retail client exercises his right to cancel an ongoing service, the firm must clearly disclose to the retail client whether charges for other services provided by the firm, such as custody services, will continue to be payable by the retail client.

If COBS 6.1A.22R(1) or (2) do not apply, a firm may not offer credit to a retail client for the purpose of paying adviser charges unless this would be in the best interests of the retail client.

1. (1)

   A firm must agree with and disclose to a retail client the total adviser charge payable to it or any of its associates by a retail client.

2. (2)

   A disclosure under (1) must:

   1. (a)

      be in cash terms19 (or convert non-cash terms into illustrative cash equivalents);

   2. (b)

      be as early as practicable;

   3. (c)

      be in a durable medium or through a website (if it does not constitute a durable medium) if the website conditions are satisfied; and

   4. (d)

      if there are payments over a period of time, include the amount and frequency of each payment due, the period over which the adviser charge is payable and the implications for the retail client if the retail investment product or arrangement with the operator of an electronic system in relation to lending12is cancelled before the adviser charge is paid and, if there is no ongoing service, the sum total of all payments.

A firm must keep a record of:

1. (1)

   its charging structure;

2. (2)

   the total adviser charge payable by each retail client; and

3. (3)

   if the total adviser charge paid by a retail client has varied materially from the charge indicated for that service in the firm's charging structure, the reasons for that difference.