COBS 6.2 Describing the breadth of a firm's personal recommendations

Under the territorial application rules in COBS 1, the rules in this section apply to:

1. (1)

   a UK firm's business carried on from an establishment in an EEA State other than the United Kingdom for a retail client in the United Kingdom unless, the office from which the activity is carried on were a separate person, the activity:

   1. (a)

      would fall within the overseas persons exclusion in article 72 of the Regulated Activities Order; or

   2. (b)

      would not be regarded as carried on in the United Kingdom;

2. (2)

   a firm's business carried on from an establishment in the United Kingdom carried on for a client in another EEA state.

A firm's scope of advice relates to the product providers whose products it sells. Its range relates to which products from those providers it sells.

A firm may operate on the basis of recommending only a subset of the packaged products (its range) selected from the product providers within its scope.

In order to comply with the rule on information disclosure before providing services (COBS 2.2.1R (1)(a)) and, if applicable, the rule on information to be provided by an insurance intermediary (COBS 7.2.1 R (2)) a firm's disclosures to a client should include whether it expects its scope to be:

1. (1)

   the whole of the market;

2. (2)

   limited to several product providers;

3. (3)

   limited to a single product provider.

In order to comply with the rule on providing the details of insurance undertakings (COBS 7.2.1 R (3)) a firm should make a record appropriate for distribution to a client of the names of the insurance undertakings with which the firm conducts, or may conduct, business.

1. (1)

   If a firm holds itself out as independent or as otherwise giving personal recommendations to retail clients on packaged products from the whole market (or the whole of any sector of that market), the firm's selection for this purpose will need to be sufficiently large to satisfy the client's best interests rule and the fair, clear and not misleading rule.

2. (2)

   A firm that gives personal recommendations on packaged products from the whole of a sector of the market may hold itself out as giving personal recommendations from the whole of that sector.

A firm may use "panels" of product providers which are sufficient for the purpose of giving recommendations from the whole market and which are reviewed on a regular basis. A firm which provides personal recommendations from the whole market should ensure that its analysis of the market and the available packaged products is kept adequately up to date.

In accordance with the client's best interests rule and the fair, clear and not misleading rule, a firm should not describe its services to a retail client as being based on a particular scope of advice and range unless its business processes are designed to ensure that:

1. (1)

   its representatives consider, based on adequate knowledge, products from across that scope and range before making a personal recommendation;

2. (2)

   it does not recommend products that are not in its scope or range;

3. (3)

   each of its representatives who advise on packaged products is able to recommend and sell each product within the relevant range. However it may use a representative who is not competent to advise on and sell a product or category of product within the range if it:

   1. (a)

      prevents that representative from recommending that product or category of product; and

   2. (b)

      ensures that if a product ought to be recommended to a client, that client is referred to a representative that is competent to recommend it;

4. (4)

   it does not narrow the scope it provides to a client compared with the scope it has disclosed to that client;

5. (5)

   it does not alter the scope or range (where permitted under (4)) compared to the scope it has disclosed to a retail client without making a subsequent disclosure of its scope or range with appropriate content, presented with sufficient prominence, and in an appropriate format; and

6. (6)

   it does not extend the scope or range in a way that materially alters its remuneration arrangements unless it provides to the client new and appropriate information on inducements, costs and charges (a firm may do this by providing a further services and costs disclosure document or combined initial disclosure document).3

   333

In the case of a firm whose only scope is the selection of packaged products from the whole of the market (or from the whole of a sector of the market), it will be sufficient if the firm's record simply confirms that the personal recommendations it provides are given on this basis (and in the case of a firm which provides personal recommendations on the whole of a sector of the market, confirms the nature and parameters of that sector).

In determining the remuneration structure of its representatives, a firm should manage any tensions between its obligations to its clients and the personal interests of its representatives (see SYSC 3A.6.2 G and SYSC 10.1.3 R).

A firm that carries on business in relation to a combination of2 packaged products, regulated mortgage contracts and home reversion plans can do so in relation to the whole market and therefore be "independent" for one but offer only a limited service for the others. If this is the case, the firm should explain the different nature of the services in a way which complies with the fair, clear and not misleading rule. (See also MCOB.)

The rule on independence means that a firm wishing to hold itself out as independent will need to give clients a purely fee based option for paying for its services. Such a fee may be offered on a contingent basis so that it does not become payable if the client does not acquire a product. A firm offering a fee-based service may, in addition, provide the client with other payment options, such as by commission, or by a combination of fee and commission.

A firm that holds itself out as independent should consider whether any ownership by it of shares in a product provider or by a product provider in it, or any loan agreements with a product provider, should be disclosed in order to meet the fair, clear and not misleading rule.