COBS 6.3 Disclosing information about services, fees and commission – packaged products

1. (1)

   The rules referred to in (4) and (5) are derived from the Single Market directives and the Distance Marketing Directive. In the FSA's opinion, a firm will comply with them if it ensures that in good time before:

   1. (a)

      a retail client is bound by an agreement for the provision of a personal recommendation on packaged products; or

   2. (b)

      the firm performs an act preparatory to the provision of a personal recommendation;

   3. (c)

      in relation to the amendment of a life policy for that retail client, it gives a personal recommendation in relation to packaged products;

   its representative provides the client with an initial disclosure document or combined initial disclosure document and a menu.

2. (2)

   A firm should consider the extent to which it is appropriate to provide an initial disclosure document or a menu if the appropriate information has been given to the client on a previous occasion and the information is still accurate and appropriate for the client.

3. (3)

   A firm should provide the information required by this section in a durable medium.

4. (4)

   For the purposes of (1), provision of the menu will comply with:

   1. (a)

      (other than in relation to a personal pension deposit, SIPP or a personal pension product)the elements of the rule on summary disclosure of fees, commissions and non-monetary benefits (COBS 2.3.1R (2)(b), as qualified by COBS 2.3.2 R) that relate to disclosure of fees and commissions;

   2. (b)

      the rule on information about costs and charges (COBS 6.1.9 R) but only if the hourly rates indicated in the menu are actual hourly rates rather than indicative hourly rates

      .

5. (5)

   For the purposes of (1), provision of the initial disclosure document or, where applicable combined initial disclosure document, will comply with:

   1. (a)

      the rule on information disclosure before providing services (COBS 2.2.1R (1)(a));

   2. (b)

      the items of distance marketing information, set out in paragraphs (1), (2), (4), (5), (19) and (20) of COBS 5 Annex 1 R;

   3. (c)

      paragraphs (1) (so far as it relates to the firm's name and address), (4) and (6) of the rule on disclosure of information about a firm and its services (COBS 6.1.4 R);

   4. (d)

      the investor compensation scheme rule in COBS 6.1.16R (1) and (2); and

   5. (e)

      the rule on information to be provided by an insurance intermediary (COBS 7.2.1 R (1) and (2)).

Each of the initial disclosure document, combined initial disclosure document and menu that a firm provides to a client should be documents which the firm reasonably considers will be, or are likely to be, appropriate for the client having regard to the type of service which the firm may provide or business which the firm may conduct.

1. (1)

   A firm will satisfy the requirements as to timing in the rules referred to in COBS 6.3.3G (4) and (5) if its representative provides information to the client on first making contact with the client.2

2. (2)

   The menu is unlikely to be fair, clear and not misleading if a firm uses it for a service other than personal recommendations.2

1. (1)

   An initial disclosure document is a document that contains the Key facts logo, headings and text in the order shown in COBS 6 Annex 1 and in accordance with the Notes.

2. (2)

   A combined initial disclosure document is a document that contains the Key facts logo, headings and text in the order shown in COBS 6 Annex 2 and in accordance with the Notes.

A firm may include at the end of an initial disclosure document information the firm is required by COBS or by the rule on disclosing a tied agent's capacity (SUP 12.6.13 R) and which is not in the template for the initial disclosure document if the information would be sufficiently prominent. For example, a firm may wish to use the initial disclosure document the parts of the rule on information about the firm and its services (COBS 6.1.4 R) that would not otherwise be satisfied by providing the initial disclosure document.

Firms can obtain from the FSA website http://www.fsa.gov.uk a specimen of the initial disclosure document. A firm may produce its initial disclosure document by using its own house style and brand. Electronic tools to help firms to construct their own initial disclosure documents and menus are available from the FSA website.

1. (1)

   A menu is a document that contain the Key facts logo, heading and text in the order shown in COBS 6 Annex 3 and in accordance with the Notes.

2. (2)

   In order to be able to provide an accurate menu, a firm should maintain as many versions of the menu as are appropriate to the different bases on which it may conduct business with retail clients.

A firm may add text at the end of the menu that is designed to comply with the disclosure duties in:

1. (1)

   the rule on disclosure of fees, commissions and non-monetary benefits (COBS 2.3.1R (2)) to the extent the menu does not include that information in relation to the relevant product;

2. (2)

   the rule on costs and associated charges (COBS 6.1.9 R);

3. (3)

   the items of distance marketing information described in paragraphs (6), (8), (10) and (11) of COBS 5 Annex 1 R.

If a firm is asked to provide a menu by a person with whom the firm has had no prior contact it may provide the menu which is appropriate for its typical or most prevalent client type and the business it conducts with them.

A firm would be unlikely to comply with the client's best interests rule if the menu that it provided initially did not reflect relevant expected commission arrangements.

Long-term care and whole of life policies, for which the example given in the menu refers to the age of the policyholder, are deemed to have a term equal to the difference between the age of the policyholder (at the time that the policy is taken out) and the age of 85.

If a firm decides to provide a retail client with a personal recommendation on a type of packaged product which falls within a product group specified in Notes 14 or 19 to COBS 6 Annex 3 in relation to which the menu previously given to the client does not contain the information described in the menu, it should issue a new and appropriate menu to that client.

A firm should take reasonable steps to ensure that its representative providea copy of the appropriate range of packaged products to a client on the client's request.

1. (1)

   In accordance with the client's best interests rule and the fair, clear and not misleading rule, a firm which has started to provide a retail client with services in relation to packaged products following the provision of information on inducements required under COBS 2.3.1 R or a menu should not (at least until the completion of those services) arrange to retain any commission which exceeds the maximum amount or rate disclosed without first providing further appropriate inducements information or menu and obtaining the client's prior informed consent to the proposed alteration in a durable medium.

2. (2)
   1. (a)

      Paragraph (1) does not apply if, in relation to a life policy or a pension contract:

      1. (i)

         the maximum amounts or rates already disclosed to the client only apply to products of the example term or age of client given in the menu or2 other payment information 2or to products with shorter terms; and

      2. (ii)

         the firm arranges a product for a term longer than the example term (or longer than the term deemed for the example age given) and the increase in the commission which the firm arranges to retain over the maximum already disclosed is not more than an amount that is directly proportional to the increase in the duration of the term of the product (or to the term deemed from the age of client).

   2. (b)

      If requested by a client, a firm should explain the basis of the higher maximum commission or fees charged in accordance with (1).

In cases where firms make initial contact with a client on the telephone a firm may, in addition, have to take into account and comply with the requirements in this sourcebook applicable to the conclusion of distance contracts (see COBS 5).

1. (1)

   In accordance with the rule on information disclosure before providing services (COBS 2.2.1 R), if a firm's initial contact with a retail client with a view to providing a personal recommendation on packaged products is by telephone then the following information should be provided before proceeding further:

   1. (a)

      the name of the firm and, if the call is initiated by or on behalf of a firm, the commercial purpose of the call;

   2. (b)

      whether the firm offers packaged product from the whole market or from a limited number of companies or from a single company or single group of companies;

   3. (c)

      whether the firm will provide the client with a personal recommendation on packaged products;

   4. (d)

      that the client can request a copy of the appropriate range of packaged products;

   5. (e)

      whether the firm offers a fee-based service, a commission-based service, a service based on a combination of fee and commission, or a combination of these services, and the consequences for the client of proceeding with each type of service; and

   6. (f)

      that the information given under (a) to (e) will subsequently be confirmed in writing.

2. (2)

   If a firm's initial contact with a retail client is by telephone in circumstances in which the firm would otherwise provide an initial disclosure document, a menu or both, it should consider sending the client the document as soon as is reasonably practicable following the conclusion of the call.

The payments that the employee would have to pay could be:

1. (1)

   fees;

2. (2)

   commission;

3. (3)

   commission equivalent;

4. (4)

   a combination of the above.