COBS 9.4 Suitability reports

1A firm must provide a suitability report to a retail client if the firm makes a personal recommendation to the client and the client:

1. (1)

   acquires a holding in, or sells all or part of a holding in:

   1. (a)

      a regulated collective investment scheme;

   2. (b)

      an investment trust where the relevant shares have been or are to be acquired through an investment trust savings scheme;

   3. (c)

      an investment trust where the relevant shares are to be held within an ISA which has been promoted as the means for investing in one or more specific investment trusts; or

      2
2. (2)

   buys, sells, surrenders, converts or cancels rights under, or suspends contributions to, a personal pension scheme or a stakeholder pension scheme; or

3. (3)

   elects to make income withdrawals, an uncrystallised funds pension lump sum payment6 or purchase a short-term annuity; or

4. (4)

   enters into a9 pension opt-out.

   4

If a firm makes a personal recommendation in relation to a life policy, it must provide the client with a suitability report.

1. (1)

   If a firm makes a personal recommendation in relation to a pension transfer or pension conversion, it must provide:11

   1. (a)

      the client with a suitability report; and11

   2. (b)

      (except where the only safeguarded benefit involved is a guaranteed annuity rate) a one page summary at the front of the12 suitability report.11

The obligation to provide a suitability report does not apply:

1. (1)

   if the firm, acting as an investment manager for a retail client, makes a personal recommendation relating to a regulated collective investment scheme;

2. (2)

   if the client is habitually resident outside the United Kingdom10 and the client is not present in the United Kingdom at the time of acknowledging consent to the proposal form to which the personal recommendation relates;

3. (3)

   [deleted]8

4. (4)

   if the personal recommendation is to increase a regular premium to an existing contract;

5. (5)

   if the personal recommendation is to invest additional single premiums or single contributions to an existing packaged product to which a single premium or single contribution has previously been paid.

A firm must provide the suitability report to the client:

1. (1)

   in the case of a life policy, before the contract is concluded8;

2. (2)

   in the case of a personal pension scheme or stakeholder pension scheme that is not a life policy8, where the rules on cancellation (COBS 15) require notification of the right to cancel, no later than the fourteenth day after the contract is concluded;11

3. (2A)

   in the case of a pension transfer or pension conversion, in good time before the transaction is effected; or 11

4. (3)

   in any other case, when or as soon as possible after the transaction is effected or executed.

In the case of telephone selling of a life policy, when the only contact between a firm and its client before conclusion of a contract is by telephone, the suitability report must be given in accordance with COBS 7.4.8

The suitability report must, at least:

1. (1)

   specify, on the basis of the information obtained from the client,8 the client's demands and needs;

2. (2)

   explain why the firm has concluded that the recommended transaction is suitable for the client having regard to the information provided by the client; 8

3. (3)

   explain any possible disadvantages of the transaction for the client; and8

4. (4)

   in the case of a life policy, include a personalised recommendation explaining why a particular life policy would best meet the client’s demands and needs.8

8A firm must ensure the details are modulated according to the complexity of the transaction or the proposed contract of insurance and the type of client.

[Note: article 20(2) of the IDD8]

8Where a friendly society has given a personal recommendation on a small life policy in COBS 9.2.9R(2), the suitability report must include, at least, the information required by COBS 9.4.7R(1) and (4).[Note: first and third paragraphs of article 20(1) of the IDD]

If a firm is providing a suitability report in the course of insurance distribution activity8, the information must be in accordance with COBS 7.4.8

1. (1)

   11A firm must include a one page summary at the front of the suitability report when making a personal recommendation in relation to a pension transfer or a pension conversion, except where the only safeguarded benefit involved is a guaranteed annuity rate.

2. (2)

   The one page summary must include the following:

   1. (a)

      a summary of the personal recommendation;

   2. (b)

      a statement as to whether the recommendation is in relation to abridged advice or full pension transfer or conversion advice;

   3. (c)

      information about the ongoing advice and/or services (if any) the firm, or any other person, proposes to provide to the client after the execution of the pension transfer or pension conversion;

   4. (d)

      the risks associated with pension transfers or pension conversions as set out in COBS 19.1.6G(4)(b), and an invitation to the client to consider whether they fully understand those risks and, if so, sign the one page summary to confirm that;

   5. (e)

      all of the ongoing advice charges, all other ongoing charges and any additional charges expected to be incurred by the client if they proceed with the pension transfer or pension conversion, together with a comparison to the charges and revalued monthly income in the ceding arrangement and to the charges in any default arrangement in any available qualifying scheme; and

   6. (f)

      information about the amounts payable (in cash terms) in relation to the initial advice on the pension transfer or pension conversion, and the number of months (rounded up to the nearest whole month) it would take to pay that amount out of the revalued monthly income the client would receive from the ceding arrangement.

3. (3)

   Where the firm only gave abridged advice:

   1. (a)

      the information in (2)(c), (d) and (e) is not required;

   2. (b)

      the information in (2)(f) must clearly state that this is only relevant if the client wishes to obtain full pension transfer or conversion advice; and

   3. (c)

      the one page summary must also set out:

      1. (i)

         that the firm has not given full pension transfer or conversion advice, and provide a summary of the difference between it and abridged advice; and

      2. (ii)

         that where the full pension transfer or conversion advice is within the scope of the requirement in section 48 of the Pension Schemes Act 2015, no firm can arrange a pension transfer or a pension conversion unless the client receives full pension transfer or conversion advice.

4. (4)

   The summary in (2)(a) must:

   1. (a)

      set out whether the recommendation is to effect a pension transfer or pension conversion or to remain in the client’s current scheme or arrangement;

   2. (b)

      set out where in the suitability report the client can obtain a more detailed explanation of the recommendation;

   3. (c)

      invite the client to consider whether they accept or do not accept the recommendation and, if so, sign the one page summary to confirm that; and

   4. (d)

      where the firm provides full pension transfer or conversion advice and any advice on investments (whether by the firm or any other person) in connection with the pension transfer or pension conversion, set out the summary of the advice given by the firm and/or any other person for both services.

5. (5)

   The information in (2)(c) must:

   1. (a)

      set out that the client is not required to accept ongoing advice and/or services proposed (if any);

   2. (b)

      explain that the client can opt out of receiving ongoing advice and/or services at any time;

   3. (c)

      set out, in cash terms, the monthly and annual charges associated with receiving ongoing advice and/or services whether by the firm or any other person;

   4. (d)

      where the firm proposes that it or another firm offers ongoing advice and/or services to the client, invite the client to consider whether they wish to receive this ongoing advice and/or services proposition, and whether they agree to the associated charges, and if so, sign the one page summary to consent to receiving the ongoing advice and/or12 services,12 and agree to the associated12 charges; and

   5. (e)

      where the client declines to sign the one page summary for any of the proposals in (d), set out that the client is not required to accept ongoing advice and/or services, and explain that additional charges and/or other amounts may be payable by the client if they wish to receive ongoing advice and/or services from another person.

6. (6)

   The summary of the anticipated charges associated with the pension transfer or pension conversion in (2)(e) must include the anticipated first-year charges after the pension transfer or pension conversion and be set out:

   1. (a)

      in cash terms;

   2. (b)

      alongside any charges associated with the client’s ceding arrangement (and presented as nil if there are no charges); and

   3. (c)

      alongside any charges associated with any default arrangement in any qualifying scheme available to the client, if the client chose to transfer to that scheme.

7. (7)

   The revalued monthly income in the ceding arrangement referred to in (2)(e) must:

   1. (a)

      (where the client has not passed the normal retirement age) be calculated by:

      1. (i)

         revaluing the future income benefits to the date the client12 would normally be paid in accordance with COBS 19 Annex 4B 1R(1)(1); and

      2. (ii)

         discounting the value of the future income benefits to the calculation date in accordance with the assumption in COBS 19 Annex 4C 1R(4)(d);

   2. (b)

      (where the client has passed the normal retirement age) be calculated in line with the current income in the ceding arrangement.