1This chapter applies to a firm

which makes a personal recommendation in relation to a designated investment.32

If a firm makes a personal recommendation in relation to a stakeholder product, other than in the course of MiFID or equivalent third country business, it may choose to give basic advice under the rules in section 9.6 of this chapter instead of the rules in the remainder of this chapter.

This chapter applies to a firm which manages investments.

In respect of the business of a firm which is not MiFID or equivalent third country business, this chapter applies only if:

1. (1)

   the client is a retail client; or

2. (2)

   the firm is managing the assets of an occupational pension scheme, stakeholder pension scheme or personal pension scheme.

If the firm makes a personal recommendation to a professional client to take out a life policy, this chapter applies only those rules which implement the requirements of the Insurance Mediation Directive.

1. (1)

   A firm must take reasonable steps to ensure that a personal recommendation, or a decision to trade, is suitable for its client.

2. (2)

   When making the personal recommendation or managing his investments, the firm must obtain the necessary information regarding the client's:

   1. (a)

      knowledge and experience in the investment field relevant to the specific type of designated investment or service;

   2. (b)

      financial situation; and

   3. (c)

      investment objectives;

   so as to enable the firm to make the recommendation, or take the decision, which is suitable for him.

1. (1)

   A firm must obtain from the client such information as is necessary for the firm to understand the essential facts about him and have a reasonable basis for believing, giving due consideration to the nature and extent of the service provided, that the specific transaction to be recommended, or entered into in the course of managing:

   1. (a)

      meets his investment objectives;

   2. (b)

      is such that he is able financially to bear any related investment risks consistent with his investment objectives; and

   3. (c)

      is such that he has the necessary experience and knowledge in order to understand the risks involved in the transaction or in the management of his portfolio.

2. (2)

   The information regarding the investment objectives of a client must include, where relevant, information on the length of time for which he wishes to hold the investment, his preferences regarding risk taking, his risk profile, and the purposes of the investment.

3. (3)

   The information regarding the financial situation of a client must include, where relevant, information on the source and extent of his regular income, his assets, including liquid assets, investments and real property, and his regular financial commitments.

The information regarding a client’s knowledge and experience in the investment field includes, to the extent appropriate to the nature of the client, the nature and extent of the service to be provided and the type of product or transaction envisaged, including their complexity and the risks involved, information on:

1. (1)

   the types of service, transaction and designated investment with which the client is familiar;

2. (2)

   the nature, volume, frequency of the client’s transactions in designated investments and the period over which they have been carried out;

3. (3)

   the level of education, profession or relevant former profession of the client.

A firm must not encourage a client not to provide information for the purposes of its assessment of suitability.

A firm is entitled to rely on the information provided by its clients unless it is aware that the information is manifestly out of date, inaccurate or incomplete.

If a firm does not obtain the necessary information to assess suitability, it must not make a personal recommendation to the client or take a decision to trade for him.

1. (1)

   If a firm makes a personal recommendation or manages investments for a professional client in the course of MiFID or equivalent third country business, it is entitled to assume that, in relation to the products, transactions and services for which the professional client is so classified, the client has the necessary level of experience and knowledge for the purposes of COBS 9.2.2R (1)(c).

2. (2)

   If the service consists of making a personal recommendation to a per se professional client, the firm is entitled to assume that the client is able financially to bear any related investment risks consistent with his investment objectives for the purposes of COBS 9.2.2R (1)(b).

1. (1)

   When recommending a small friendly societylife policy, a firm, for the purpose of assessing suitability, need only obtain details of the net income and expenditure of the client and his dependants.

2. (2)

   A friendly societylife policy is small if the premium:

   1. (a)

      does not exceed £50 a year; or

   2. (b)

      if payable weekly, £1 a week.

3. (3)

   The firm must keep for five years a record of the reasons why the recommendation is considered suitable.

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 a pension transfer, pension conversion4 or pension opt-out.

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

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 EEA 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)

   to any personal recommendation by a friendly society for a small life policy sold by it with a premium not exceeding £50 a year or, if payable weekly, £1 a week;

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 concluded unless the necessary information is provided orally or immediate cover is necessary; or

2. (2)

   in the case of a personal pension scheme or stakeholder pension scheme, 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; or

3. (3)

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

If, in respect of a life policy, the firm gives necessary information orally or gives immediate cover, it must provide a suitability report to the client in a durable medium immediately after the contract is concluded.

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:

1. (1)

   comply with the distance marketing disclosure rules (COBS 5.1);

2. (2)

   be provided immediately after the conclusion of the contract; and

3. (3)

   be in a durable medium.

The suitability report must, at least:

1. (1)

   specify 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; and

3. (3)

   explain any possible disadvantages of the transaction for the client.

If a firm is providing a suitability report in the course of insurance mediation activity, the information must be provided:

1. (1)

   in a durable medium which is available and accessible to the client;

2. (2)

   in a clear and accurate manner, comprehensible to the client; and

3. (3)

   in an official language of the State of the commitment in which the contract of insurance is made or in any other language agreed by the parties.

A1firm must retain its records relating to suitability for a minimum of the following periods:

1. (1)

   if relating to a pension transfer, pension conversion, 4pension opt-out or FSAVC, indefinitely;

2. (2)

   if relating to a life policy,2personal pension scheme2or stakeholder pension scheme, five years;

3. (3)

   if relating to MiFID or equivalent third country business, five years; and

4. (4)

   in any other case, three years.

A firm need not retain its records relating to suitability if:

1. (1)

   the client does not proceed with the recommendation; and

2. (2)

   they do not relate to MiFID or equivalent third country business.

A firm is permitted to maintain more than one range of stakeholder products.1

A range of stakeholder products:1

1. (1)

   may include more than one deposit-based stakeholder product;1

2. (2)

   may include the stakeholder products of more than one stakeholder product provider;1

3. (3)

   must not include any more than one:1

   1. (a)

      CISstakeholder product or linked life stakeholder product; or1

   2. (b)

      stakeholder CTF; or1

   3. (c)

      stakeholder pension scheme.1

When a firm provides basic advice it must:1

1. (1)

   explain why it chose the stakeholder products and stakeholder product providers that appear in the relevant range; and1

2. (2)

   give the client a list of the stakeholder products and stakeholder product providers that appear in that range;1

if the client asks it do so.1

When a firm first has contact with a retail client with a view to giving basic advice on a stakeholder product, it must give the retail client:1

1. (1)

   the basic advice initial disclosure information (COBS 9 Annex 1), in a durable medium, together with an explanation of that information, unless:1

   1. (a)

      it has already done so and the basic advice initial disclosure information is likely still to be accurate and appropriate; or1

   2. (b)

      the contact is not face to face and is using a means of communication which makes it not practicable to provide the basic advice initial disclosure information in a durable medium; and1

2. (2)

   an explanation of how the advice will be paid for and the fact that any commission will be disclosed.1

For the purposes of GEN 5, a firm may not use the Key facts logo in relation to any document that is designed to comply with rules in COBS 9.6 or COBS 7 unless it is a services and costs disclosure document or a2combined initial disclosure document produced in accordance with the templates and notes in the annexes to COBS 6.1

If a firm's first contact with a retail client is not face to face, it must:1

1. (1)

   inform the client at the outset:1

   1. (a)

      (if the communication is initiated by or on behalf of a firm), of the name of the firm and the commercial purpose of the communication;1

   2. (b)

      [deleted]3

      3
   3. (c)

      that the firm will provide the retail client with basic advice without carrying out a full assessment of the retail client's needs and circumstances; and1

   4. (d)

      that such information will be confirmed in writing; and1

2. (2)

   (if not provided at first contact) send the client the basic advice initial disclosure information (COBS 9 Annex 1) in a durable medium as soon as reasonably practicable following the conclusion of the first contact;13

3. (3)

   3(unless the relevant product is a deposit-based stakeholder product) if the contact is by spoken interaction, provide the client with the disclosure required by the rules on additional oral disclosure for firms providing restricted advice (COBS 6.2A.9 R).3

When a firm gives basic advice, it must do so using:1

1. (1)

   a single range of stakeholder products; and1

2. (2)

   a sales process that includes putting pre-scripted questions to the client.1

When a firm gives basic advice it must not:1

1. (1)

   describe or recommend a stakeholder product outside the firm'srange; or1

2. (2)

   describe or recommend a smoothed linked long term stakeholder product; or1

3. (3)

   describe fund choice, or recommend a particular fund, if a stakeholder product offers a choice of funds; or1

4. (4)

   recommend the level of contributions required to be made to a stakeholder pension scheme to achieve a specific income in retirement; or1

5. (5)

   recommend or agree that a client makes a contribution to an ISA which exceeds the HM Revenue & Customs ISA limits.1

1. (1)

   If a firm starts the sales process for a stakeholder product that is not a deposit-based stakeholder product, it must not depart from that process unless it has advised the retail client that it will not provide basic advice on stakeholder products during the period of departure. A firm that does that must not provide basic advice during the departure period.1

2. (2)

   Before a firm returns to the sales process for stakeholder products, it must tell the retail client that that process is about to recommence.1

1A firm must only recommend a stakeholder product to a retail client if:

1. (1)

   it has taken reasonable steps to assess the client's answers to the scripted questions and any other facts, circumstances or information disclosed by the client during the sales process;

2. (2)

   (unless the relevant product is a deposit-based stakeholder product) having done so, it has reasonable grounds for believing that the stakeholder product is suitable for the client; and

3. (3)

   the firm reasonably believes that the client understands the firm's advice and the basis on which it was provided.

1If a firm giving basic advice recommends to a retail client to acquire a stakeholder product, it must ensure that, before the conclusion of the contract, its representative:

1. (1)

   (unless the relevant product is a deposit-based stakeholder product) explains to the client, if necessary in summary form, but always in a way that will allow the client to make an informed decision about the firm's recommendation:

   1. (a)

      the nature of the stakeholder product; and

   2. (b)

      the "aims", "commitment" and "risks" sections of the appropriate key features document;

2. (2)

   provides the client with a summary sheet, which is in a durable medium and sets out, for each product it recommends:

   1. (a)

      the specific amount the client wishes to pay into the product; and

   2. (b)

      the reasons for the recommendation, including the client's attitude to risk and any information provided by the client on which the recommendation is based; and

3. (3)

   informs the client that in determining any subsequent complaint, the Ombudsman may take into account the limited information on which the recommendation was based and the fact that it was not tailored to take account of those aspects of the client's financial needs and circumstances not covered by the firm's sales process.

1Notwithstanding COBS 9.6.14R (2) a firm may provide the summary sheet (COBS 9.6.14R (2)) as soon as reasonably practicable after the conclusion of the contract if the client asks it to do so, or the contract will be concluded using a means of distance communication that does not enable the provision of the summary sheet in a durable medium before the conclusion of the contract, but only if the firm:

1. (1)

   reads the summary sheet to the client before it concludes the contract; and

2. (2)

   sends the summary sheet to the client as soon as practicable after the conclusion of the contract.

1If a firm concludes a contract for a stakeholder product with or for a retail client it must provide a copy of the completed questions and answers to the client in a durable medium as soon as reasonably practicable afterwards.

1. (1)

   [deleted]3

   3
2. (2)

   When a firm provides basic advice on a stakeholder product, it3 may use the facilities and stationery it uses for other business in respect of which it does hold itself out as acting or advising independently.

   33

1A firm must ensure that none of its representatives:

1. (1)

   is likely to be influenced by the structure of his or her remuneration to give unsuitable basic advice on stakeholder products to a retail client; or

2. (2)

   refers a retail client to another firm in circumstances which would amount to the provision of any fee, commission or non-monetary benefit.

1A firm must record that it has chosen to give basic advice to a retail client and make a record of the range used and the summary sheet (COBS 9.6.14R (2)) prepared for each retail client. That record must be retained for at least five years from the date of the relevant basic advice.

1. (1)

   1A firm must make an up-to-date record of:

   1. (a)

      its scope of basic advice, and the scope of basic advice used by its appointed representatives (if any); and

   2. (b)

      its range (or ranges) of stakeholder products, and the range (or ranges) used by its appointed representatives (if any).

2. (2)

   Those records must be retained for five years from the date on which they are replaced by a more up-to-date record.