1This chapter applies to a firm which:4

1. (a)

   4makes a personal recommendation to a retail client in relation to a designated investment;

2. (b)

   4manages investments of a retail client of the firm;

3. (c)

   4manages the assets of an occupational pension scheme, stakeholder pension scheme or personal pension scheme,4other than in relation to its MiFID, equivalent third country or optional exemption business or to an insurance-based investment product5.

If a firm to which this chapter applies5 makes a personal recommendation in relation to a stakeholder product5 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.

If the firm makes a personal recommendation to a professional client to take out a life policy which is not an insurance-based investment product5, this chapter applies, but4 only those rules which implemented6 the requirements of the IDD5.

1. (1)

   A firm must:3

   1. (a)

      take reasonable steps to ensure that a personal recommendation, or a decision to trade, is suitable for its client; and3

   2. (b)

      ensure that any life policy proposed is consistent with the client’s insurance demands and needs.3

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 the client and for a life policy, to propose a contract that is consistent with the client’s insurance demands and needs3.

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)

   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 a9pension 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 the12suitability 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.

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, personal pension scheme, stakeholder pension scheme or6 benefits in a defined contribution occupational pension scheme (unless otherwise falling in (1) above),6 five years; and

   225
3. (3)

   [deleted]5

4. (4)

   in any other case, three years.

A firm need not retain its records relating to suitability if the client does not proceed with the recommendation5

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

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 6.2B.38R5).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.

1. (1)

   6A firm providing basic advice on a stakeholder product that is a life policy must, in addition to providing the statement of demands and needs required under COBS 7.3.1R, provide the client with a personalised explanation of why a particular life policy would best meet the client’s demands and needs.

2. (2)

   The details must be modulated according to the complexity of the life policy proposed and the type of client.

3. (3)

   The information in (1) must be provided in accordance with COBS 7.4.

[Note: third paragraph of article 20(1) and 20(2) of the IDD]

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.