SIFA 9.13 Disclosing charges, remuneration & commission
Before you conduct business with or for private or retail customers, you must communicate in writing (COB 5.7.3 R (1)):
- the basis or amount of charges you will charge them for conducting the business; and
- the nature or amount of any other income you or your associate will receive.
'Associate' has a wide meaning and you should refer to the definition in the Handbook glossary.
Why do you have to disclose this information?
The purpose of this requirement is to ensure that you make each private or retail customer aware of the direct or indirect costs he will have to pay for financial services. This is so that they are in a better position to make informed choices (COB 5.7.2 G).
How do you disclose this information?
A firm may make the disclosures required by COB 5.7.3 R in its terms of business, in a client agreement, or in a separate written statement. Disclosure should include any product-related charges that are deducted from the private customer's investment. If the product is a packaged product, product-related charges and expenses will be disclosed in the key features document in line with COB 6.2 and COB 6.4.
If you are providing advice in connection with packaged products, you should - in line with COB 4.3.3 R - have given your customer a menu setting out the maximum rates of any fees or commissions which the firm may earn or retain in connection with the sale of packaged products. COB 5.7.3 R does not require any further disclosure of a firm's fees if, in line with COB 4.3.6 R, it has confirmed the exact amount or rate that it will charge.
In addition a private customer should be informed as soon as practicable of the exact rate or the exact amount in cash terms of any commission or equivalent which the firm will receive for a specific transaction. COB 5.7.5 R (2) sets out the circumstances when a firm is to be regarded as receiving commission equivalent.
Where are the relevant sections in the Handbook?
The following sections of the Handbook are relevant:
- the requirements in COB 5.7;
- key features requirements set out in COB 6.2 and COB 6.4, including disclosure of product charges; and
- disclosure of commission (or equivalent) for packaged products: COB 5.7.5 R.
Other considerations
If you conduct business on an execution-only basis for a packaged product, there are certain exceptions to the rules. Full details are can be found at COB 5.7.3 R (2). Any income receivable by an associate also needs to be disclosed.
COB 6.7 on Cancellation and Withdrawal applies to product providers and does not concern small advisory firms directly. The COB 6.7 rules vary depending on the product sold and hence advisers may find it useful to be aware of these rules in relation to the rights of their customers.
The following sections are also relevant: |
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'Clear, fair and not misleading' - Chapter 9.2 |
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'Inducements' - Chapter 9.4 |
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'Terms of business' - Chapter 9.6 |
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'Depolarisation' - Chapter 9.7 |
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'Excessive charges' - Chapter 9.12 |
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'Key features' - Chapter 9.15 |
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PRIN 2.1 in the Handbook |
If you do mortgage or general insurance business you should also refer to MOGI 2 and GIGI 3. |
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