SIFA 9.9 Suitability

The purpose of the Suitability section (COB 5.3) is that advisers take reasonable steps to ensure that any investment product they recommend is suitable for the customer's requirements. A firm must take reasonable steps to ensure that the advice on investments is suitable for the client. Any recommendation it makes must have regard to the facts the client disclosed and any other relevant facts about the client of which the firm is - or reasonably should be - aware (COB 5.3.5 R). The section applies to all investments, but only in relation to advice given to private customers. It does not generally apply to firms' direct offer financial promotions and does not apply to providing basic advice on a stakeholder product.

However you are reminded of the requirement in COB 3.9.6 R (Direct offer financial promotions: general requirements). Under this, if you issue a direct offer promotion, you must make it clear that if a private customer is in any doubt about the suitability of the agreement which is the subject of the promotion, they should seek advice.

If the recommendation relates to a packaged product, it must be the most suitable from the range of packaged products on which you give investment advice to the client. If there is no packaged product in the firm's relevant range of packaged products which is suitable for the client, you must not make a recommendation (COB 5.3.5 R (2)). However please see paragraph 9.9.4 below.

Following depolarisation firms have the opportunity to make out-of-range recommendations. COB 5.3.8A R sets out the procedure that must be followed when a firm wishes to go out of range. Before doing so a firm will want to consider whether its systems and controls and training and competence arrangements are adequate to enable it to go out of range and still comply with its regulatory obligations. COB 5.3.10A R sets out the requirements which whole-of-market advisers must follow if their recommendations are to be suitable.

COB 5.3.13 G lists where you can find the specific rules and guidance for firms in assessing the suitability of personal pensions and FSAVCs (relative to stakeholder pensions and AVCs), broker funds, pension transfers and opt-outs, hybrid products, industrial assurance policies, income withdrawals, ISA or PEP transfers and contracting out of the State Second Pension (formerly SERPS).

When a private customer decides to act on the investment advice given, your firm is required to provide them with a written explanation of why it has concluded that the transaction is suitable. This is commonly referred to as a 'suitability letter', but need not necessarily take the form of a letter. Whatever form it takes, it should explain simply and clearly why the recommendation is viewed as suitable having regard to the customer's personal and financial circumstances, needs and priorities, and attitude to risk. It should also contain a summary of the main consequences and any possible disadvantages of the transaction. It is also essential that a member of staff who is authorised to advise on the type of product being recommended signs the 'suitability letter' and accepts responsibility for the advice. Detailed guidance on the contents of suitability letters can be found in COB 5.3.30 G and there is additional information on our website.

The requirement for providing a suitability letter is listed at COB 5.3.14 R. The timing of when you must provide a suitability letter is at COB 5.3.18 R