7 - advising + selling standards

what does this section relate to

what u say to the client to advise them once you have them

includes:

• investment advice

• personal recommendation

• managing a client’s investments

how do we know if the recommendations are suitable

they must meet the client’s needs

how do we know if we have met the client’s needs

take into account:

• knowledge + experience

• financial situation

• investment objectives

which one of these 3 applies only to retail clients

considering knowledge + experience (its assumed for all PCs)

what about the other two

they are assumed for per se PCs, but not electives

what about ECs

they get none of that

what is a suitability report

a report you give to retail clients when we have input in their finances

4 situations when you must give a client a suitability report

if the client…

• acquires/sells all or part of a holding in a regulated CIS

• buys/sells/surrenders/cancels rights under a pension

• makes income withdrawals from/purchases a short term annuity

• enters into a pension transfer or opt-out

who extended the requirements

MiFID II

who did it extend the requirements to

retail clients in relation to:

• equities

• derivatives

• structured products

• unregulated CISs

when must a suitability report be done for a life policy

before the contract is concluded

what’s the exception to this

if information is provided orally or cover is required immediately

in that case the report should be immediately after the contract is concluded

when should a suitability report for pensions be don

within 14 days of concluding the contract

what is churning + switching

churning = overtrading investments

switching = switching one product for another

both generate commission, which is why a firm might do it

why is churning + switching bad

the transactions might look suitable in isolation but happening so frequently they might be detrimental to the client

is churning + switching banned

no its just a guidance that its bad

what does it depend on then as to whether one should stop churning + switching

depends on…

• clients investment strategy

• if u are actually making bare money for the client

always client first

what is the difference between appropriateness + suitability

suitability = when we have input

appropriateness = no input from the firm, just execution (no advising)

when do we need to have appropriateness assessed

• execution only services provided to clients

• derivatives or warrants for retail clients

how do you assess appropriateness

firm must ask client about their knowledge + experience

what is included in knowledge + experience

• types of service/transaction/investment they r familiar with

• volume, frequency + length of investment

• education/work experience levels

when must a client be warned

if…

• you think the product is not appropriate

• the client declines to provide the info u asked for

how should the warning be kept

in writing (durable medium)

when is assessment UNnecessary

when you are dealing with…

• listed shares

• debt securities (no derivative involved)

• UCITS funds —> already very regulated

or anything else that is liquid, non-derivative, not a contingent liability, has lots of info available

what is a contingent liability

where u can lose more than u invested