Information about the firm, its services and remuneration

Part

COBS Conduct of Business Sourcebook

Chapter

Information about the firm, its services and remuneration

Printed on: 06/11/2024

Rulebook at: 05/02/2008

COBS 6

Information about the firm, its services and remuneration

COBS 6.1

Information about the firm and compensation information

01/11/2007

Application

COBS 6.1.1

(1) This section applies to a firm that carries on designated investment business for:

(a) a retail client; and
(b) in the case of MiFID or equivalent third country business, a client.

(2) If expressly provided, this section also applies to ancillary services not covered by (1), but only in the course of MiFID or equivalent third country business carried on with or for a client.

01/11/2007

COBS 6.1.2

If a firm provides basic advice on stakeholder products in accordance with the basic advice rules, this section does not apply to that service.

01/11/2007

COBS 6.1.3

This section imposes requirements relating to disclosure of information to clients that are additional to the general requirement in COBS 2.2.

01/11/2007

Information about a firm and its services

COBS 6.1.4

A firm must provide a retail client with the following general information, if relevant:

(1) the name and address of the firm, and the contact details necessary to enable a client to communicate effectively with the firm;
(2) in the case of MiFID or equivalent third country business, the languages in which the client may communicate with the firm, and receive documents and other information from the firm;
(3) the methods of communication to be used between the firm and the client including, where relevant, those for the sending and reception of orders;
(4) a statement of the fact that the firm is authorised and the name of the competent authority that has authorised it;
(5) in the case of MiFID or equivalent third country business, the contact address of the competent authority that has authorised the firm;
(6) if the firm is acting through an appointed representative or, where applicable, a tied agent, a statement of this fact specifying the EEA State in which that appointed representative or tied agent is registered;
(7) the nature, frequency and timing of the reports on the performance of the service to be provided by the firm to the client in accordance with the rules on reporting to clients on the provision of services (COBS 16);
(8)

(a) in the case of a common platform firm, a description, which may be provided in summary form, of the conflicts of interest policy;
(b) other than in the case of a common platform firm, when a material interest or conflict of interest may or does arise, the manner in which the firm will ensure fair treatment of the client;

(9) in the case of a common platform firm, at any time that the client requests it, further details of the conflicts of interest policy.

[Note: article 30(1) of the MiFID implementing Directive]

01/11/2007

COBS 6.1.5

A firm disclosing details of its authorisation should refer to the appropriate forms of words set out in GEN 4 Annex 1 R.

01/11/2007

COBS 6.1.6

(1) A firm that manages investments for a client must establish an appropriate method of evaluation and comparison such as a meaningful benchmark, based on the investment objectives of the client and the types of designated investments included in the client portfolio, so as to enable the client to assess the firm's performance.
(2) If a firm proposes to manage investments for a retail client, the firm must provide the client with such of the following information as is applicable:

(a) information on the method and frequency of valuation of the designated investments in the client portfolio;
(b) details of any delegation of the discretionary management of all or part of the designated investments or funds in the client portfolio;
(c) a specification of any benchmark against which the performance of the client portfolio will be compared;
(d) the types of designated investments that may be included in the client portfolio and types of transaction that may be carried out in those designated investments, including any limits; and
(e) the management objectives, the level of risk to be reflected in the manager's exercise of discretion, and any specific constraints on that discretion.

[Note: articles 30(2) and (3) of the MiFID implementing Directive]

01/11/2007

Information concerning safeguarding of designated investments belonging to clients and client money

COBS 6.1.7

(1) A firm that holds designated investments or client money for a retail client subject to the MiFID custody chapter or the MiFID client money chapter and any third country investment firm that holds designated investments or client money for a retail client must provide that client with the following information:

(a) if applicable,

(i) that the designated investments or client money of that client may be held by a third party on behalf of the firm;
(ii) the responsibility of the firm under the applicable national law for any acts or omissions of the third party; and
(iii) the consequences for the client of the insolvency of the third party;

(b) if applicable, that the designated investments belonging to the retail client may be held in an omnibus account by a third party and a prominent warning of the resulting risks;
(c) if it is not possible under national law for designated investments belonging to a client held with a third party to be separately identifiable from the proprietary designated investments of that third party or of the firm, that fact and a prominent warning of the resulting risks;
(d) if applicable, that accounts that contain designated investments or client money belonging to that client are or will be subject to the law of a jurisdiction other than that of a EEA State, an indication that the rights of the client relating to those instruments or money may differ accordingly;
(e) a summary description of the steps which it takes to ensure the protection of any designated investments belonging to the client or client money it holds, including summary details of any relevant investor compensation or deposit guarantee scheme which applies to the firm by virtue of its activities in an EEA State.

(2) A firm that holds designated investments or client money for a retail client must inform the client:

(a) if applicable, about the existence and the terms of any security interest or lien which the firm has or may have over the client's designated investments or client money, or any right of set-off it holds in relation to the client's designated investments or client money; and
(b) if applicable, that a depositary may have a security interest or lien over, or right of set-off in relation to those instruments or money.

(3) A firm within (1) must also, before entering into securities financing transactions in relation to designated investments held by it on behalf of a retail client, or before otherwise using such designated investments for its own account or the account of another client, in good time before the use of those designated investments provide the client, in a durable medium, with clear, full and accurate information on the obligations and responsibilities of the firm with respect to the use of those designated investments, including the terms for their restitution, and on the risks involved.
(4) A firm within (1) that holds client designated investments or client money for a professional client must provide that client with the information in paragraphs (1)(d) and (2)(a) and(b).

[Note: articles 29(3), 30(1)(g) and 32 of the MiFID implementing Directive]

01/11/2007

COBS 6.1.8

Paragraphs (1), (3) and (4) of COBS 6.1.7 R apply in relation to MiFID or equivalent third country business and also to firms that have elected to comply with the custody rules in the MiFID custody chapter or the client money rules in the MiFID client money chapter.

01/11/2007

Information about costs and associated charges

COBS 6.1.9

A firm must provide a retail client with information on costs and associated charges including, if applicable:

(1) the total price to be paid by the client in connection with the designated investment or the designated investment business or ancillary services, including all related fees, commissions, charges and expenses, and all taxes payable via the firm or, if an exact price cannot be indicated, the basis for the calculation of the total price so that the client can verify it. The commissions charged by the firm must be itemised separately in every case;
(2) if any part of the total price referred to (1) is to be paid in or represents an amount of foreign currency, an indication of the currency involved and the applicable currency conversion rates and costs;
(3) notice of the possibility that other costs, including taxes, related to transactions in connection with the designated investment or the designated investment business may arise for the client that are not paid via the firm or imposed by it; and
(4) the arrangements for payment or other performance.

[Note: article 33 of the MiFID implementing Directive]

01/11/2007

COBS 6.1.10

The rules on inducements in COBS 2.3 may also require a firm to disclose information to a client in relation to benefits provided to the firm.

01/11/2007

Timing of disclosure

COBS 6.1.11

(1) A firm must provide a client with the information required by this section in good time before the provision of designated investment business or ancillary services unless otherwise provided by this rule.
(2) A firm may instead provide that information immediately after starting to provide designated investment business or ancillary services if:

(a) the firm was unable to comply with (1) because, at the request of the client, the agreement was concluded using a means of distance communication which prevented the firm from doing so; and
(b) in any case where the rule on voice telephony communications (COBS 5.1.12 R) does not otherwise apply, the firm complies with that rule in relation to the retail client, as if that client were a consumer.

[Note: article 29(2), 29(3) and 29(5) of the MiFID implementing Directive]

01/11/2007

COBS 6.1.12

A firm should take into account COBS 8.1.3 R (1), which requires earlier disclosure of some items of information covered in this section.

01/11/2007

Medium of disclosure

COBS 6.1.13

Except where expressly provided, a firm must provide the information required by this section in a durable medium or via a website (where it does not constitute a durable medium) where the website conditions are satisfied.

[Note: article 29(4) of the MiFID implementing Directive]

01/11/2007

Keeping the client up to date

COBS 6.1.14

(1) A firm must notify a client in good time about any material change to the information provided under this section which is relevant to a service that the firm is providing to that client.
(2) A firm must provide this notification in a durable medium if the information to which it relates was given in a durable medium.

[Note: article 29(6) of the MiFID implementing Directive]

01/11/2007

Existing clients

COBS 6.1.15

(1) A firm need not treat each of several transactions in respect of the same type of financial instrument as a new or different service and so does not need to comply with the disclosure rules in this chapter in relation to each transaction.
[Note: recital 50 to the MiFID implementing Directive]
(2) But a firm should ensure that the client has received all relevant information in relation to a subsequent transaction, such as details of product charges that differ from those disclosed in respect of a previous transaction.

01/11/2007

Compensation information

COBS 6.1.16

(1) A firm carrying on MiFID business must make available to a client, who has used or intends to use those services, information necessary for the identification of the compensation scheme or any other investor-compensation scheme of which the firm is a member (including, if relevant, membership through a branch) or any alternative arrangement provided for in accordance with the Investor Compensation Directive.
(2) The information under (1) must include the amount and scope of the cover offered by the compensation scheme and any rules laid down by the EEA State pursuant to article 2 (3) of the Investor Compensation Directive.
(3) A firm must provide, on the client's request, information concerning the conditions governing compensation and the formalities which must be completed to obtain compensation.
(4) The information provided for in this rule must be made available in a durable medium or via a website if the website conditions are satisfied in the official language or languages of the EEA State.

[Note: article 10(1) and (2) of the Investor Compensation Directive]

01/11/2007

Record keeping: information about the firm and compensation information

COBS 6.1.17

Firms are reminded of the general record-keeping requirements in SYSC 3.2 and SYSC 9.

01/11/2007

COBS 6.2

Describing the breadth of a firm's personal recommendations

01/11/2007

Application and introduction

COBS 6.2.1

This section applies to a firm which makes a personal recommendation to a retail client to buy a packaged product.

01/11/2007

COBS 6.2.2

This section does not apply if a firm gives basic advice in accordance with the basic advice rules.

01/11/2007

COBS 6.2.3

Under the territorial application rules in COBS 1, the rules in this section apply to:

(1) a UK firm's business carried on from an establishment in an EEA State other than the United Kingdom for a retail client in the United Kingdom unless, the office from which the activity is carried on were a separate person, the activity:

(a) would fall within the overseas persons exclusion in article 72 of the Regulated Activities Order; or
(b) would not be regarded as carried on in the United Kingdom;

(2) a firm's business carried on from an establishment in the United Kingdom carried on for a client in another EEA state.

01/11/2007

COBS 6.2.4

A firm's scope of advice relates to the product providers whose products it sells. Its range relates to which products from those providers it sells.

01/11/2007

COBS 6.2.5

A firm may operate on the basis of recommending only a subset of the packaged products (its range) selected from the product providers within its scope.

01/11/2007

COBS 6.2.6

In order to comply with the rule on information disclosure before providing services (COBS 2.2.1R (1)(a)) and, if applicable, the rule on information to be provided by an insurance intermediary (COBS 7.2.1 R (2)) a firm's disclosures to a client should include whether it expects its scope to be:

(1) the whole of the market;
(2) limited to several product providers;
(3) limited to a single product provider.

01/11/2007

COBS 6.2.7

In order to comply with the rule on providing the details of insurance undertakings (COBS 7.2.1 R (3)) a firm should make a record appropriate for distribution to a client of the names of the insurance undertakings with which the firm conducts, or may conduct, business.

01/11/2007

COBS 6.2.8

(1) If a firm holds itself out as independent or as otherwise giving personal recommendations to retail clients on packaged products from the whole market (or the whole of any sector of that market), the firm's selection for this purpose will need to be sufficiently large to satisfy the client's best interests rule and the fair, clear and not misleading rule.
(2) A firm that gives personal recommendations on packaged products from the whole of a sector of the market may hold itself out as giving personal recommendations from the whole of that sector.

01/11/2007

COBS 6.2.9

A firm may use "panels" of product providers which are sufficient for the purpose of giving recommendations from the whole market and which are reviewed on a regular basis. A firm which provides personal recommendations from the whole market should ensure that its analysis of the market and the available packaged products is kept adequately up to date.

01/11/2007

COBS 6.2.10

A firm must not hold itself out as providing personal recommendations from the whole market on any type of personal pension scheme unless its advice is based on all types of personal pension schemes, including SIPPs.

01/11/2007

Selling products from the scope and range

COBS 6.2.11

In accordance with the client's best interests rule and the fair, clear and not misleading rule, a firm should not describe its services to a retail client as being based on a particular scope of advice and range unless its business processes are designed to ensure that:

(1) its representatives consider, based on adequate knowledge, products from across that scope and range before making a personal recommendation;
(2) it does not recommend products that are not in its scope or range;
(3) each of its representatives who advise on packaged products is able to recommend and sell each product within the relevant range. However it may use a representative who is not competent to advise on and sell a product or category of product within the range if it:

(a) prevents that representative from recommending that product or category of product; and
(b) ensures that if a product ought to be recommended to a client, that client is referred to a representative that is competent to recommend it;

(4) it does not narrow the scope it provides to a client compared with the scope it has disclosed to that client;
(5) it does not alter the scope or range (where permitted under (4)) compared to the scope it has disclosed to a retail client without making a subsequent disclosure of its scope or range with appropriate content, presented with sufficient prominence, and in an appropriate format; and
(6) it does not extend the scope or range in a way that materially alters its remuneration arrangements and unless it provides to the client a new and appropriate information on inducements, costs and charges (a firm may do this by providing a further menu).

01/11/2007

Records of scope and range

COBS 6.2.12

(1) A firm must make, and keep up to date, a record of the scope (or scopes) and the range (or ranges) it will use.
(2) A firm must maintain a record of the particular scope and range on which its personal recommendation to each retail client is based.
(3)

(a) The record of the firm's scope and range (or ranges) must be retained for five years from the date on which it was superseded by a more up-to-date record.
(b) The client-specific record required by (2) must be retained for five years from the date of the provision of the personal recommendation.

01/11/2007

COBS 6.2.13

In the case of a firm whose only scope is the selection of packaged products from the whole of the market (or from the whole of a sector of the market), it will be sufficient if the firm's record simply confirms that the personal recommendations it provides are given on this basis (and in the case of a firm which provides personal recommendations on the whole of a sector of the market, confirms the nature and parameters of that sector).

01/11/2007

Remuneration structure and referrals

COBS 6.2.14

In determining the remuneration structure of its representatives, a firm should manage any tensions between its obligations to its clients and the personal interests of its representatives (see SYSC 3A.6.2 G and SYSC 10.1.3 R).

01/11/2007

Firms holding themselves out as independent

COBS 6.2.15

(1) A firm must not hold itself out to a client as acting independently unless it intends to:

(a) provide personal recommendations to that client on packaged products from the whole market (or the whole of a sector of the market); and
(b) offers the client the opportunity of paying a fee for the provision of such advice.

(2) Paragraph (1) does not apply to group personal pension schemes if a firm discloses information to a client in accordance with the rule on group personal pension schemes (COBS 6.3.21 R).

01/11/2007

COBS 6.2.16

(1) A firm which charges a retail client a fee under COBS 6.2.15R (1)(b) must do so on the basis that it will, in respect of any commission which it receives in respect of transactions in packaged products for that client (and to which the particular fee charging arrangement relates), ensure the value of that commission is transferred to the client.
(2) This rule does not prohibit such a firm from agreeing with the client (in writing) that it will retain an amount or rate of trail or renewal commission up to an amount each year specified in the agreement and so small, relative to the overall amount of fees paid by the client, that it would be manifestly disproportionate for the firm to be required to account to the client in one of the ways outlined in this rule.

01/11/2007

COBS 6.2.17

A firm that carries on business in relation to a combination of packaged products, regulated mortgage contracts and home reversion plans can do so in relation to the whole market and therefore be "independent" for one but offer only a limited service for the others. If this is the case, the firm should explain the different nature of the services in a way which complies with the fair, clear and not misleading rule. (See also MCOB.)

06/01/2008

COBS 6.2.18

The rule on independence means that a firm wishing to hold itself out as independent will need to give clients a purely fee based option for paying for its services. Such a fee may be offered on a contingent basis so that it does not become payable if the client does not acquire a product. A firm offering a fee-based service may, in addition, provide the client with other payment options, such as by commission, or by a combination of fee and commission.

01/11/2007

COBS 6.2.19

A firm that holds itself out as independent should consider whether any ownership by it of shares in a product provider or by a product provider in it, or any loan agreements with a product provider, should be disclosed in order to meet the fair, clear and not misleading rule.

01/11/2007

COBS 6.3

Disclosing information about services, fees and commission - packaged products

01/11/2007

Application

COBS 6.3.1

This section applies to a firm which makes a personal recommendation to, deals in investments as agent for, or arranges for, a retail client in relation to a packaged product.

01/11/2007

COBS 6.3.2

This section does not apply to a firm giving basic advice where the firm follows with the basic advice rules in COBS 9.6.

01/11/2007

Disclosure to retail clients in good time

COBS 6.3.3

(1) The rules referred to in (4) and (5) are derived from the Single Market directives and the Distance Marketing Directive. In the FSA's opinion, a firm will comply with them if it ensures that in good time before:

(a) a retail client is bound by an agreement for the provision of a personal recommendation on packaged products; or
(b) the firm performs an act preparatory to the provision of a personal recommendation;
(c) in relation to the amendment of a life policy for that retail client, it gives a personal recommendation in relation to packaged products;

its representative provides the client with an initial disclosure document or combined initial disclosure document and a menu.
(2) A firm should consider the extent to which it is appropriate to provide an initial disclosure document or a menu if the appropriate information has been given to the client on a previous occasion and the information is still accurate and appropriate for the client.
(3) A firm should provide the information required by this section in a durable medium.
(4) For the purposes of (1), provision of the menu will comply with:

(a) (other than in relation to a personal pension deposit, SIPP or a personal pension product) the elements of the rule on summary disclosure of fees, commissions and non-monetary benefits (COBS 2.3.1R (2)(b), as qualified by COBS 2.3.2 R) that relate to disclosure of fees and commissions;
(b) the rule on information about costs and charges (COBS 6.1.9 R) but only if the hourly rates indicated in the menu are actual hourly rates rather than indicative hourly rates.

(5) For the purposes of (1), provision of the initial disclosure document or, where applicable combined initial disclosure document, will comply with:

(a) the rule on information disclosure before providing services (COBS 2.2.1R (1)(a));
(b) the items of distance marketing information, set out in paragraphs (1), (2), (4), (5), (19) and (20) of COBS 5 Annex 1 R;
(c) paragraphs (1) (so far as it relates to the firm's name and address), (4) and (6) of the rule on disclosure of information about a firm and its services (COBS 6.1.4 R);
(d) the investor compensation scheme rule in COBS 6.1.16R (1) and (2); and
(e) the rule on information to be provided by an insurance intermediary (COBS 7.2.1 R (1) and (2)).

01/11/2007

COBS 6.3.4

For the purposes of GEN 5, a firm may not use the keyfacts logo in relation to any document that is designed to comply with rules in COBS 5, 6.1 or COBS 7 unless it is an initial disclosure document, combined initial disclosure document or menu produced in accordance with the templates and Notes in the annexes to this chapter.

01/11/2007

COBS 6.3.5

Each of the initial disclosure document, combined initial disclosure document and menu that a firm provides to a client should be documents which the firm reasonably considers will be, or are likely to be, appropriate for the client having regard to the type of service which the firm may provide or business which the firm may conduct.

01/11/2007

COBS 6.3.6

(1) A firm will satisfy the requirements as to timing in the rules referred to in COBS 6.3.3G (4) and (5) if its representative provides information to the client on first making contact with the client.
(2) The menu is unlikely to be fair, clear and not misleading if a firm uses it for a service other than personal recommendations.

01/11/2007

Initial disclosure document

COBS 6.3.7

(1) An initial disclosure document is a document that contains the keyfacts logo, headings and text in the order shown in COBS 6 Annex 1 and in accordance with the Notes.
(2) A combined initial disclosure document is a document that contains the keyfacts logo, headings and text in the order shown in COBS 6 Annex 2 and in accordance with the Notes.

01/11/2007

COBS 6.3.8

A firm may include at the end of an initial disclosure document information the firm is required by COBS or by the rule on disclosing a tied agent's capacity (SUP 12.6.13 R) and which is not in the template for the initial disclosure document if the information would be sufficiently prominent. For example, a firm may wish to use the initial disclosure document the parts of the rule on information about the firm and its services (COBS 6.1.4 R) that would not otherwise be satisfied by providing the initial disclosure document.

01/11/2007

COBS 6.3.9

Firms can obtain from the FSA website http://www.fsa.gov.uk a specimen of the initial disclosure document. A firm may produce its initial disclosure document by using its own house style and brand. Electronic tools to help firms to construct their own initial disclosure documents and menus are available from the FSA website.

01/11/2007

(1) A menu is a document that contain the keyfacts logo, heading and text in the order shown in COBS 6 Annex 3 and in accordance with the Notes.
(2) In order to be able to provide an accurate menu, a firm should maintain as many versions of the menu as are appropriate to the different bases on which it may conduct business with retail clients.

01/11/2007

COBS 6.3.11

(1) A firm must keep its menus up to date and keep a record of each menu for a period of five years from the date on which it was updated or replaced.
(2) A firm must maintain a record of each particular menu which it provides to a retail client (other than when given merely in response to a request).

01/11/2007

COBS 6.3.12

A firm may add text at the end of the menu that is designed to comply with the disclosure duties in:

(1) the rule on disclosure of fees, commissions and non-monetary benefits (COBS 2.3.1R (2)) to the extent the menu does not include that information in relation to the relevant product;
(2) the rule on costs and associated charges (COBS 6.1.9 R);
(3) the items of distance marketing information described in paragraphs (6), (8), (10) and (11) of COBS 5 Annex 1 R.

01/11/2007

COBS 6.3.13

If a firm is asked to provide a menu by a person with whom the firm has had no prior contact it may provide the menu which is appropriate for its typical or most prevalent client type and the business it conducts with them.

01/11/2007

COBS 6.3.14

A firm would be unlikely to comply with the client's best interests rule if the menu that it provided initially did not reflect relevant expected commission arrangements.

01/11/2007

COBS 6.3.15

Long-term care and whole of life policies, for which the example given in the menu refers to the age of the policyholder, are deemed to have a term equal to the difference between the age of the policyholder (at the time that the policy is taken out) and the age of 85.

01/11/2007

COBS 6.3.16

If a firm decides to provide a retail client with a personal recommendation on a type of packaged product which falls within a product group specified in Notes 14 or 19 to COBS 6 Annex 3 in relation to which the menu previously given to the client does not contain the information described in the menu, it should issue a new and appropriate menu to that client.

01/11/2007

Provision of information on request

COBS 6.3.17

A firm should take reasonable steps to ensure that its representative provide a copy of the appropriate range of packaged products to a client on the client's request.

01/11/2007

Ongoing disclosure

COBS 6.3.18

(1) In accordance with the client's best interests rule and the fair, clear and not misleading rule, a firm which has started to provide a retail client with services in relation to packaged products following the provision of information on inducements required under COBS 2.3.1 R or a menu should not (at least until the completion of those services) arrange to retain any commission which exceeds the maximum amount or rate disclosed without first providing further appropriate inducements information or menu and obtaining the client's prior informed consent to the proposed alteration in a durable medium.
(2)

(a) Paragraph (1) does not apply if, in relation to a life policy or a pension contract:

(i) the maximum amounts or rates already disclosed to the client only apply to products of the example term or age of client given in the menu or other payment information or to products with shorter terms; and
(ii) the firm arranges a product for a term longer than the example term (or longer than the term deemed for the example age given) and the increase in the commission which the firm arranges to retain over the maximum already disclosed is not more than an amount that is directly proportional to the increase in the duration of the term of the product (or to the term deemed from the age of client).

(b) If requested by a client, a firm should explain the basis of the higher maximum commission or fees charged in accordance with (1).

01/11/2007

Telephone sales

COBS 6.3.19

In cases where firms make initial contact with a client on the telephone a firm may, in addition, have to take into account and comply with the requirements in this sourcebook applicable to the conclusion of distance contracts (see COBS 5).

01/11/2007

COBS 6.3.20

(1) In accordance with the rule on information disclosure before providing services (COBS 2.2.1 R), if a firm's initial contact with a retail client with a view to providing a personal recommendation on packaged products is by telephone then the following information should be provided before proceeding further:

(a) the name of the firm and, if the call is initiated by or on behalf of a firm, the commercial purpose of the call;
(b) whether the firm offers packaged product from the whole market or from a limited number of companies or from a single company or single group of companies;
(c) whether the firm will provide the client with a personal recommendation on packaged products;
(d) that the client can request a copy of the appropriate range of packaged products;
(e) whether the firm offers a fee-based service, a commission-based service, a service based on a combination of fee and commission, or a combination of these services, and the consequences for the client of proceeding with each type of service; and
(f) that the information given under (a) to (e) will subsequently be confirmed in writing.

(2) If a firm's initial contact with a retail client is by telephone in circumstances in which the firm would otherwise provide an initial disclosure document, a menu or both, it should consider sending the client the document as soon as is reasonably practicable following the conclusion of the call.

01/11/2007

Group Personal Pensions

COBS 6.3.21

A firm must take reasonable steps to ensure that its representatives when making contact with an employee with a view to giving a personal recommendation on his employer's group personal pension scheme or stakeholder pension scheme, inform the employer:

(1) that the firm will be providing a personal recommendation on group personal pension schemes and/or stakeholder pension schemes provided by the employer;
(2) whether the employee will be provided with a personal recommendation that is restricted to the group personal pension scheme or stakeholder pension scheme provided by the employer or the recommendation will also cover other products;
(3) the amount and nature of any payments that the employee will have to pay, directly or indirectly, for the personal recommendation.

01/11/2007

COBS 6.3.22

The payments that the employee would have to pay could be:

(1) fees;
(2) commission;
(3) commission equivalent;
(4) a combination of the above.

01/11/2007

COBS 6.4

Disclosure of charges, remuneration and commission

01/11/2007

Application

COBS 6.4.1

This section applies to a firm carrying on designated investment business with a retail client.

01/11/2007

COBS 6.4.2

Under the territorial application rules in COBS 1, the rules in this section apply to:

(1) a UK firm's business carried on from an establishment in an EEA State other than the United Kingdom for a retail client in the United Kingdom unless, if the office from which the activity is carried on were a separate person, the activity:

(a) would fall within the overseas persons exclusion in article 72 of the Regulated Activities Order; or
(b) would not be regarded as carried on in the United Kingdom.

(2) a firm's business carried on from an establishment in the United Kingdom carried on for a client in an other EEA state.

01/11/2007

Disclosure of commission (or equivalent) for packaged products

COBS 6.4.3

(1) If a firm sells, personally recommends or arranges the sale of a packaged product to a retail client, and subsequently if the retail client requests it, the firm must disclose to the client in cash terms:

(a) any commission receivable by it or any of its associates in connection with the transaction;
(b) if the firm is also the product provider, any commission or commission equivalent payable in connection with the transaction; and
(c) if the firm or any of its associates is in the same immediate group as the product provider, any commission equivalent in connection with the transaction.

(2) Disclosure "in cash terms" in relation to commission does not include the value of any indirect benefits listed in the table at COBS 2.3.15 G.
(3) In determining the amount to be disclosed as commission equivalent, a firm must put a proper value on the cash payments, benefits and services provided to its representatives in connection with the transaction.
(4) This rule does not apply if:

(a) the firm is acting as an investment manager; or
(b) the retail client is not present in the EEA at the time of the transaction; or
(c) the firm provides the client with a key features document or a simplified prospectus, in accordance with COBS 14, provided that the firm discloses to the client the actual amount or value of commission or equivalent within five business days of effecting the transaction.

(5) If the terms of a packaged product are varied in a way that results in a material increase in commission or commission equivalent, a firm must disclose to a retail client in writing any consequent increase in commission or equivalent receivable by it in relation to that transaction.

01/11/2007

COBS 6.4.4

Where a firm is required to disclose the value of commission equivalent, the value will be at least as high as the amount of any commission.

01/11/2007

COBS 6.4.5

(1) A firm must make the disclosure required by the rule on disclosure of commission or equivalent (COBS 6.4.3 R) as close as practicable to the time that it sells, personally recommends or arranges the sale of a packaged product.
(2) The firm must make the disclosure:

(a) in a durable medium; or
(b) when a retail client does not make a written application to enter into a transaction, orally. In these circumstances, the firm must give written confirmation as soon as possible after the date of the transaction, and in any event within five business days.

01/11/2007

COBS 6.4.6

(1) When determining the value of cash payments, benefits and services under the rule on disclosure of commission equivalent (COBS 6.4.3 R), a firm should follow the provisions of COBS 6 Annex 6.
(2) Compliance with this evidential provision may be relied on as tending to establish compliance with COBS 6.4.3 R; and
(3) Contravention of this evidential provision may be relied on as tending to establish contravention of COBS 6.4.3 R.

01/11/2007

Guidance on disclosure requirements for packaged products.

COBS 6.4.7

A firm must not enter into an arrangement to pay commission other than to the firm responsible for a sale, unless:

(1) the firm responsible for the sale has passed on its right to receive the commission to the recipient; or
(2) another firm has given a personal recommendation to the same retail client after the sale; or
(3) the commission is paid following the sale of a packaged product by the firm in response to a financial promotion communicated by that firm to a client of the recipient firm; or
(4) the arrangement is with a firm in the same immediate group.

01/11/2007

COBS 6.4.8

A disclosure made under this section should indicate the timing of any payment. For example, if a firm exchanges its right to future commission payments for a lump sum, whether by way of a loan or other commercial arrangement, it should disclose the amount of commission receivable by it that has been exchanged for the lump sum.

01/11/2007

COBS 6.4.9

The rules in this section build on the disclosure of fees, commissions and non-monetary benefits made under the rule on inducements (COBS 2.3.1 R). However the rules in this section do not require disclosures before the firm makes a personal recommendation.

01/11/2007

COBS 6.4.10

If the precise rate or value of commission or equivalent is not known in advance, the firm should estimate the rate likely to apply to the representative in respect of the transaction.

01/11/2007

COBS 6.4.11

Commission or equivalent disclosure statements: content and wording

A firm should consider including the following in its written statement of commission:

(1)

Amounts or values of commission rounded as appropriate to help the client understand the document (for example, large amounts might be rounded to three significant figures).

(2)

The names of the firms involved in paying and receiving commission or commission equivalent.

(3)

A plain language description of whether remuneration takes the form of commission or commission equivalent. Commission equivalent could, for example, be described as "remuneration and services received from XYZ Ltd".

(4)

The timing of payments and period over which they are paid.

(5)

For payments relating to the client's fund, examples of how much money might be taken, such as:

(a)

where the commission or equivalent is on an increasing basis, the amount to be taken in the first and tenth year in which it is paid; or

(b)

where the commission or equivalent is a percentage of the fund, the amount that would taken if the fund was worth a certain value and the amount that would be taken if the fund was worth twice that value.

01/11/2007

COBS 6 Annex 1

Initial disclosure document described in COBS 6.3.7G (1)

01/11/2007

This annex consists only of one or more forms. Forms are to be found through the following address:

Initial disclosure document described in COBS 6.3.17G (1) - COBS 6 Annex 1

01/11/2007

COBS 6 Annex 2

Combined initial disclosure document described in COBS 6.3, ICOBS 4.5, MCOB 4.4.1R(1) and MCOB 4.10.2R(1)

06/01/2008

This annex consists only of one or more forms. Forms are to be found through the following address:

Combined initial disclosure document described in COBS 6.3, ICOBS 4.5, MCOB 4.4.1R(1) and MCOB 4.10.2R(1) - FS/docs/cobs/COBS_6_Annex2.pdf

06/01/2008

COBS 6 Annex 3

(Menu described in COBS 6.3)

01/11/2007

This annex consists only of one or more forms. Forms are to be found through the following address:

Menu described in COBS 6.3 - Forms/cobs/COBS_6_Annex3G.pdf

01/11/2007

COBS 6 Annex 4

Identifying and describing the maximum rate of commission (or equivalent), the market average and the Example

01/11/2007

This annex consists only of one or more forms. Forms are to be found through the following address:

Identifying and describing the maximum rate of commission (or equivalent), the market average and the Example - Forms/cobs/COBS_6_Annex4G.pdf

01/11/2007

COBS 6 Annex 5

Calculation of a maximum rate of commission

01/11/2007

This annex consists only of one or more forms. Forms are to be found through the following address:

Calculation of a maximum rate of commission - Forms/cobs/COBS_6_Annex5G.pdf

01/11/2007

COBS 6 Annex 6

Calculating commission equivalent

01/11/2007

This table forms part of COBS 6.4.6 E.

Calculating commission equivalent

This table sets out the basis on which the firm should determine the value of cash payments, benefits and services to be disclosed as commission equivalent. Benefits and services, as set out in parts B and C below, need be included only if their value is such that they could not be provided to a firm as a non-monetary benefit listed in the table in COBS 2.3.15 G. The result of the calculation should be that the amounts disclosed as commission equivalent are, as far as possible, the same as the amounts and value of commission which would be paid in a corresponding sale.

Part A: Cash payments

These cover all payments by a firm to a representative, appointed representative or, where applicable, a tied agent, or a firm in the same immediate group in relation to a transaction in a packaged product. This includes bonus payments, manager's overrides, extra earnings from other transactions and other payments conditional on amounts of new business.

In determining the amounts to be included in the calculation, a firm should have regard to the following:

(a)

when the precise rate of commission equivalent is not known in advance (for example, if retrospective volume overrides apply), the firm should estimate the rate likely to apply to the representative in question. When an identical commission equivalent scale applies to all representatives (although they might earn differing percentages of it), the same average amount of commission equivalent (and the value of other benefits and services) in respect of identical transactions may be disclosed, regardless of the percentage of the scale paid to each individual representative. Averaging should not be used for appointed representatives, or, where applicable, tied agents.

(b)

all credits to an account from which periodic withdrawals may be made should be included.

(c)

when a payment is made before the firm receives the premium or the investment monies to which it relates (for example, indemnity commission equivalent), it should be included as being received at the time of payment. Firms that wish to explain this arrangement to the clients are free to do so, provided this does not detract from the required disclosure.

(d)

when the firm arranges for a third party to make a payment to a representative in exchange for the income stream to which the representative is entitled, or to make a loan to the representative on the security or expectation of future payments from the firm, this should be treated as if it were a payment from the firm at the time of the transaction.

(e)

when a firm provides, or arranges for a third party to provide, a loan to a representative, on the security of, or in the expectation of, future payments from the firm, the amounts to be included are the payments to the representative on which the provision of the loan is based, as if they were received at the time the transaction was effected, irrespective of their actual timing.

(f)

when an agent is employed and remunerated by the firm's appointed representative, or, where applicable, tied agent, the payments to be included should be those made by the firm to the appointed representative or tied agent, not those made by the appointed representative or tied agent to its own agent.

Part B: Benefits

Benefits include the cost to the firm of all non-monetary benefits provided by it to a representative. A benefit should be included whether or not the representative is liable to income tax on it and whether it is chargeable to tax. Examples of benefits include the use of a car, attendance at conferences, subsidised loans, contributions to pension schemes, national insurance contributions, and the value of share option (taking into account any discount on issue and assuming that the shares in question grow at a reasonable rate in line with other investments).

Part C: Services

Services include benefits which are not indirect benefits within the table in COBS 2.3.15 G.

The following services should be included:

(a)

office accommodation and equipment, including telephone, photocopying and fax;

(b)

loans where a commercial rate of interest is not charged, including commission equivalent advances overdue for repayment;

(c)

general stationery and mailing or distribution costs;

(d)

computer hardware and software (except software which specifically relates to the firm's packaged product, such as software used for producing illustrations, projection and product information);

(e)

clerical and administrative support;

(f)

business insurance cover, including professional indemnity and fidelity guarantee;

(g)

recruitment;

(h)

compliance monitoring;

(i)

client services;

(j)

business planning services;

(k)

line management.

To put a value on these services, the following costs should be included:

(a)

all overheads attributable to a particular cost item (for example, the cost of a compliance official);

(b)

salary costs pro rata if individuals are only engaged part-time on relevant business;

(c)

rent and associated premises costs at an appropriately reduced rate if the premises are also used for other business activities;

(d)

only that proportion of the cost of lead generation promotions attributable to the generation of relevant business (but including the placing of any financial promotion, and its mailing or provision of access to third party clients);

(e)

only the marginal additional compliance costs of ensuring that representatives and their support and training material comply with relevant rules;

(f)

the commercial value of a service which is the use of an asset owned by the firm (for example in the case of a property, its full market rent);

(g)

in respect of appointed representative, or, where applicable tied agent, the costs of any promotion in a newspaper or elsewhere and the provision of representative-specific literature in connection with a financial promotion;

(h)

in respect of a firm in the same immediate group and connected appointed representatives or, where applicable, tied agents, where the name of the company is included in the financial promotion, the costs of any promotion in a newspaper or elsewhere and the provision of literature specific to the representative in connection with a financial promotion.

The following costs should be excluded:

(a)

the cost of corporate awareness advertising;

(b)

training costs;

(c)

costs of developing and maintaining computer systems for the provision of projections of benefits, client-specific key features documents, simplified prospectuses or other product information;

(d)

costs of compensating clients;

(e)

the costs of head office and branch level management and support, other than payments to managers falling under Part 1, for representatives, if these services could also be provided to a firm not in the same immediate group, for example, broker consultants and 'inspectors'.

Part D: Calculation methodology

Estimating commission equivalent

The cost of benefits and services should normally be based on the most recent relevant experience of the firm, except if the firm has grounds to believe that the commission equivalent for the period concerned will be higher or lower than that implied by the experience or no such experience is available. In such a case, the estimate should be based on and evidenced by business plans which the firm is satisfied are achievable.

Firms that receive or expect to receive:

(a)

commission in respect of packaged products which are not its own products or the products of a product provider who is in the same immediate group; and

(b)

commission equivalent in respect of its own products;

must ensure that the costs and benefits attributed to these products do not exceed the amounts that can be financed from that commission.

Construction of commission equivalent scales

10.

The total costs of cash payments, benefits and services should be assessed and the normal approach is to split them into new business costs and after sale servicing costs. The costs of each of these functions should be assessed directly in relation to the work carried out by the representatives.

11.

(a)

The total commission equivalent costs identified in 10 should be spread across the business using a new business commission equivalent scale and a servicing commission equivalent scale respectively.

(b)

The commission equivalent scales should distinguish between products for which the commission equivalent of representatives is likely to be different.

12.

If the representative's commission equivalent includes a cash payment related to volume and/or value of the transactions sold (which payment must be in accordance with the client's best interest rule), the following method would be appropriate:

(a)

The payment scales should be grossed up by new business uplift factors or servicing uplift factors as appropriate to reflect the cost of benefits and services. The grossed up scales represent the new business and servicing commission equivalent scales, and are applied to each contract to derive the commission equivalent to be disclosed.

(b)

If servicing costs are expected to be incurred in any year in which no servicing payments are to be made on a contract, disclosure should still be made, for example by using a technique similar to that described in 14.

13.

(a)

When a representative receives a salary, or other payment unrelated to volume or sales:

(i) this should be amalgamated with the cost of benefits and services; and

(ii) the total costs should be apportioned over individual transactions in a way that reflects the value of a contract to a firm or the firm's immediate group.

(b)

If a firm is a distributor for a product provider within the same immediate group, the firm must apportion total costs over individual transactions in a way that reflects the value of the contract to the firm's immediate group.

14.

If a representative agrees to forgo part of his or her normal payment to improve the terms of the contract, the disclosure may be reduced in such a way that fairly reflects the overall effect of the amount foregone.

15.

The firm should review the commission equivalent scales if at any time it becomes aware that the commission equivalent figures have become misleading. A review should take place at least annually.

Payments to associates

16.

If a firm pays commission equivalent to another firm in the same immediate group, or an appointed representative or, where applicable tied agent, which is an associate of the firm, it should ensure that the calculation of the sum to be disclosed is the higher of:

(a)

all payments, benefits and services provided to the firm or appointed representative or tied agent, from whatever source, plus an additional allowance for profit of 15% - unless the firm can demonstrate that another figure (higher or lower) is more appropriate; and

(b)

the cash payments actually paid by the firm, plus the value of services provided.

01/11/2007