COBS 9A.2 Assessing suitability: the obligations

When providing investment advice or portfolio management a firm must:

1. (1)

   obtain the necessary information regarding the client’s:

   1. (a)

      knowledge and experience in the investment field relevant to the specific type of financial instrument, insurance-based investment product or service;

   2. (b)

      financial situation including his ability to bear losses; and

   3. (c)

      investment objectives including his risk tolerance,

   so as to comply with (2);

2. (2)

   only recommend investment services, financial instruments and insurance-based investment products, as applicable, or take decisions to trade, which are suitable for the client and, in particular, in accordance with the client’s risk tolerance and ability to bear losses.

[Note: first paragraph of article 25(2) of MiFID, first paragraph of article 30(1) of the IDD]

When proposing an insurance-based investment product a firm must ensure it is consistent with the client’s insurance demands and needs.

[Note: recital 44 to, and second paragraph article 20(1) of, the IDD]

1. A firm must:
2. (1) determine the extent of the information to be obtained from a client in light of all the features of the service to be provided to that client; and
3. (2) obtain from the client such information as is necessary for the firm to understand the essential facts about the client and to have a reasonable basis for determining, 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 providing a portfolio management service:
   1. (a) meets the investment objectives of the client in question, including their risk tolerance;
   2. (b) it is such that the client is able financially to bear any related investment risks consistent with their investment objectives; and
   3. (c) is such that the client has the necessary experience and knowledge in order to understand the risks involved in the transaction or in the management of their portfolio. 

1. (1)

   For the purposes of providing a personal recommendation on an insurance-based investment product in accordance with COBS 9A.2.1R and COBS 9A.2.16R, a firm must determine the extent of the information to be collected from the client in light of all the features of the advice to be provided to the client.

2. (2)

   Without prejudice to the fact that, in accordance with COBS 9A.2.3AR, COBS 9A.3.2R and COBS 9A.3.2AR, any insurance-based investment product proposed must be consistent with the client’s demands and needs, a firm must obtain from the client such information as is necessary for the firm to understand the essential facts about the client and to have a reasonable basis for determining that its personal recommendation to the client satisfies all of the following criteria:

   1. (a)

      it meets the client’s investment objectives, including that person’s risk tolerance;

   2. (b)

      it meets the client’s financial situation, including that person’s ability to bear losses;

   3. (c)

      it is such that the client has the necessary knowledge and experience in the investment field relevant to the specific type of insurance-based investment product or service.

3. (3)

   Where information required for the purposes of COBS 9A.2.1R and COBS 9A.2.16R has already been obtained pursuant to COBS 9A.2.3AR, COBS 9A.3.2R and COBS 9A.3.2AR, a firm must not request information it already has anew from the client.

[Note: articles 9(1) and (2) and 17(3) of the IDD Regulation]

For the purposes of COBS 9A.2.1R and COBS 9A.2.16R in relation to an insurance-based investment product, the necessary information to be obtained by a firm with regard to the client’s knowledge and experience in the relevant investment field must include, where relevant, the following, to the extent appropriate to the nature of the client, and the nature and type of insurance-based investment product or service offered or demanded, including their complexity and the risks involved:

1. (1)

   the types of service, transaction, insurance-based investment product or financial instrument with which the client is familiar;

2. (2)

   the nature, number, value and frequency of the client’s transactions in insurance-based investment products or financial instruments and the period over which they have been carried out;

3. (3)

   the level of education, and profession or relevant former profession of the client.

[Note: article 17(1) of the IDD Regulation]

1. (1)

   In relation to an insurance-based investment product, the information regarding the client’s financial situation, including that person’s ability to bear losses, must include, where relevant, information on the source and extent of the client’s regular income, assets, including liquid assets, investments and real property and the regular financial commitments.

2. (2)

   The level of information gathered must be appropriate to the specific type of insurance-based investment product or service being considered.

[Note: article 9(3) of the IDD Regulation]

1. (1)

   In relation to an insurance-based investment product, the information regarding the client’s investment objectives, including that person’s risk tolerance, must include, where relevant, information on the length of time for which the client wishes to hold the investment, that person’s preferences regarding risk taking, the risk profile, and the purposes of the investment.

2. (2)

   The level of information gathered must be appropriate to the specific type of insurance-based investment product or service being considered.

[Note: article 9(4) of the IDD Regulation]

1. (1) A firm must take reasonable steps to ensure that the information collected about its clients is reliable.
2. (2) The steps in (1) must include, but are not limited to:
   1. (a) ensuring clients are aware of the importance of providing accurate and up-to-date information;
   2. (b) ensuring all tools, such as risk assessment profiling tools or tools to assess a client's knowledge and experience, employed in the suitability assessment process are fit-for-purpose and are appropriately designed for use with the firm's clients, with any limitations identified and actively mitigated through the suitability assessment process;
   3. (c) ensuring questions used in the process are likely to be understood by clients, capture an accurate reflection of the client's objectives and needs, and the information necessary to undertake the suitability assessment; and
   4. (d) taking steps, as appropriate, to ensure the consistency of client information, such as by considering whether there are obvious inaccuracies in the information provided by clients.

1. (1)

   In relation to an insurance-based investment product, a firm must take reasonable steps to ensure that the information collected about the client for the purposes of the assessment of suitability is reliable.

2. (2)

   The steps in (1) must include, but not be limited to, the following:

   1. (a)

      ensuring that the client is aware of the importance of providing accurate and up-to-date information;

   2. (b)

      ensuring that all tools, such as risk assessment profiling tools or tools to assess a client’s knowledge and experience, employed in the suitability assessment process are fit-for-purpose and are appropriately designed for use with its clients, with any limitations identified and actively mitigated through the suitability assessment process;

   3. (c)

      ensuring that questions used in the process are likely to be understood by the client and to capture an accurate reflection of the client’s objectives and needs and the information necessary to undertake the suitability assessment;

   4. (d)

      taking steps, as appropriate, to ensure the consistency of client information, such as considering whether there are obvious inaccuracies in the information provided by the client.

[Note: article 10 of the IDD Regulation]

In relation to insurance-based investment products, a firm must not discourage a client from providing information required for the purposes of COBS 9A.2.1R and COBS 9A.2.16R.

[Note: article 17(2) of the IDD Regulation]

For the purposes of assessing suitability in relation to an insurance-based investment product, a firm may rely on the information provided by its clients unless it is aware or ought to be aware that the information is manifestly out of date, inaccurate or incomplete.

[Note: article 17(4) of the IDD Regulation]

Where a firm does not obtain the information required under COBS 9A.2.1R and COBS 9A.2.16R, the firm must not provide a personal recommendation on insurance-based investment products to the client.

[Note: article 9(5) of the IDD Regulation]

1. (1) If a client is a legal person or a group of two or more natural persons, or if one or more natural persons are represented by another natural person, the firm must establish, record and implement a policy which sets out:
   1. (a) who should be subject to the suitability assessment; and
   2. (b) how the suitability assessment will be done in practice, including from whom information about knowledge and experience, financial situation and investment objectives should be collected.
2. (2) For the purpose of (1):
   1. (a) if a natural person is represented by another natural person, the financial situation and investment objectives to be considered must be those of the underlying client rather than of the representative. However, the knowledge and experience to be considered must be that of the representative or the person authorised to carry out transactions on behalf of the underlying client; and
   2. (b) if a legal person is an elective professional client, the financial situation and investment objectives to be considered must be those of the legal person. The knowledge and experience must be that of the person authorised to carry out transactions on behalf of the underlying client.

1. (1)

   With regard to group insurance a firm must establish and implement a policy as to who will be subject to the suitability assessment where an insurance-based investment product is concluded on behalf of a group of members and each individual member cannot take an individual decision to join.

2. (2)

   The policy established under (1) must also contain rules on how that assessment will be done in practice, including from whom information about knowledge and experience, financial situation and investment objectives will be collected.

3. (3)

   A firm must record the policy established under (1).

[Note: article 13 of the IDD Regulation]

Where a firm provides investment advice recommending a package of services or products bundled pursuant to COBS 6.1ZA.16R (for MiFID business) or COBS 6.1ZA.16AR to COBS 6.1ZA.16ER (for insurance-based investment products), the firm must ensure that the overall bundled package is suitable for the client.

[Note: second paragraph of article 25(2) of MiFID and second paragraph of article 30(1) of the IDD]

When providing a personal recommendation in relation to an insurance-based investment product that involves switching between underlying investment assets a firm must also collect the necessary information on the client’s existing underlying investment assets and the recommended new investment assets and must undertake an analysis of the expected costs and benefits of the switch, such that it is reasonably able to demonstrate that the benefits of switching are expected to be greater than the costs.

[Note: article 9(7) of the IDD Regulation]

When providing a personal recommendation on an insurance-based investment product in accordance with COBS 9A.2.1R and COBS 9A.2.16R, a firm must not make a recommendation where none of the insurance-based investment products are suitable for the client.

[Note: article 9(6) of the IDD Regulation]