COBS 9B.4 Design of targeted support service

1. (1) Targeted support services involve the delivery of ready-made suggestions to clients by reference to the client’s alignment with a pre-defined consumer segment.

2. (2) This section contains rules and guidance relating to the design of a firm’s targeted support service by reference to the definition of consumer segments and allocation to those consumer segments of ready-made suggestions.

    

1. (1) A firm designing its targeted support service will be a manufacturer of that service (and, when providing it, will be a distributor of that service). Beyond the requirements in this section, a firm will also be subject to rules elsewhere in the Handbook.
2. (2) For manufacturers of services, relevant rules include those set out in PRIN 2A.3 (Consumer Duty: retail customer outcome – products and services) and PRIN 2A.4 (Consumer Duty: retail customer outcome on price and value).

3. (3) Where a firm recommends a product as part of a targeted support service, the firm will be a distributor in relation to that product and the relevant requirements on distributors in PRIN 2A.3, PRIN 2A.4, PROD 3 and/or PROD 4 will also apply. The arrangements the firm has in place should enable the firm to obtain all necessary information from the product manufacturer to understand the product throughout its life cycle.

    

In the FCA’s view, the following are particularly relevant considerations for a firm in the design of its targeted support service:

1. (1) in identifying the situations for which to develop ready-made suggestions, the prevalence of the situation among its clients (including potential clients);
2. (2) in defining common characteristics, the ease with which a firm would be able to identify a particular client as aligning with a consumer segment; and
3. (3) in specifying ready-made suggestions, the ease with which such a suggestion may be communicated to the firm’s clients.

For the purposes of this chapter, a consumer segment is a group of individuals defined by reference to:

1. (1) a situation involving a shared financial support need or objective; and

2. (2) where relevant, common characteristics.

    

Before a firm provides a ready-made suggestion to a client, it must have:

1. (1) defined one or more consumer segments; and

2. (2) specified a single ready-made suggestion for each consumer segment.

    

COBS 9B.1.1G explains that the framework for targeted support services is designed to enable firms to provide support to clients on the basis of limited information and not a comprehensive consideration of a client’s characteristics or circumstances. COBS 9B.4.9R requires firms to design consumer segments at a level of detail that is both:

1. (1) sufficient to ensure that clients receive suitable recommendations; and

2. (2) appropriate to the nature of a targeted support service and supports clients' understanding of the service they are receiving.

    

A firm must:

1. (1) define a consumer segment at a level of detail that is sufficiently granular as to enable the firm to assess whether a ready-made suggestion would be suitable for an individual within that consumer segment; and

2. (2) not define a consumer segment at a level of detail that a firm in the business of providing investment advice would reasonably associate with a comprehensive consideration of a person’s characteristics or circumstances.

    

1. (1) An example of when a consumer segment would not be at a sufficiently granular level is if the common characteristics used to define the consumer segment did not enable the firm to determine whether a ready-made suggestion was suitable for an individual in that consumer segment. This could be because the consumer segment was defined by reference to:
   1. (a) an insufficient number of common characteristics; or
   2. (b) common characteristics which were not relevant to determining the suitability of a ready-made suggestion to address the shared financial support need or objective of individuals for whom the consumer segment was designed.

2. (2) COBS 9B.4.11R enables firms to apply reasonable assumptions to consumer segments with a view to limiting, where appropriate, the level of detail in the specification of consumer segments and supporting compliance with COBS 9B.4.9R.

    

1. (1) This rule applies to a firm that makes assumptions about individuals in a consumer segment.

2. (2) A firm must ensure that any assumptions are reasonable and referable to evidence about the type of individuals covered by the consumer segment.

    

1. (1) In identifying the situations to be met through the provision of a targeted support service, firms should have regard to:
   1. (a) the circumstances commonly encountered by their clients (including potential clients) and whether these can reasonably be expected to be met through the provision of a targeted support service in compliance with the rules in this chapter; and
   2. (b) the purpose of a targeted support service (COBS 9B.1.1G).
2. (2) A firm may define multiple consumer segments which reference the same situation. 

3. (3) A firm is able to determine the range of situations in which it will provide a targeted support service. In specifying that a firm must define at least one consumer segment, the FCA recognises that a firm could provide a targeted support service for only one particular group of individuals in one situation.

    

1. (1) Where relevant, the common characteristics by reference to which a consumer segment is defined refer to those characteristics which a client must either have (in the case of including characteristics) or not have (in the case of excluding characteristics) in order to be aligned with a consumer segment.

2. (2) COBS 9B.4.6G(3) explains why common characteristics will not always be relevant in defining a consumer segment.

    

1. To the extent that common characteristics are relevant to the definition of a consumer segment, they must:
   1. (1) include both:
      1. (a) including characteristics; and
      2. (b) excluding characteristics; and
   2. (2) be relevant to:
      1. (a) the shared financial support need or objective that the consumer segment is designed to meet (COBS 9B.4.4R(1)); and

      2. (b) the firm's specification of a suitable ready-made suggestion for an individual within that consumer segment.

          

1. (1) A firm must specify, in respect of each consumer segment, the information which it requires about a client in order to identify whether that client aligns with the consumer segment.
2. (2) The information in (1) must enable the firm to determine whether the client has:
   1. (a) all of the including characteristics; and

   2. (b) none of the excluding characteristics.

       

When defining any common characteristics for a consumer segment, a firm should have regard to the factors that:

1. (1) (in the case of including characteristics) would make a suggestion suitable; and
2. (2) (in the case of excluding characteristics) could or would make a suggestion unsuitable,

for an individual within the consumer segment.

1. (1) Excluding characteristics are those characteristics which are attributed to a consumer segment and which, if identified in a client, would prevent that client from being aligned with the consumer segment.
2. (2) Excluding characteristics refer to those characteristics of an individual that would be likely to render a ready-made suggestion unsuitable for an individual in the situation which the ready-made suggestion is designed to address – for example, because that ready-made suggestion would be ineffective, inappropriate or unduly risky.
3. (3) The effect of COBS 9B.5.5R(2)(c) is that if a client is identified as having any excluding characteristic of a consumer segment, they cannot be aligned with that consumer segment and provided with the associated ready-made suggestion.
4. (4) Having identified the excluding characteristics for a consumer segment, a firm should:
   1. (a) consider whether to define a consumer segment for individuals with a particular excluding characteristic; or

   2. (b) where it considers that (a) is not reasonably practicable, and where appropriate, identify ways to direct the individuals with the relevant excluding characteristic to other forms of support. For example, a firm should consider signposting individuals to guidance services (such as MoneyHelper).

       

1. (1) The rules in this chapter are designed so that firms can provide clients with ready-made suggestions without the need to undertake individual suitability assessments in the manner required by COBS 9 and COBS 9A.
2. (2) The effect of COBS 9B.4.20R is that a firm must assess the suitability of a ready-made suggestion by reference to:
   1. (a) the shared financial support need or objective of the relevant consumer segment; and

   2. (b) where relevant, the common characteristics of the relevant consumer segment.

       

1. A firm should be able to demonstrate how, for any product it intends to recommend by way of a ready-made suggestion, it has considered, at least, the following:
   1. (1) the costs and charges of the product;
   2. (2) whether the target market of the product is consistent with the shared financial support need or objective of the relevant consumer segment and the nature of the ready-made suggestion; and

   3. (3) the financial strength of the product provider.

       

1. For the purposes of COBS 9B.4.28R to COBS 9B.4.37G, ‘annuity’ means all annuities that are designated investments and includes:
   1. (1) pension annuities;
   2. (2) short-term annuities; and

   3. (3) fixed-term annuities, unless the fixed-term annuity can be surrendered for value.

       

A firm may only recommend an annuity as, or as part of, a ready-made suggestion where the following conditions are met:

1. (1) the recommendation:
   1. (a) does not expressly refer to a particular annuity; and
   2. (b) goes no further than a recommendation relating to the features of an annuity;
2. (2) the ready-made suggestion does not include, or is not accompanied by, any quote for an annuity (including a guaranteed quote or market-leading pension annuity quote, as defined in COBS 19.9.1R(2) and (3), or an illustrative quote); and

3. (3) the ready-made suggestion includes a direction to the client to visit the comparison facility provided by the MoneyHelper website [https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/compare-annuities] before taking any further step toward the purchase of an annuity.

    

For the purposes of COBS 9B.4.28R(1)(b):

1. (1) a firm can go no further than providing a recommendation relating to the features of an annuity. Subject to that limitation (and the requirement to not expressly refer to a particular annuity), a firm is able to provide a recommendation in relation to annuities more generally, including a recommendation to consider buying an annuity; and

2. (2) a recommendation to a client relating to the features of an annuity should ensure the client aligns with a particular consumer segment in relation to which the features have been assessed as suitable, in accordance with COBS 9B.4.20R and COBS 9B.5.5R.

    

When a firm has provided a ready-made suggestion which includes a recommendation relating to an annuity in accordance with COBS 9B.4.28R(1) and (2) to a client and the firm has complied with COBS 9B.4.28R(3), it must:

1. (1) ensure that the targeted support service interaction with the client is brought to an end; and
2. (2) communicate to the client that:
   1. (a) the targeted support service interaction has ended; and

   2. (b) any further steps taken between the firm and the client towards the purchase of an annuity would form part of a separate sales journey after the client had been provided with the opportunity to visit the MoneyHelper website as set out in COBS 9B.4.28R(3).

       

A firm may refer a client to an annuity brokerage service, but only where the following conditions are met:

1. (1) the firm has complied with COBS 9B.4.32R;
2. (2) the client has been given a reasonable opportunity to act on the direction given by the firm to visit the comparison facility provided by the MoneyHelper website in accordance with COBS 9B.4.28R(3);
3. (3) the particular annuity brokerage service will provide the client with access to a sufficient range of annuities available on the market in accordance with COBS 9B.4.35R; and

4. (4) the referral is not accompanied by any quote for an annuity (including a guaranteed quote or market-leading pension annuity quote, as defined in COBS 19.9.1R(2) and (3), or an illustrative quote).

    

For the purposes of COBS 9B.4.33R(3), an annuity brokerage service will provide a client with access to a sufficient range of annuities where:

1. (1) the number and variety of annuities accessible through the brokerage service are adequately representative of annuities available on the market; and

2. (2) the brokerage service can provide access to annuities which reflect the firm’s design of the underlying consumer segment and associated ready-made suggestion.

    

    

A recommendation to consolidate pension arrangements would require a more individualised assessment of a client’s circumstances than firms are permitted to provide through a targeted support service. Pension consolidation includes:

1. (1) transferring at least one pension arrangement into an existing pension arrangement that a client holds; and

2. (2) transferring multiple pension arrangements held by the client into a new arrangement.

    

A ready-made suggestion must not include a recommendation to buy or subscribe for (including for the purpose of holding in a pension scheme), or become a lender under:

1. (1) a restricted mass market investment;
2. (2) a non-mass market investment;
3. (3) an investment subject to a restriction on distribution or promotion in COBS 22; or

4. (4) deferred shares issued by a credit union or credit union subordinated debt subject to the requirements in CREDS 3A.5.

    

1. (1) COBS 9B.4.42R does not prevent a firm from recommending a suitable investment which has a component part that provides exposure to an investment of a type referred to in that rule, such as a packaged product or a default arrangement in a qualifying scheme.
2. (2) The fact that a type of investment is not subject to the restriction in COBS 9B.4.42R does not mean that it will be appropriate for it to be the subject of a ready-made suggestion that is provided on the basis of limited information. For example, it is unlikely to be appropriate for a targeted support service to be used to recommend investments which:
   1. (a) are, or may become:
      1. (i) leveraged or structured in such a way that an investor could lose more than their invested capital;
      2. (ii) particularly illiquid or for which market prices are not readily and regularly available; or
      3. (iii) particularly volatile; or
   2. (b) are otherwise designed for a narrow target market.

3. (3) COBS 9B.4.42R does not prevent a firm from specifying a ready-made suggestion that recommends that a client sells an investment of a type referenced in that rule.