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FCA clarifies advice definition as it launches consultation
by Danielle Levy on Jul 11, 2014 at 13:16
- The recommendation is presented as suitable for the person
- The recommendation must relate to taking certain steps in respect of a particular investment
The FCA noted that a firm may provide a recommendation in the form of an investment bulletin that is not targeted at individual customers without it constituting a personal recommendation and therefore triggering the suitability requirements. However, this could still amount to regulated advice.
If a personal recommendation is given, no matter what form, the FCA stressed suitability requirements and the need for firms to obtain information from the client to understand they have a 'reasonable basis' to believe the following:
- The recommendation meets their objectives;
-The client can financially bear any related investment risk consistent with their investment objectives;
- They have the necessary experience and knowledge to understand the risks involved.
Meeting suitability requirements is necessary even if a personal recommendation is provided through a simplified advice process.
'However, it is important to note that the suitability requirement is flexible and allows firms to develop a simplified process dependent on the product and type of customer for which it is intended. For example, the suitability test is qualified by reference to ‘the nature and extent of the service provided’, and the information that must obtained is qualified by the condition ‘where relevant’. The information that it is ’necessary’ for a firm to obtain will vary from cases to case. The more complex and high risk the product, the higher the threshold of required information,' the FCA said.
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