Report on the Thematic Review of Investment and Long-term Insurance Sales Practice (2014-06)

Summary

This is a thematic review report published by the Guernsey Financial Services Commission summarising findings from on site visits conducted in late 2013 to licensees advising retail customers on investments and long term insurance products. It is a follow up to similar visits in 2012 and a subsequent Commission letter, and sets out areas of good and poor practice observed, together with the Commission's expectations going forward under the Principles of Conduct of Finance Business.

• Client information: Licensees should gather sufficiently detailed and specific information on clients' objectives, non mortgage liabilities, willingness to take risk and capacity to bear loss, not just generic fact find categories.
• Client advice: Written advice should clearly and specifically express client objectives, explain product risks in relation to the client's own risk profile, avoid relying solely on product provider literature, and reference cooling off periods.
• Costs and charges: Total adviser and product costs, including platform fees and retrocession payments, should be itemised together in cash and percentage terms rather than scattered across documents.
• Peer review and research: Peer review of advice should be evidenced within client files, including any changes made, and research supporting product recommendations (especially for investment products) should be documented.
• Investment platforms and central investment processes: Use of a single investment platform or a central investment process/white list should be justified to clients and supported by documented policies, review criteria and evidence of operation.
• Conflicts of interest: Licensees, particularly those offering in house RATS or related group products, must make clients aware of any conflicts of interest.
• Pension transfers: Advice on transferring pensions into Retirement Annuity Trust Schemes should not present the transfer as a foregone conclusion, should allow clients to compare existing and new scheme costs clearly, and for defined benefit transfers of £30,000 or more an actuarial report is required, with the required return also considered net of charges.

The report is informational and diagnostic rather than a new rule, but it restates and clarifies existing obligations under the Principles of Conduct of Finance Business and signals that further enforcement action may follow for licensees who fail to improve their sales practices.

Key obligations

• Licensees must seek sufficient information about a client's circumstances, objectives and ability and willingness to take risk before giving advice, per Principle 4 of the Principles of Conduct of Finance Business.
• Licensees must provide clients with clear, comprehensible written advice explaining recommendations and how they meet the client's objectives, per Principle 5 of the Principles.
• Licensees must take reasonable steps to satisfy themselves that clients understand the advice given.
• Licensees must disclose to clients the total costs of a recommendation, including adviser fees/commissions and product costs, in a clear and itemised manner.
• Licensees must evidence and document peer review of advice, including any changes made by the reviewer.
• Licensees must justify to clients the use of an investment platform and evidence the suitability and operation of any central investment process or product panel.
• Licensees must make clients aware of any conflicts of interest, including in relation to in house or group related products.
• When advising on transfer out of a defined benefit pension scheme with a transfer value of £30,000 or above, licensees must produce an actuarial report and provide it to the client.

Applies to

licensees providing investment advice to retail customers, licensees providing long term insurance advice to retail customers, intermediaries advising on Retirement Annuity Trust Schemes (RATS)