Suitability of advice under the Code of Practice for Investment Business

Summary

This JFSC guidance note explains how registered persons carrying on investment business in Jersey should meet the suitability of advice requirements in the Code of Practice for Investment Business (the IB Code). It reproduces the relevant Code paragraphs (2.6 to 2.10) and sets out the JFSC's expectations on Suitability Letters, their timing and content, and how suitability should be evidenced, illustrated with two worked scenarios.

• Due diligence and suitability: Registered persons must conduct due diligence and assess the suitability of products and providers before recommending or investing, and must be able to demonstrate in writing that advice or discretion exercised is suitable for the client based on disclosed facts, agreement terms, risk tolerance and capacity for loss.
• Client information and disclosures: Where advice is given, clients must be given comprehensible, timely information, written risk warnings, details of investor compensation scheme coverage, a distinction between regulated and unregulated elements, a cost breakdown, and details of any cooling-off periods.
• Ongoing review: Adequate procedures must be in place to review investment services at appropriate intervals, with an annual review of due diligence and suitability criteria for products and providers (or within one year of taking on transferred clients).
• Suitability Letters: A tailored, jargon-free Suitability Letter should be issued at the time advice is given (or as soon as practicable, and before the client acts where the firm controls proceeding), covering recommendations, alternatives considered, fees, access restrictions, compensation scheme status, and ESG information where relevant.
• Two-stage letters: Where material terms are unconfirmed, an initial Suitability Letter should be issued followed promptly by a final letter once terms are confirmed.
• Transaction confirmation: Confirmation of investment transactions should be sent promptly, meaning no later than one business day after the transaction unless another period is agreed with the client.
• Digital and automated advice: The suitability requirements apply equally where advice or assessments are delivered through digital channels or automated systems, and clients must be clearly told when advice is automated.

The guidance particularly targets holders of Class C or D investment business registration who give advice, and includes two illustrative scenarios (an inexperienced retail client and an experienced client receiving ongoing advice) showing the documents to issue and records to retain to evidence suitability.

Key obligations

• Conduct due diligence and assess suitability of products and providers before recommending or investing on behalf of clients
• Be able to demonstrate in writing that advice given or discretion exercised is suitable, having regard to the client's disclosed facts, agreement terms, risk tolerance and loss-bearing capacity
• Provide clients with comprehensible, timely information and written explanations of risk warnings, investor compensation scheme coverage, regulated versus unregulated elements, cost breakdowns (per paragraph 4.6 of the IB Code), and cooling-off period details
• Implement adequate procedures to ensure investment services are regularly reviewed at appropriate intervals
• Conduct an annual review of due diligence and suitability criteria for products and investment service providers in relation to services provided to clients
• Where multiple clients are taken on from an existing service provider, complete the suitability/due diligence review within one year of the transfer date
• Clearly inform clients when advice or a suitability assessment is delivered through digital or automated channels
• Issue a tailored, clear, jargon-free Suitability Letter to each client at the time advice is given or as soon as practicable afterwards, and before the client acts where the registered person controls whether the client can proceed
• Where material terms are not yet confirmed, issue an initial Suitability Letter followed by a final Suitability Letter promptly once terms are confirmed
• Send confirmation of each investment transaction promptly, no later than one business day after the transaction unless another period is agreed with the client
• Retain records evidencing suitability, including fact-finds, recorded risk tolerance, discussion notes, product and provider due diligence, cost disclosures, and any vulnerability safeguards applied

Applies to

registered persons under the Financial Services (Jersey) Law 1998, holders of Class C or D investment business registration

Deadlines

• annually: Registered persons must review the due diligence and suitability criteria of products and investment service providers on an annual basis
• within one year of the date of transfer: Where multiple clients are taken on from an existing service provider, the suitability/due diligence review must be undertaken within one year of the transfer
• no later than one business day following the transaction (or within a period agreed with the client): Confirmation of an investment transaction should be sent to the client promptly