"Top-Up" Investments

Our compliance guys have always told us that top-up investments to existing arrangements can be covered in a very simple couple of paragraphs, without going down the full report route, and just re-cap the existing risk profile/investment strategy/charges...........I'm now including the ex-ante full tables and reduction in yield for MiFID compliance...........am I making for work for myself or is this the right interpretation?

Ruth Baker


  • edited February 14

    Per threesixty:

    We are receiving a number of queries relating to the suitability report exemption for top ups, found in COBS 9 of the FCA Handbook.

    The rule includes the following provisions:

    The obligation to provide a suitability report does not apply:

    • if the personal recommendation is to increase a regular premium to an existing contract;
    • if the personal recommendation is to invest additional single premiums or single contributions to an existing packaged product to which a single premium or single contribution has previously been paid.

    Since the implementation of MiFID II this section of the FCA handbook relates to non-MiFID investment business. This means pension and life-based investment business only. Where advice is provided for a top-up for non-MiFID business we do still recommend that a brief letter is provided to the client outlining the reasons for the transaction.

    A separate section of the handbook (COBS 9A) has been created which includes the suitability requirements for MiFID investment business. This is all regulated investment business other than pensions and life based investments and applies to your firm whether it is opted into MiFID or not.

    This new section of the handbook does not include the exemption quoted above. Stocks and shares ISAs are classed as MiFID investments and the COBS 9A requirements should be applied. Therefore a suitability report is required for top ups and it should be provided prior to the conclusion of the transaction.

  • From a regulatory standpoint i don't believe it is essential if its just a top up.

    COBS 9.4.3

    As a matter of course i would include illustration to show costs, especially if initial fees are being deducted and also something to as you say cover the risk off.. just to be safe etc.

  • Hi Aron,

    COBS 9.43 'if the firm, acting as an investment manager for a retail client, makes a personal recommendation relating to a regulated collective investment scheme'

    I thought this would cover OEICS etc.. no?

  • I don't know. I just go with what threesixty say!

    I'm also not sure what the differences actually are between a Suitability Letter and a Top Up Letter with MIFID charges. Possibly a moot point?!

  • Basically, everything in COBS 9A applies if you are providing 'investment advice', which is defined as:

    "the provision of personal recommendations to a client, either upon the client’s request or at the initiative of the firm, in respect of one or more transactions relating to designated investments."

    COBS 9A.2.2 (guidance)
    Firms should undertake a suitability assessment not only when making a personal recommendation to buy a financial instrument or an insurance-based investment product but for all decisions whether to trade, including making any personal recommendations about whether or not to buy, hold or sell an investment.

    For anything that is covered by MiFID (which is everything ISA and GIA and goes down to fund level) you need to look at COBS 9A.3.3.

    I don't think that you need a completely new ex-ante disclosure for a top up (only for the amount of the top up). But if you're recommending a fund switch check out COBS 9A.2.18. This is a pretty simple process to build but it does need doing.

    I also think it's really important to properly explain the intention for the ongoing relationship in the first report, so that the maximum amount of referring back can be used in future review letters. (see third para of 9A.3.3)

    @ruthiebusybee I reckon everything that's needed above can be delivered in a very short communication to the client, assuming that the file and the processes show it to be compliant. It might not be two paragraphs any more but it needn't be anywhere near a full report. The most important thing is to understand everything that needs doing to demonstrate suitability and compliance, then put as little into the 'top up' letter as you can.

    Benjamin Fabi FPFS
    Chartered Financial Planner

  • Hi Ben,

    Not that i disagree with any of the above, but in practical terms what really needs to be confirmed to the client to satisfy the regulator? ignoring common sense etc...

  • Everything that you would put in a suitability report.
    Benjamin Fabi FPFS
    Chartered Financial Planner

  • Yonkers420Yonkers420 Member
    edited February 14

    Ben i assume this applies to MIFID II products thought, not as in Stocks & Shares ISA as mentioned above, an investment in an OEIC would need the report but a top up to a client who is invested in a model portfolio of OEICS wouldn't


  • Yonkers420Yonkers420 Member
    edited February 14
  • @Yonkers420 It depends on whether you are operating the portfolio with discretion. If you aren't then every rebalance/fund switch is a trigger point for a periodic suitability assessment and the relevant disclosure that go with it.

    Almost certainly every fund you recommend within an ISA or GIA is a MiFID II in scope financial instrument. The fact that we label them as 'model portfolios' doesn't stop them being a collection of individually recommended funds.

    The easiest thing to do is start to look at how infrequently you can do things and bundle all these reportable events into as few as possible in an annual cycle. Otherwise you're going to drown in paperwork :'(
    Benjamin Fabi FPFS
    Chartered Financial Planner

  • Thanks Ben, I understand the funds being an 'in scope instrument' but the exemption wording to me suggests no SR required for top ups to packaged investments such as OEICS/UTs (Which we have as part of our CIP)

    I thought there was slightly different rulings for ETFs etc...

    Regardless, we always do a brief template SR for rebalances as we are on an Advisory basis and then with top ups re confirm investment horizon, risk profile and charges.

    We'll just have to ask the FCA when they visit :wink:
  • The obligation to provide SR does not apply: COBS 9.4.3 (5)

    (not withstanding MifiFID cost disclosure)

  • Notwithstanding any elements of the mifid suitability disclosures in 9A.3

    Which is basically the full works, less any elements that can be referred back to the initial recommendation.

    In the case of a fund switch, unless you knew what fund you would be switching into on the subsequent review, the fund is a mifid in scope instrument subject to full suitability requirements. The exemptions in cobs 9 don't automatically apply to things that are regulated by cobs 9a.
    Benjamin Fabi FPFS
    Chartered Financial Planner

  • Page 36 Question 9


    In ESMA’s view, when providing portfolio management to retail clients, investment firms should
    comply with their obligation under sub-paragraph 4 of Article 25(6) of MiFID II by providing the
    additional information on how the investment meets the client’s preferences, objectives and other characteristics in the context of the periodic ex-post report required under Article 60 of
    the MiFID II Delegated Regulation.

    In particular, it would be reasonable to expect that investment firms should follow the deadlines
    specified in paragraph 3 of the above-mentioned Article 60 of the MiFID II Delegated
    Regulation, whereas regarding the format, it should be left to firms to decide whether or not to
    use one single document.

    This periodic additional information should be updated when the report is issued and should
    be based on the assessment of the client’s portfolio as a whole.

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