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Know your customer

Before an authorised firm can provide a personal recommendation to a private customer is must make certain that it knows enough about that private customer in order to arrive at that personal recommendation.

The type of information that might be gathered could include the following,

The above details with others can guide the authorised firm in the advice they provide to their clients and support any personal recommendation they provide.

The authorised firm must keep a record of each personal recommendation it provides a private customer and the information and reasons for making that recommendation and the information gathered. The information gathered is often obtained and stored on what is called a ‘fact find’.

Suitability

An authorised firm must take reasonable steps to make certain that any personal recommendation it provides does take into account the customers demands and needs.  

A firm must provide the customer with a suitability letter that explains why the transaction is suitable for the customer if a personal recommendation has been provided in respect of,

The letter must be sent no latter than the cancellation notice period or as soon as possible where a cancellation period does not apply.   A letter is not required with friendly society life polices with premiums not exceeding £50 per annum or £1 per week. It is also not required for increases in regular life insurance premium contracts and single premium top-ups of single premium contracts.

Customers understanding of risk

Authorised firms must take reasonable steps to make certain that the customer understands the risks attached to any recommended investment.