Messages firms can give customers about investments and life assurance following market volatility

This guidance is being given to firms in the context of exceptional circumstances arising out of the coronavirus pandemic. It is not intended to have a longer-term application.

Customers contacting firms for advice

These are naturally worrying times for customers. Some may find themselves in an economically vulnerable position because of the pandemic – they may have unexpected expenses or reduced income. So, they may contact firms to discuss whether the value of their investment has been affected, or options for safeguarding their financial position.

They might ask to surrender their investment, switch to less volatile funds, or cancel life assurance. Or they might ask the firm for advice on whether to take these, or other, steps. 

We are aware that some firms that do not provide advice are concerned that, by trying to provide customers with information to make better informed decisions, they may unwittingly stray into giving personal recommendations (ie providing regulated investment advice). Specific requirements apply under our rules to firms giving personal recommendations (see in particular Principle 9[1], COBS 9[2] and COBS 9A[3]) – these ensure the advice is suitable in light of the specific customer’s circumstances and objectives.

On this page, we’re setting out our views on actions that firms can take to assist customers which, in our view, don’t amount to the provision of a personal recommendation.

Ask customers for background information

Customers might have an urgent need for capital and be willing to accept losses involved in surrendering the investment at an unfavourable time. But some customers may be acting without due consideration of the downsides. Firms might like to ask customers for information to understand the circumstances or rationale behind (for example) a surrender request. This may in certain cases reveal grounds for concern that the surrender would be against the customer’s best interests. Alternatively, and without asking specific questions, firms may consider it would be helpful to their customers to remind them of general factors to consider when making a decision to exit their investment.

As ever, we expect firms to:

• act in accordance with the best interests of their customers (see Principle 6[1] and the client’s best interests rule in COBS 2.1.1R(1)[4], among other related requirements)
• communicate in a way that is clear, fair and not misleading (see Principle 7[4] and COBS 4.2.1R[4] in particular), and
• consider the needs of vulnerable customers in their communications

Communications bringing out relevant considerations the customer should bear in mind would not amount to a personal recommendation, so as long as it is clear from the language and context of the message that the firm is looking to ensure the customer makes a considered and informed decision. In contrast, if the communication involves the firm trying to guide the customer towards a particular investment strategy, then this will likely amount to advice.

Messages that are not personal recommendations

The following are examples of the kind of communication which would not, in our view, amount to the giving of a personal recommendation.

• The value of many investments has fallen significantly over the last few weeks and there may be further falls as Covid-19 continues to have an impact on the economy. When markets fall like this, many people are tempted to withdraw their money to protect it. This can lead to the investment being sold at loss that might have been avoided if the investment were held for the long term.
• If you sell when the market is down, you will likely suffer a loss in the value of your investments and might miss out on any increases in value in the future if markets recover.
• If you need money in the short to medium term and have savings that could be used instead, you might want to consider taking some money from those alternative sources, if that still leaves money in rainy day funds, rather than to realise losses from the investment.
• The Government has announced a range of measures to offer support to people during the pandemic. You may wish to investigate whether you are eligible for this support before withdrawing money from your investments.
• If the product includes life cover, you should consider the implications of cancelling it, or stopping ongoing premiums, in light of the current additional health risks.
• If you need or want to cash in your investment, you could lose out significantly in the longer term. So, you might consider only cashing in what you need.
• If the money is held in an ISA and you do decide to sell your investment to hold it in cash, you should consider keeping the money in cash within the ISA wrapper. There are limits to how much can be contributed to an ISA each year, and if you take your money out of the ISA, you might not be able to pay it back in.
• If you make regular contributions to an investment, you might wish to consider continuing to make those contributions. You will be able to invest at lower prices than before the market downturn.
• If this is a large investment, you might want to seek advice from a financial adviser before deciding to proceed.

Firms would still need to satisfy themselves, in each case, that the substance of the communication is appropriate to their customers’ situation and likely to help the customer safeguard their own interests.

Developing your own approach to helping your customers

Firms do not have to give these messages to customers. We have provided them as examples of messages firms might be considering, to clarify that in our view they would not in themselves amount to personal recommendations. Firms can develop their own approach to ensuring their customers make informed decisions.

Where a firm is concerned that a customer is making a decision that is not in their best interests, bringing this up with the customer would be in keeping with the firm’s obligations. However, firms are not required to give the specific messages set out in this guidance. It is for firms to judge and act on the information needs of their customers.

Avoiding providing regulated advice

We recognise that customers might respond to these messages by asking for more support or advice on what to do.

We think firms can and should try to help their customers where possible by prompting them to consider relevant options, and warning of any downsides. However, firms should be careful not to provide regulated advice, even implicitly, by steering the customer to a specific course of action on their investments, unless they are willing to comply with the conduct requirements concerning personal recommendations. Please see our Perimeter Guidance (PERG 8[5] in particular) for more information on what kinds of communications are likely to be personal recommendations.

Firms may also like to consider the rules and guidance for defined contribution pension schemes in COBS 19.4.15G to 19.4.18R[6]. While these provisions are designed specifically for exercising open market options for defined contribution pensions, they show the type of timely, relevant and adequate information that can and should be provided to a customer to help them make informed decisions.

Signposting customers to advisers

Firms might also consider referring the customer to financial advisers if the customer needs or requests more support to make a decision. Consumers in financial difficulty can also contact MoneyHelper[7] for further guidance.

Complaints

We have spoken to the Financial Ombudsman Service, which confirmed that, in deciding what is fair and reasonable in all the circumstances of a complaint, this note would be one of the things that it will take into account if a customer brings a complaint about the firm’s communications on surrendering investments at this time.

Further information

If you would like us to consider updating this note or to include further information, please let us know by contacting us: [email protected]. We will consider giving firms additional help on this issue.

Please also see the FCA webpages on coronavirus[8] for further information from us about actions we are taking and our expectations of firms.

On 1 April 2020, the Pensions Regulator (TPR) and the Financial Conduct Authority (FCA), supported by The Money and Pensions Service (MaPS), urged savers to keep calm[9]. They said, fears over the impact of the pandemic on markets and personal finances may make savers more vulnerable to scams or making a decision that could damage their long-term interests.