Is this a financial promotion?
This is an updated article which originally appeared in DPB Update 2. It has been updated to reflect changes in the Financial Promotions Order.
This article is about financial promotions and supplements the one in DPB Update Issue 1 (Financial Promotion - Article 1). That article focused on the exclusions in the Financial Promotions Order 2001 (FPO) so that firms which are not eligible to issue financial promotions (i.e., unauthorised firms, which include DPB licensed firms) could gain a basic understanding of the new arrangements. In order to further assist firms understanding from a practical perspective of how the FPO might impact on their day-to-day activities, this article identifies a number of scenarios that firms have raised which could result in a financial promotion being made. It is recommended that you familiarise yourself with the other article before reading this one.
This article cannot cover every situation that might arise. It is only intended to give a general indication of the issues that need to be considered when deciding whether or not a communication is exempt from the restrictions in section 21 of the Financial Services and Markets Act 2000. This will involve careful consideration of the purpose of the communication and whether this falls within one of the exemptions in the FPO. The specific conditions of the exemptions were explained in the last article and firms should refer to this when considering the scenarios. Some of the scenarios rely on the use of the exclusions that are only available to DPB licensed firms. Where appropriate this is noted
High net worth individuals etc
There are a number of exemptions in the FPO which allow financial promotions to be sent to certain types of individuals and other organisations.
Do I need to ask a high net worth individual or sophisticated investor whether they have a certificate confirming their status?
It would be advisable to ask the individuals to confirm that they have such certificates.
See articles 48 & 50A.
Are there any other types of person to whom I may make a financial promotion?
The exemptions allow promotions to be made to a number of persons including high net worth companies, sophisticated investors and to investment professionals.
See article 19, investment professionals; article 49, high net worth companies; unincorporated associations etc and article 50 sophisticated investors.
Do these persons require certificates?
Investment professionals, high net worth companies and unincorporated associations do not need to hold a certificate. You must reasonably believe that the entity meets the criteria and you will need to ensure that the various conditions attached to the exemptions can be satisfied before sending the communication.
Can I promote the sale of a client's business?
Yes, provided that this is with a view to the acquisition of day-to-day control.
See article 62 on sale of a body corporate.
The above is only intended to give a general idea of how the exemptions can be used and should firms be uncertain about whether a promotion they are making is exempt, they should seek legal advice or contact the Institute.
These are known as 'real time' communications. Firms will need to be wary during conversations with clients that they do not inadvertently make a financial promotion. Examples of the scenarios that could typically arise where the FPO might apply are:
What if the client requests the firm to provide investment business advice?
A DPB licensed firm can talk to a client about the investment business activities that it can undertake under the DPB Handbook. The firm can also talk about other services and investments on a 'one off' basis provided this is based on its conversation with the client.
See article 55 on real-time financial promotions by professional firms and article 28 on one-off financial promotions.
What if during a conversation the client requests an introduction to another firm for the provision of investment services?
This will not be a financial promotion if the client is introduced to an independent authorised person so that the client can find out about the services offered by the person.
What if I wish to introduce the client to an associate?
Again, you can do this provided it is so that the client can find out about the services offered by the associate (which is widely defined).
What if the referral is made with a view to the client engaging in a regulated activity?
This will be a financial promotion but will be exempt if this is done on a one-off basis.
See Article 28 on one-off communications.
What if I initiate a conversation with a client about an investment?
Again, this can be done if you believe the client understands the risks involved and he would expect to be contacted by you about this. It would be advisable to also have the standard paragraph in the engagement letter that was described at the end of the article in DPB Update No 1.
See Article 28A on one-off communications.
What can I say in a presentation?
The presentation must not be a financial promotion. Consequently, you can only talk about investments in general.
See article 17 on generic promotions
What must I avoid saying in a presentation?
You should not talk about specific products provided by specific investment business organisations nor should you specifically identify someone as being able to offer advice or otherwise assist with the purchase of a product.
Can I respond to questions?
You should also be careful when answering questions so that you do not make a financial promotion to the other members of the audience.
What does my engagement letter need to contain to allow me to telephone a client about an investment opportunity?
There is a standard paragraph that you can use which is contained in the DPB Handbook (see page 82).
This is another example of a non-real time communication.
What can I put on my website about my firm?
You can set out the services that can be offered by the firm under the DPB Handbook, as you would in a brochure; this would need to include the specific statement referred to above.
If the investment services of another firm are being promoted on the website the considerations as to whether or not this will be exempt will be similar to those described above for brochures.
See article 55A on financial promotions by professional firms, article 15 on introductions and article 17 on generic promotions.
What links to other firms can I put on my website?
Firms should be wary of providing links to the websites of investment business organisations. However, if the description of the link is limited to simple statements about access to another site for further information this should be exempt.
When would a link to another website not be exempt?
When the references to the link are aimed at encouraging persons to engage the investment business organisation to provide investment services.
What is a financial promotion?
A financial promotion is deemed to take place when a firm communicates with a person with a view to persuading or encouraging him or her to purchase or sell an investment or engage in other regulated investment activities.
These are known as non-real time communications as there is evidence, a letter, e-mail etc, of the communication made.
What can I put in a brochure or in correspondence about my firm?
A DPB licensed firm can set out the investment business activities that can be undertaken under the DPB Handbook. It can also write to clients about these activities and respond to requests from clients for advice or other services in connection with these activities. A specific statement must be included in the communication which explains the firm's status under the Financial Services and Markets Act (see page 83 of the DPB Handbook).
See Article 55A on financial promotions by professional firms.
Can I do a written financial promotion to all my clients?
This may be possible. However, you would need to be satisfied that this is as a result of your knowledge of each client's individual circumstances and not as part of a marketing campaign to all your clients.
See article 28 on one-off promotions.
Are there any circumstances when the exemptions for professional firms would not apply?
Yes, when the communication is about a DPB activity that would not be incidental to, or arise out of, the provision of professional services.
Can I indicate in the brochure that I can refer the client to an independent authorised firm for the provision of investment services?
Yes, provided you do not identify the other firm or the specific activities that can be carried on by it.
Some suggested wording was included in the last article.
See article 17 on generic promotions.
What if I want to identify the firm?
The promotion will have to be approved by an authorised firm.
Can the approval be obtained from the firm to whom the introduction is being made?
Yes and it will not make any difference if it is an associated firm.