Case study 2: General and personalised communications
We highlight below some, but not all, of the questions a firm could ask itself when developing communications for non-complex products covered by the requirement. We will, of course, expect firms to apply their usual compliance procedures to ensure that the communication complies with our rules.
The following questions and examples may be a useful reminder of key new issues to be considered in respect of different methods of creating communications relevant to the appropriateness test.
General communications
Questions a firm could ask itself in determining whether a communication could be regarded as general or personalised include:
- Does every potential client see the same content or is it individualised? If the content is tailored to specific consumers (for example, including details of their existing holdings in a text message communication), it is more likely to fall into the category of a personalised communication.
- Are personalised communications only sent after a potential client responds to a general communication? As the client initially responded to a general communication, later personalised communications will not trigger the test.
- Is the communication addressed to the public generally or to a large group of clients? Communications that are sent only to specific clients and tailored to their needs are more likely to fall into the category of personalised communications.
- If the media of communication is available to all, are there further steps that restrict access to information? Websites that require a password for access may be less likely to fall into the category of a communication that is by its very nature general.
- Does the medium of communication allow a wide audience? While a TV commercial would be by its very nature general, a text message or mail shot is only available for individual recipients and so could not be regarded by its very nature as general. The key consideration here, then, becomes whether it is a personalised communication.
Examples
Firm A has paid for a billboard financial promotion for its high-income OEIC: "If you’re looking for a competitive income yield, a good track record and a medium risk investment, take a look at this fund."
Firm B sends a text message to all of its existing clients: "We now offer a property fund OEIC that offers diversification from stocks and shares."
Firm C sends a similar text message, but only to a small number of selected clients and referring to their existing investments: "We hope you’re pleased with your Equity ISA. But now we can help you diversify - we offer a property fund OEIC."
Are these general?
The communication from firm A would be by its very nature general and addressed to a larger group of clients or the public at large. Text messages are not general by their very nature, so the communications by firms B and C do not fall into this category. However, firm B’s text message may be a non-personalised communication whereas the content of firm C’s text message is clearly personalised.
Personalised communications
Further questions a firm could ask itself include:
- Does the communication include details of existing holdings? This would personalise the communication.
- Does the communication refer to the client’s personal circumstances? This would personalise the communication.
- Does the communication refer to characteristics of a target market/client? This is less likely to make the communication personalised.
- Is the content of the communication changed for each potential client? If so, this is likely to make the communication personalised.
- If it is a personalised communication, does it contain an invitation or is it intended to influence a client with reference to a specific financial instrument or transaction? Services that follow a personalised communication that does not contain an invitation or try to influence a client about a specific transaction or instrument do not require the appropriateness test.
Examples
Firm D sends out a letter beginning: "Congratulations! As your retirement is just around the corner, your pension lump sum can be invested in one of the following equity funds…"
Firm E sends out a letter beginning: "If your retirement is just around the corner, you could have a pension lump sum that you may be looking to invest in one of the following ways…"
Firm F sends out a letter beginning: "Dear Mr Smith, As you are reaching retirement, we have products which are designed for those in this position which may be of interest to you."
Are these personalised?
Firm D’s letter clearly refers to the personal circumstances of the recipient and in such a manner as to imply that the highlighted investments may be appropriate in view of his/her personal circumstances. We would therefore regard this as a personalised communication that would trigger the appropriateness test. (A firm might deliberately choose to use information it already holds on a client in order to achieve a personalised approach.)
Firm E’s letter describes the characteristics of a target investor, rather than necessarily the recipient’s personal circumstances. It is not a necessary inference from the presentation of the letter that it reflects the recipient's personal circumstances since the communication could have been sent to anyone. Depending on the whole communication, we would therefore be less likely to regard this as a personalised communication.
Firm F's letter is personalised in that it recognises that Mr Smith is nearing retirement, but it does not refer to a specific financial instrument or specific transaction and therefore need not be regarded as a personalised communication.
Example
Firm G writes to clients at the end of the tax year to encourage them to make full use of their ISA allowance: "The tax-year is drawing to a close. Hurry and top up your ISA investment before it is too late. You have invested £4,200 already, but can still invest another £3,000 in this year's ISA".
Yes, as the letter refers to the client’s existing investments. (Though the client may still be deemed to satisfy the test because of his experience, unless the type of ISA changes.)
Is this personalised?
Yes, as the letter refers to the client’s existing investments. (Though the client may still be deemed to satisfy the test because of his experience, unless the type of ISA changes.)
Example
Firm H writes to its clients on the same subject, but has de-personalised the content: The tax-year is drawing to a close. Everyone has an ISA allowance of £7,200 each tax-year. If you have not made full use of your allowance, hurry now before it is too late.
Is this personalised?
No. However, if Firm H also includes a partially completed application form showing the client’s name, address, national insurance number and existing fund choice, the inclusion of these personal details in a separate document would make the communication as a whole personalised.