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online technical resource

"execution only" sales

This note applies mainly in relation to "packaged" investment products.

"Execution only" is a term introduced by the financial services regulator to describe sales where a consumer has requested a specific investment – and has chosen not to receive advice at that time. A lot of people know enough about investments to make their own decisions – and/or do not want to explain their circumstances to investment companies.

Execution only is described by the Financial Conduct Authority (FCA) as:

… a transaction executed by a firm upon the specific instructions of a client where the firm does not give advice on investments relating to the merits of the transaction and in relation to which the rules on assessment of appropriateness ("COBS 10") do not apply.

In the complaints that consumers refer to us, we do see problems with the misuse of execution only. We see cases where it has been used as a “way round” regulation – for the inappropriate sale of investment products. In certain circumstances, the appropriateness test required under COBS 10 could apply even for execution only sales. This is discussed further below.

execution only notices

A business needs to provide "clear and credible" evidence that an investment transaction is "execution only" – to avoid the regulatory obligations that apply when providing investment advice.

This requirement was clarified by PIA Regulatory Update 33 in relation to pensions – and we usually decide that the standard of evidence required is the same for other investments. When we decide whether the required standards were satisfied, we will look at the rules that were in place at the time of the transaction.

The "clear and credible" evidence that a business usually provides is in the form of an execution only notice. This is a statement signed by the consumer, agreeing that:

  • they are aware the transaction is execution only;
  • they have not asked for or received advice;
  • it is their decision alone to take out the investment; and
  • the business is taking no responsibility for the product's suitability.

If a statement like this is clearly worded and signed, it cannot be dismissed easily. A notice does not have to be signed. But unsigned notices can lead to questions about whether the consumer saw them.

An execution only notice can be a stand-alone document – or it can be included as part of another document.

what complaints do we see?

Where complaints involve execution-only sales, consumers often say:

  • "I was asked to sign a form as part of the sales process – they told me not to worry about what it said, and so I just signed it;" or
  • "I was sent an offer by letter/mailshot";

and then the product sold turned out to be unsuitable.

our general approach

When we consider complaints involving execution only sales, we begin by taking into account the consumer's background.

If they appear to be an experienced investor – or worked at the time of the sale in the investment industry – it is likely that we can take the execution only notice at face value.

But if they appear not to have an investment history and no apparent connection to the investment industry, we will usually decide that the case needs further investigation.

Where we investigate a case further, we will need to statements from both the consumer and the salesperson involved (if possible), explaining why the execution only notice was signed.

If the salesperson can’t be found – or their statement does not make it clear why execution only was appropriate for the consumer concerned – we will ask the business to explain why the consumer would have taken this route.

If the case seems evenly balanced, our decision is likely to turn on the clarity (or otherwise) of the execution only notice itself.

We sometimes see cases where there is no clear reason why the consumer has made their own choice of investment – and it is unclear where they got the information to make their decision. We are unlikely to rely on an execution only statement in these cases without a clear explanation – from either party – of what information the consumer used to make their decision.

compensation

If we decide that the execution only notice cannot be relied on, we will consider whether the investment that the consumer bought (or was sold) was appropriate. We will do this by looking at their circumstances at the time of sale.

If we take the view that the investment product was appropriate for them, it usually follows that the consumer should not receive any compensation for this aspect of their complaint. But we may still tell the business to pay a small amount of compensation for distress and inconvenience – to compensate the consumer for the fact that the business relied on an inappropriate "execution only" notice.

If we decide that the investment product was not appropriate for them, our usual approach to compensation for mis-selling an investment is likely to apply. There is more information about this in the section on our website on compensation for being "deprived" of money and for investment loss.

MiFID – and changes from November 2007

MiFID introduced an "appropriateness" test for "non-advised sales". This means that in some cases – even for execution only sales, the business has to ask the consumer for more information to help it decide whether the consumer has the necessary knowledge and experience to understand the risks involved in the transaction.

This applies in the case of "complex" products (for example, some structured products or spread-betting contracts). It also applies where the financial business, rather than the consumer, has initiated the sale in the case of some "non-complex" products and also where a specific warning has not been given that the financial business is not required to assess the suitability of the product.

Under MiFID and COBS 10, a financial business is taken to have initiated the sale if it has sent a consumer a personalised communication. Under these circumstances, the business would need to carry out an appropriateness test. However, where a consumer has seen a product advertised – for example, in a newspaper or on a billboard – the appropriateness test is not triggered. But where necessary, we will look carefully at other communications – to see if they are personalised.

help for businesses and consumer advisers

contact our technical advice desk on 020 7964 1400

This is part of our online technical resource which sets out our general approach to complaints about a wide range of financial products and issues. We would like your feedback on how helpful you found it. Please also use the feedback form below to tell us about anything you think we could clarify or explain better.

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  • The law requires us to decide each case on the basis of our existing powers and what is fair in the circumstances of that particular case.
    We take into account the law, regulators' rules and guidance, relevant codes and good industry practice at the relevant time.
    We do not have power to make rules for financial businesses.
    Our current approach may develop in the light of circumstances disclosed by further cases we receive.
    We may decide that fairness requires a different approach in a particular case.