Loss of protections for elective professional clients
If you request to be treated as a professional client you may lose certain protections and investor compensation rights that you would have as a retail client. This notice contains a summary of the implications of being categorised as a professional client, and it is important that you read it carefully before agreeing to be treated as a professional client.
This notice is not comprehensive and it summarises certain provisions. Furthermore, the applicable regulations are subject to change. If you require assistance in making your decision you should seek your own professional advice.
Communications and financial promotions
As a professional client the simplicity and frequency in which we communicate with you may be different to the way in which a firm would communicate with a retail client. Regulations relating to restrictions on, and the required contents of, direct offer financial promotions do not apply to promotions to professional clients and such promotions need not contain sufficient information for you to make an informed assessment of the investment to which they relate. We will however ensure that our communication remains fair, clear and not misleading.
Information about costs and associated charges
A firm must provide clients with information on costs and associated charges. The information provided may not be as comprehensive for professional clients as it must be for retail clients.
When making a personal recommendation to a professional client, we are entitled to assume that, in relation to the products, transactions and services for which the professional client is so classified, the client has the necessary level of experience and knowledge in order to understand the risks involved in the transaction or in the management of his portfolio.
For transactions where a firm does not provide investment advice or discretionary management services (such as an execution-only trade), it may be required to assess whether the transaction is appropriate. In respect of a retail client, a firm must obtain information to determine whether the client has the requisite investment knowledge and experience to understand the risks associated with the relevant transaction. However, in respect of a professional client we are entitled to assume that the client has the necessary level of experience, knowledge and expertise to understand the risks involved in relation to those particular investment services or transactions, or types of transaction or product, for which the client is classified as a professional client.
When undertaking transactions for retail clients, the total consideration, representing the price of the financial instrument and the costs relating to execution, must be the overriding factor in any execution. For professional clients a range of factors may be considered in order to achieve best execution – price is an important factor but the relative importance of other different factors, such as speed, costs and fees may vary.
Difficulty in carrying out orders
In relation to order execution, firms must inform retail clients about any material difficulty relevant to the proper carrying out of orders promptly on becoming aware of the difficulty. This is not required in respect of professional clients.
Remuneration and incentivisation of staff
In relation to retail clients, firms are specifically required not to make any arrangement by way of remuneration, sales targets or otherwise that could provide an incentive to staff to recommend a particular financial instrument to a retail client when they could offer a different financial instrument which would better meet that client’s needs. For all clients, firms are nonetheless required to ensure that they do not remunerate or assess the performance of staff in a way that would conflict with their duty to act in the best interests of their clients.
Share trading obligation
There is a requirement in certain circumstances for shares to be traded on certain venues. This obligation can be disapplied where trades in such shares are carried out for professional clients in certain circumstances.
Reporting information to clients
For transactions where the firm does not provide discretionary management services (such as execution-only transactions), the timeframe for providing confirmation that an order has been carried out is more rigorous for Retail Clients’ orders than Professional Clients’ orders.
Exclusion of liability
A firm’s ability to exclude or restrict any duty or liability owed to clients is narrower under the applicable rules in the case of retail clients than in respect of professional clients.
The Financial Services Ombudsman
The services of the Financial Ombudsman Service in the UK may not be available to professional clients, unless they are, for example, consumers, small businesses or individuals acting outside of their trade, business, craft or profession.