10.4 Limitations to Authority, Cancellation Rights and Vulnerable Clients

Limits to Authority and Scope of Expertise

An adviser's authority is not unlimited. It is bounded by:

• The scope of the agreed service — for example, a one-off mortgage review does not authorise the adviser to make pension recommendations without a separate engagement.
• The adviser's scope of expertise — an adviser qualified only in mortgages cannot advise on investments or pensions; doing so would breach the Training and Competence (T&C) regime and the duty of suitability.
• The client's instructions and authority — the adviser cannot transact outside the client's written or verbal authorisation.

Recommending outside these limits is a breach of duty and may also be a breach of the regulatory permission held by the firm under the Permissions Register. The FCA takes a particularly serious view of advisers giving advice in areas where neither they nor their firm is permitted to do so.

The 'Reasons-Why-Not' Rule

When an adviser recommends one product over another, COBS requires the suitability report to explain why the recommended product was considered suitable and, where relevant, why other apparent alternatives were not recommended. This is often called the reasons-why-not requirement. It forces the adviser to demonstrate that they have considered the relevant market and not simply defaulted to a single product.

In practice, the reasons-why-not is satisfied by:

• Stating the client's needs and objectives.
• Identifying the type of product that meets those needs.
• Explaining why the recommended product is suitable and why the alternatives were rejected.
• Documenting any insistent client request where the client has chosen a product the adviser would not have recommended.

Cancellation Rights under COBS 14 and COBS 15

Retail clients benefit from statutory cooling-off periods. The relevant rules sit in two COBS chapters:

• COBS 14 — Distance Communications — implements the distance marketing rules for contracts concluded exclusively at a distance (internet, telephone, post). The client must receive prescribed information before the contract is concluded.
• COBS 15 — Cancellation — sets the cooling-off periods that apply to cancellable contracts.

The length of the cancellation right depends on the product:

The cancellation right begins on the day the contract is concluded or, where required information is sent later, on the day it is received. Exemptions apply — for example, certain securities whose price depends on market movements, and contracts that have already been fully performed at the client's written request.

Practical Cancellation Issues

If a client cancels within the period, the firm must refund any payment without charge other than to restore the client to the position held before the contract. Where market movements have reduced the value, the firm may reflect that reduction in the refund in some cases — but the rules are strict and the firm should always seek to act fairly.

Vulnerable Clients — FG21/1

The FCA's Finalised Guidance FG21/1 — The Guidance on the Fair Treatment of Vulnerable Customers — sets out the regulator's expectations for how firms should treat clients who are vulnerable. FG21/1 defines vulnerability broadly and identifies four drivers of vulnerability:

1. Health — physical or mental illness, disability, or long-term condition that affects the client's ability to deal with the firm.
2. Life events — bereavement, relationship breakdown, job loss, or other significant life change.
3. Resilience — low ability to withstand financial or emotional shocks, including low savings and high debt.
4. Capability — low knowledge, confidence or ability to manage finances, including literacy, numeracy and digital exclusion.

Vulnerability can be temporary (a short illness), fluctuating (a mental health condition with good and bad periods) or long-term (a permanent disability). A client may also have more than one driver at the same time — for example, a serious illness (health) leading to loss of income (life events) that lowers financial resilience.

FCA Expectations under FG21/1

FG21/1 expects firms to:

• Understand the needs of vulnerable clients in their target market through data, research and feedback.
• Equip staff with the skills and confidence to identify and respond to vulnerability.
• Take practical action — including product design, customer service and communication that meets the needs of vulnerable clients.
• Monitor outcomes and adjust practice where vulnerable clients are not getting outcomes as good as those of other clients.

Reasonable Adjustments

Under the Equality Act 2010, firms must make reasonable adjustments so that a disabled person is not placed at a substantial disadvantage compared to a non-disabled person. In financial services, this may include:

• Providing information in alternative formats (large print, braille, audio).
• Allowing more time for decisions.
• Offering alternative communication channels.
• Adjusting the advice process to accommodate a support person or interpreter.

A firm cannot charge for reasonable adjustments, and the duty is anticipatory — the firm must plan for the needs of disabled clients, not wait until a complaint is made.

The Consumer Duty — PRIN 12

The Consumer Duty, in force since 31 July 2023, is set out in PRIN 12 and supported by rules in COBS, PROD and other modules. The Duty comprises four overlapping obligations:

1. Act in good faith — towards retail clients at every stage.
2. Avoid causing foreseeable harm — including from products, distribution and advice.
3. Enable clients to pursue their financial objectives — through suitable products and clear communications.
4. Deliver good outcomes — for retail clients, evidenced by data and monitored over time.

The Consumer Duty applies to vulnerable clients with particular force. A firm that fails to identify a vulnerable client and adapt its service may breach PRIN 12 even if it has technically complied with the underlying COBS rules. The Duty is therefore a powerful overlay that elevates the standard expected of all advisers.