COBS 9: the FCA’s suitability framework for investment advice

What COBS 9 actually is

COBS 9 is titled “Suitability (including basic advice) (other than MiFID and insurance-based investment products)”. The title carries the scope. The chapter applies where a firm makes a personal recommendation in relation to a designated investment, or manages investments, for a retail client — but it deliberately steps aside where the business is MiFID, equivalent third country or optional exemption business, or where the product is an insurance-based investment product.

Those excluded cases are picked up by COBS 9A, which contains the suitability requirements for MiFID investment advice and portfolio management and for insurance-based investment products. The two chapters cover similar ground but are not identical, and citing the wrong one is a reliable way to get an argument about suitability off on the wrong foot. If you are unsure which applies, the question to answer first is what business the firm is doing and what the product is — not what the advice felt like.

Our wiki has short reference entries on COBS 9 and on the Conduct of Business Sourcebook as a whole.

What COBS 9 does not cover

COBS is the conduct rulebook for designated investment business. Arranging or advising on general insurance — commercial combined, professional indemnity, motor fleet, property owners — is governed by the separate insurance conduct sourcebook, not by COBS 9. Firms that do both need to be clear which set of rules is engaged by which piece of work, because the record-keeping and disclosure obligations differ.

The structure of the chapter

COBS 9 opens with application and purpose provisions, then works through the substance:

Assessing suitability is the core obligation. The firm must obtain the necessary information about the client’s knowledge and experience in the relevant investment field, their financial situation and their investment objectives, so that it can recommend something suitable. If it does not obtain that information, it must not make a personal recommendation.

Guidance on assessing suitability fleshes out how the regulator expects that assessment to be approached, including the client’s ability to bear loss and their risk tolerance.

Suitability reports deal with when a written explanation must be provided and what it has to say — in particular explaining why the recommendation is suitable for that client and drawing attention to any possible disadvantages.

Record keeping and retention sets the periods for which suitability records must be held.

Insistent clients are addressed in additional guidance: where a client wants to act against the firm’s recommendation, the firm needs to be able to show what it recommended, that the client understood the risk, and that the resulting transaction was the client’s idea rather than the firm’s.

Basic advice on stakeholder products has its own special regime at the end of the chapter.

Why suitability drives PI claims

Almost every professional indemnity claim against a financial adviser resolves into a suitability question: was the recommendation right for this client, and can the firm show why it thought so at the time? The rulebook and the common law converge here. A regulatory suitability failure is usually also a negligence allegation, and the file that satisfies COBS 9 is generally the same file that defends the claim.

Two features of the case law matter for how a claim is valued. The first is scope of duty: an adviser is liable for the consequences of the advice being wrong, not for every loss that follows the transaction. The Supreme Court restated that principle in Manchester Building Society v Grant Thornton, and our note on scope of duty in IFA PI claims works through what it means for advice claims. The second is the boundary of the relationship: Steel v NRAM and Gorham v British Telecommunications both turn on who was entitled to rely on what was said. Loosemore v Financial Concepts remains a useful illustration of an adviser’s reach.

Defined benefit pension transfer advice has been the most claims-heavy area of all; our worked case study on a DB transfer claim shows how the pieces fit together, and concurrent liability in contract and tort explains why the limitation position is rarely as simple as the engagement date.

The Consumer Duty sits above, not instead

The Consumer Duty in PRIN 2A did not replace COBS 9. It adds an outcomes-focused overlay: firms have to act to deliver good outcomes for retail customers, and to be able to evidence that they have. In a suitability context that pushes towards clearer communications, demonstrable value and closer attention to customers in vulnerable circumstances — see our notes on vulnerable customers and fair value assessments.

What underwriters look at

When a professional indemnity underwriter prices an advice firm, the suitability process is most of the risk. The recurring questions are which permissions the firm holds and what it actually advises on, how suitability is evidenced and reviewed, what proportion of business falls into higher-risk categories, how the firm handles insistent clients, whether past business reviews have been carried out, and what the complaints history looks like. Firms that can answer those questions from their own file supervision data get a materially easier renewal than firms that cannot.

See also defensible file notes, engagement letters and liability caps, and when to notify a circumstance.

Frequently asked questions

Does COBS 9 apply to MiFID business?

No. COBS 9 is expressly for suitability other than MiFID and insurance-based investment products. Suitability for MiFID investment advice and portfolio management, and for insurance-based investment products, is dealt with in COBS 9A. The two chapters cover comparable ground but are separate, and the applicable one depends on the business and the product.

Does COBS 9 apply to general insurance broking?

No. COBS governs designated investment business. Advising on and arranging general insurance — including professional indemnity and commercial combined policies — is regulated under the separate insurance conduct sourcebook. A firm doing both needs to know which rulebook governs which activity.

What has to go in a suitability report?

Broadly, a suitability report must specify the client’s demands and needs, explain why the firm concluded the recommended transaction is suitable for that client, and set out any possible disadvantages. The Handbook text governs the detail; the practical test is whether a reader could understand, from the report alone, why this recommendation was made to this client.

What is an insistent client and why does it matter for PI?

An insistent client is one who wants to act against the firm’s personal recommendation. FCA guidance expects the firm to give its recommendation clearly, make sure the client understands the risks of departing from it, and record that the resulting course of action was the client’s. Insurers pay close attention because insistent-client files are heavily represented in later complaints.

Is a COBS 9 breach the same as negligence?

They are separate questions, but they overlap in practice. A breach of the suitability rules will usually support a negligence allegation, and a well-evidenced suitability assessment usually answers both. The measure of loss, however, is governed by the common law — including the scope of duty principle confirmed in Manchester Building Society v Grant Thornton — not by the rulebook.

Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.