The Advice Framework: Clients, Disclosure, Charging & Vulnerability

AC7.3 is where FRE2 turns rules into client situations. Expect a named client and a question about what you must disclose, how you may be paid, whether the client can still cancel, whether you are allowed to advise at all, or how to treat someone who may be vulnerable. Most wrong answers come from three slips: using the wrong cancellation period, applying the investment commission ban to mortgages or protection, and calling a limited service 'independent'. Learn the periods in the table, the charging split, and the disclosure words.

11 min read7 sections

Checked against: Walbrook (formerly LIBF) FSRE specification v7 (July 2026), FRE2 LO7 AC7.3; FCA Handbook COBS 3.5, 6.1A, 6.2B, 9.2, 15.2; ICOBS 7.1; MCOB 2.3, 4.4A, 4.6, 4.7A, 6A.3; TC 2.1 and TC App 1; PRIN 2A; FCA FG21/1; RAO art. 61; FSMA 2000 s39; Pension Schemes Act 2015 s48 and SI 2015/742 reg 5; checked 11 Oct 2026. Independent prep, not endorsed by Walbrook (formerly LIBF).

Must-know for the exam

Retail client is the default under COBS 3.4.1R. Opting up to elective professional needs a qualitative assessment, two of three quantitative criteria and a written warning (COBS 3.5.3R).
A regulated mortgage contract needs credit to an individual or trustees, secured on UK land, at least 40% used as a dwelling, and no art. 61A buy-to-let exclusion (RAO art. 61).
Mortgage initial disclosure (MCOB 4.4A, checked 11 Oct 2026): range limits, fees and when payable, and whether the lender pays commission, given during the initial contact.
An MCD mortgage intermediary may call itself independent only if its consideration of the market is unlimited (MCOB 4.4A.4R(3)). Charging a fee does not make it independent.
Investment advice is independent only if it covers a sufficiently diverse range of products and providers (COBS 6.2B.11R); otherwise disclose 'restricted advice' before advising, orally too (COBS 6.2B.33R, 6.2B.38R).
Since 31 December 2012, advice on retail investment products is paid only by adviser charges (COBS 6.1A.4R). Commission is still allowed on mortgages and pure protection, if disclosed.
Ongoing adviser charges need an ongoing service (COBS 6.1A.22R). Volume overrides, where a payment rises once a business target is exceeded, are banned (MCOB 2.3.6R).
Cancellation, checked 11 Oct 2026: 30 days for life, pension and pure protection; 14 days for other investments and general insurance (COBS 15.2.1R, ICOBS 7.1.1R).
Mortgages: no right of withdrawal once concluded (MCOB 6A.3.9R), but a reflection period of at least 7 days after a binding offer (MCOB 6A.3.4R).
Defined benefit transfers worth over £30,000 need appropriate independent advice (Pension Schemes Act 2015 s48; SI 2015/742 reg 5). Equity release advice needs its own qualification (TC App 1).
FG21/1 (February 2021): the four drivers of vulnerability are health, life events, resilience and capability. PRIN 2A.9 requires firms to act when a group gets worse outcomes.

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Traps that cost marks

Assuming wealthy or experienced individuals start life as professional clients.
Thinking all three quantitative criteria are needed, or that wealth alone makes an individual a professional client.
Assuming retail clients need no notice because retail is the default.
Looking only at how the property is used and forgetting the borrower must be an individual or trustees.
Treating any arrangement where rent is paid as unregulated buy-to-let.
Confusing fiduciary loyalty with a promise about results.
Thinking a payment is harmless as long as the client pays no more.
Assuming whoever pays the broker is the person it works for.

Who is your client: categories and mortgage customers

Your duties depend on who the client is. For investment business, COBS 3 sorts clients into three categories, and the firm must tell a new client its category before doing business (COBS 3.3.1R).

Category	Who	Protection
Retail client	Anyone who is not professional or an eligible counterparty (COBS 3.4.1R)	Highest
Professional client	Per se (institutions, COBS 3.5.2R) or elective: individuals who opt up under COBS 3.5.3R	Lower
Eligible counterparty	Banks, insurers and similar, for dealing and execution business only (COBS 3.6)	Lowest

COBS 3 client categories. Eligible counterparty status never applies to advice.

To opt up, an individual must pass a qualitative assessment of expertise and meet two of three tests: about 10 significant trades a quarter over four quarters, a portfolio above €500,000, or at least a year working in a professional role in the financial sector. Then come a written request, a written warning of lost protections and a written acknowledgement (COBS 3.5.3R).

For mortgages, MCOB protects a customer under a regulated mortgage contract: credit to an individual or trustees, secured on UK land, with at least 40% used as a dwelling and no buy-to-let exclusion, which cannot apply where a related person such as a spouse, parent or child lives there (RAO art. 61, legislation.gov.uk, checked 11 Oct 2026). A loan to a limited company is outside MCOB. A flat let to the borrower's son is inside it, rent or no rent.

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Cancellation rights and the mortgage reflection period

Cancellation periods are a favourite exam topic because they sit side by side and differ by product. Learn this table (handbook.fca.org.uk, checked 11 Oct 2026).

Product	Period	Source
Life policy, pension contract, pension transfer, income withdrawal variation	30 calendar days	COBS 15.2.1R
Pure protection (term assurance, income protection, critical illness) and payment protection	30 days	ICOBS 7.1.1R
Units in a regulated fund or ISA bought on advice, face to face	14 calendar days	COBS 15.2.1R
Cash deposit ISA	14 calendar days	COBS 15.2.1R
Investment or deposit contract sold at a distance	14 calendar days	COBS 15.2.1R
General insurance, e.g. buildings or contents	14 days	ICOBS 7.1.1R
Broker's service contract made at a distance (distance mortgage mediation contract)	14 days	MCOB 4.6.4R
Regulated mortgage contract (MCD)	No right of withdrawal once concluded; at least 7-day reflection period after a binding offer	MCOB 6A.3.9R, 6A.3.4R

Cancellation periods as at 11 Oct 2026.

•The clock starts on the later of the day the contract is concluded and the day the client receives the terms and pre-contractual information (COBS 15.2.3R, ICOBS 7.1.5R). For life policies it runs from when the client is told the contract is concluded.
•The reflection period is time to think, not a compulsory wait. The offer stays binding and the customer may accept on any day of it (MCOB 6A.3.4R).
•Exceptions exist: ICOBS 7.1.3R removes the right for, among others, travel policies under one month and non-distance pure protection of six months or less.

Trap: giving a mortgage a 14-day cooling-off right like a personal loan, or using 14 days for term assurance because it is 'insurance'.

Takeaway: Life, pensions and protection 30 days; other investments and general insurance 14 days; mortgages no withdrawal, but 7 days' reflection.