The Financial Advisers Act (FAA) regulates companies and individuals that provide advice on investment products to consumers. Administered by the Monetary Authority of Singapore (MAS), the FAA sets common standards for those who give investment advice by introducing some important initiatives to protect your interests as a consumer.
The information below are extracted from MAS’s Guide “Dealing With A Financial Adviser: What To Look Out For?”
Part I : Who are Financial Advisers?
Part II: What do you expect from Financial Advisers?
Q: What activities are regulated under the FAA?
A: The FAA regulates the following activities:
- Providing advice on investment products including securities (which includes unit trusts), futures contracts, foreign exchange and leveraged foreign exchange contracts, and life insurance policies (which includes investment-linked life insurance products);
- Issuing reports on investment products;
- Marketing collective investment schemes, i.e. unit trusts; and
- Arranging life insurance products.
The FAA does not regulate the following:
- General insurance – These are arranged by insurance intermediaries under the Insurance Act. They are consumption-based and are therefore not considered investment products.
- Bank deposits – These are offered by banks regulated under the Banking Act. They have lower risks and are generally well-understood by the public.
- Loans and mortgages – These do not have any investment element.
MAS is proposing to issue guidelines on the sale of structured deposits under the FAA.
Q: How does the FAA benefit me?
A: The FAA sets minimum entry and examination requirements for all representatives intending to provide financial advisory services. Persons who provide financial advisory services must be fit and proper. In dealing with consumers, financial advisers (FAs) and their representatives must have a reasonable basis for the recommendations that they make. They have to take into account your investment objectives, financial situation and personal needs when recommending an investment product.
In addition, FAs and their representatives must disclose material information to you, including the risks of the product, the representative’s status and the fees and charges to be paid by you.
Q: Who can give advice on investment products to consumers?
A: MAS regulates the following types of firms or persons who can give advice on investment products to consumers:
Licensed financial advisers (Licensed FAs)
These companies are required to hold a financial adviser’s (FA) licence under the FAA. Among other things, they must have a minimum paid- up capital of either $150,000 or $300,000 depending on the activities they conduct, and professional indemnity insurance.
Exempt financial advisers (Exempt FAs)
These are banks, merchant banks, finance companies, insurance companies, insurance brokers and holders of a capital markets services licence. Exempt FAs are exempt from holding a FA licence because MAS already regulates them under separate legislation. They must meet similar business conduct rules under the FAA as licensed FAs.
Financial adviser’s (FA) representatives
These are employees or agents appointed to provide financial advice on investment products to consumers on behalf of the licensed FAs or exempt FAs. Individuals acting for a licensed FA must hold a representative’s licence. Individuals acting on behalf of an exempt FA are exempt from holding a representative’s licence. Representatives of licensed FAs and exempt FAs must meet the same minimum entry and examination requirements, and similar business conduct rules.
Q: Does MAS regulate all financial planners? What is the difference between a financial planner and a financial adviser?
A: MAS regulates firms and persons that give advice on investment products to consumers. MAS does not regulate tax and estate planning activities.
Under the FAA, only firms licensed as a FA and firms that are exempt FAs can use the term “financial adviser”. This helps you identify whether you are receiving financial advice from an entity regulated by MAS. MAS does not restrict the use of titles such as “financial planner”, “financial analyst” or “financial consultant”. You should be aware that persons who use such titles may or may not be regulated by MAS. You can get information on the list of FAs regulated by MAS by visiting the MAS website at www.mas.gov.sg under “Financial Institutions Directory”.
Q: How are independent FAs different from other FAs?
A: Independent FAs are able to advise consumers on a wide range of investment products from various product providers. Only FAs who can clearly show that they do not have financial or commercial links with product providers that may influence their recommendations to consumers can use the term “independent”. Representatives of tied FAs, on the other hand, can only recommend products of selected product providers that the FAs are tied to.