22 June, 2018
The Monetary Authority of Singapore (“MAS”) has issued a consultation paper (“Consultation Paper”), inviting comments on its proposal to issue new guidelines relating to the Financial Advisers Act to (“FAA”):
(a) provide greater clarity on what constitutes the provision of a financial advisory service under the FAA; and
(b) set out the key principles that financial advisers should incorporate in the design of their forms used to conduct fact-finding and needs-analysis, and to make suitable product recommendations.
Proposed guidelines on provision of financial advisory service
MAS has proposed to issue new guidelines on the provision of financial advisory service to provide clarity to the industry and general public as to how it decides whether a person is deemed to be carrying on the business of providing financial advisory service. This proposal was in response to feedback that there was ambiguity on the form of communication that could be construed as the provision of financial advisory service, given the proliferation of online activity in investments and financial product seminars.
The proposed guidelines (found in Annex A of the Consultation Paper), sets out a two-stage test as follows:
Stage 1: Determining whether the activity amounts to the provision of financial advice
MAS has proposed for the first stage to involve a determination of whether the activity under assessment amounts to providing financial advice. In this regard, MAS has stated that it intends to take into consideration whether the activity involves the provision of factual information or an expression of opinion. It is proposed that a recommendation or an opinion on the merits of buying, selling or holding a particular investment product or class of investment product would be considered as providing financial advice, while the provision of factual information in an unbiased manner would not.
Additionally, MAS also intends to take into consideration the overall impression created by the communication, as well as the context and surrounding circumstances in which it is communicated.
Stage 2: Determining whether the person is carrying on a business in such activity
If the activity is determined under the first stage to amount to the provision of financial advice, it is proposed that the second stage will be to determine whether the person concerned is doing this as a business, and factors relevant to this second stage determination would include:
(a) whether the financial advice is given systematically and with continuity; and
(b) whether the person is remunerated for providing the financial advice.
Proposed guidelines on the design of advisory and sales forms
MAS is also consulting on proposed new guidelines on the design of advisory and sales forms. The proposed guidelines come in the wake of variability in the quality of forms used by financial advisers, as observed by MAS. In particular, MAS noted that forms often used long and complex sentences, and financial and legal jargon that clients might not fully understand, repetitive questions and disjointed structures that do not properly mirror a proper sales and advisory process.
The proposed guidelines seek to:
(a) highlight good practices in the design of forms;
(b) improve the readability of forms; and
(c) facilitate clients' understanding of the advisory and sales process, as well as key information which is to be disclosed in the forms.
The proposed guidelines (found in Annex B of the Consultation Paper), features three guiding principles for the advisory and sales forms:
Principle 1: Using clear and concise language
Forms should use clear and concise language so that they are easier to read and understand. Clients are also more likely to be willing to read them if they can easily understand them at first reading. This would in turn improve the product suitability assessment that financial advisers must understand, and help clients make better informed decisions. Plain English in short and simple sentences is preferred over legal and financial jargon. The use of the active voice in formulating sentences is also encouraged. Multiple negatives are to be avoided as they tend to confuse and mislead. The use of active verbs are also preferred over hidden verbs.
Principle 2: Adopt reader-friendly layouts
Financial advisers should organise and present information in a format that is easy to read (in terms of font, size of text, spacing, etc.). There should also be a sensible flow of information.
Principle 3: Adopt efficient designs
A well designed form enhances the interactions between a financial adviser and the client, and enables the financial adviser to spend more time on what is important, namely, explaining to the client the rationale and reasoning behind the recommendations made.
Specific examples of all the guiding principles abovementioned can be found in the Consultation Paper.
Consultation Period
The consultation closes on 5 July 2018.
A copy of the Consultation Paper can be assessed here.
