Quality of financial advice and fact find

Sunday Times 9 Nov 2008

Under the Financial Advisers Act (FAA), financial institutions and their representatives or financial advisers (FAs) are required to have a reasonable basis for recommending investment products to their customers.

The Act states that an FA must collect and document from the client information such as his financial objectives; risk tolerance; employment status; financial situation including assets, liabilities, cash flow and income; and current investment portfolio.

However, clients may choose not to provide the above information or choose to opt out from receiving advice. In such cases, the FA has to highlight to the client that it is the latter's responsibility to ensure that the product selected is suitable.

The FA may then proceed with his request for the transaction.

The Monetary Authority of Singapore (MAS) has encouraged the industry to improve the quality of advice and extent of fact-find.

It also expects FAs to have additional safeguards when dealing with clients with limited knowledge of investment products and who may find it difficult to understand the features of complex investment products.

Whether there is a breach of the FAA would depend on the facts and circumstances of a particular case.

Breaches of the FAA are punishable by a range of actions, including fines and imprisonment.

In particular, Section 27 of the Act provides that an FA is liable to pay damages to an investor who suffers loss or damage arising from advice that was not supported by a reasonable basis for recommending a certain product.

In addition, MAS may also take other regulatory actions such as issuing a prohibition order to bar the contravening person from providing financial advisory service for a fixed period.