Law of Investments

Week 3 Conduct and Disclosure

Singapore
Conduct and Disclosure

CONDUCT Singapore
FAA-GO4 Financial adviser is expected to act with due care and diligence in conducting its business activities Financial adviser should take all reasonable steps to process clients orders promptly Prompt advice that clients orders executed. Financial adviser should have systems in place to ensure proper supervision of its representatives and their activities Discharge all obligations to clients prior to ceasing business
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CONDUCT Singapore
S.26 no licensee shall with intent to deceive make a false or misleading statement about any amount payable on an Investment product, effect of any contract or proposed contract relating to an investment product

CONDUCT Singapore
S.27 No financial adviser shall make a recommendation with respect to any investment product to a person who may reasonably be expected to rely on the recommendation if the financial adviser does not have a reasonable basis for making the recommendation A financial adviser is deemed not to have a reasonable basis for making a recommendation unless he has, after having regard to all relevant information, reasonably considered and investigated the subject matter of the recommendation and such recommendation is based on such consideration and investigation 5

Know Your Client

CONDUCT Singapore

7.1 When making a recommendation on an investment product to a client, a financial adviser should take all reasonable steps to determine the client's financial objectives, risk tolerance, financial situation, investment experience and particular needs. Reasonable Basis 7.2 A financial adviser should ensure that its recommendations are suitable for the client, taking into account the information it has obtained from the client. It should ensure that its recommendations are based on thorough analysis and take into account alternative investment options. 7.3 A financial adviser should explain to the client the basis for its recommendation and why the investment product it is recommending is suitable for the client. 7.4 A financial adviser should not use any rebate of commissions as the basis for its recommendation.
FAA-G04 Issue Date : 1 October 2002 (Last revised on 1 July 2005)
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CONDUCT Singapore (cont)

8 Conflicts of Interest 8.1 A financial adviser should act in the best interests of its clients when providing financial advisory services to its clients. It should disclose in writing to the client any actual or potential conflicts of interest arising from any connection to or association with any product provider, including any material information or facts that might compromise its objectivity or independence in the carrying on of financial advisory services. 8.2 In assigning duties, a financial adviser should not place its staff in situations where conflicts of interest may arise. The financial adviser should ensure that there is proper segregation of duties to minimise any possible conflicts of interest..

FAA-G04 Issue Date : 1 October 2002 (Last revised on 1 July 2005)

CONDUCT Singapore (cont)

Complaints Handling 9.1 A financial adviser should have in place adequate procedures and processes for handling complaints relating to its financial advisory business. 9.2 It should ensure that: (a) complaints are handled in a fair, timely and appropriate manner; (b) complaints are promptly investigated and responded to; and (c) an officer is designated to handle all complaints. 9.3 A financial adviser should maintain a register of complaints, containing details of complaints received and how they have been dealt with. Management should review the register regularly.

FAA-G04 Issue Date : 1 October 2002 (Last revised on 1 July 2005)

Disclosure - Singapore
FAA S. 25 sets out the disclosure of product requirements: A licensee shall disclose to every prospective client, all material information relating to any designated investment product that the licensee recommends, including (a) Terms and conditions of the product (b) Benefits and risks (c) Premium costs, expenses, fees or other charges (d) If a unit trust, the name of manager and relationship b/n licensee and manager 9 (e) If a life insurance policy, name of company

Disclosure Singapore
however these can be waived if the advice is provided to accredited investors. This category is defined in the FAA regulations: (a)An individual whose net personal assets exceed $5 million or its equivalent in foreign currency or, (b)A corporation with net assets exceeding $10 million or its equivalent in foreign currency

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Disclosure Singapore
FAA No 3- sets out general disclosure principles which the financial adviser is expected to meet, including: Plain language Sufficient information in accordance with industry practices to assist the client in making an informed decision, nature of investment, fees, risks and contractual rights and obligations of the client. Disclosure should be clear, unambiguous, objective and unbiased. When opinions are expressed, there should be a reasonable basis for it and it should be clear that it is an opinion. Documents given to the client should be updated regularly 11

Disclosure Singapore
The financial adviser must disclose in writing any actual or potential conflict of interest. The financial adviser must advise the client of the party against which he can enforce rights in respect of the product purchased Disclose all warnings, exclusions and disclaimers. When using forecast or past performance data warn the client that this information may not be indicative of future performance. Criminal Sanctions for breach: Fines up to $25,000 and/or imprisonment for up to 12 months
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Disclosure Singapore (cont)

3 This Notice sets out the standards to be maintained by licensees, exempt financial advisers and representatives of an exempt financial adviser with respect to the information they disclose to clients. 5 Section 25 of the Act imposes an obligation on licensees to disclose to their clients and prospective clients all material information relating to any designated investment product recommended by the licensees including the form and manner in which the information shall be disclosed. Section 26 of the Act 1 provides that no licensee shall, with intent to deceive, make a false or misleading statement as to any amount that would be payable in respect of a proposed contract relating to any investment product or the effect of any provision of a contract or proposed contract relating to the investment product. 13
FAA-N03 Issue Date : 1 October 2002 [Last revised on 1 July 2005*]

Disclosure Singapore (cont)

Disclosure to Client General Information about the Financial Adviser 6.1 A financial adviser should provide clients with adequate information about its business, including its business address and telephone number. It should also disclose the types of financial advisory service it is authorised to provide, including the type of investment products it is allowed to give advice on or market to clients.
FAA-G04 Issue Date : 1 October 2002 (Last revised on November 2010)

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Disclosure Singapore
6.3 When making a recommendation on an investment product, a financial adviser should make adequate disclosure of all material facts relating to the key features of the product, including: (a) the nature of the investment, including the underlying financial instruments and how these instruments work, if applicable; (b) the benefits of investing in the product; (c) the risks involved ; (d) the salient terms and conditions of the product; (e) the fees and charges the client will have to pay, including any recurring charges or fees, if applicable; (f) early termination clauses, including, in the case of funds deposited by a client with a deposit-taking institution, the procedures, charges and restrictions on early withdrawal by the client, or early redemption by the deposit-taking institution, as well as any other material information associated with early withdrawal or redemption; (g) any pecuniary or other disadvantages that the client will or may suffer (temporarily or otherwise) as a result of switching from the original product to the replacement product, if applicable.
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FAA-G04 Issue Date : 1 October 2002 (Last revised Nov 2010)

Disclosure Singapore
6.4 A financial adviser should draw the clients attention to the warnings, exclusions and disclaimers in all documents, advertising materials and literature relating to an investment product it is recommending to the client. 6.5 A financial adviser should ensure at all times that any representation made and information provided to the client is clear, adequate and not false or misleading. 6.6 A financial adviser should distinguish between facts and opinion in its presentation of recommendations to the client. 6.7 A financial adviser should disclose, in writing, to its client all remuneration, including any commission, fee and other benefit that it has received or will receive for making any recommendation in respect of an investment product, or executing a purchase or sale contract relating to an investment product on the clients behalf.

FAA-G04 Issue Date : 1 October 2002 (Last revised on 1 July 2005)

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Disclosure Singapore
Remuneration that has to be disclosed includes all fees, commissions and other benefits such as trailer fees, soft dollars, sales bonuses that a financial adviser receives or will receive for making any recommendation in respect of an investment product or executing a purchase or sale contract for any designated investment product on a clients behalf. The financial adviser needs only disclose the remuneration it receives or will receive arising directly or in connection with the making of the recommendation or the execution of the purchase or sale contract.

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Disclosure Singapore
Where a recommendation is made that contravenes these requirements to a person who reasonably relies on them to do an act or refrain from doing an act, that person shall be entitled to damages against the financial adviser if he is able to show he suffered loss as a result of his reliance on the recommendation. FAA- No 1 sets out three requirements in relation to this section: 1) Know your client ( KYC) 2) Needs analysis 3) Documentation and record keeping
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 11.Know Your Client (FAA No 1)

In order for a financial adviser to make a recommendation that takes into account a clients investment objectives, financial situation and particular needs, the financial adviser shall take reasonable steps to collect and document the following information from the client: (a) the financial objectives of the client; (b) the risk tolerance of the client; (c) the employment status of the client; (d) financial situation of the client, including assets, liabilities,cash flow, income; (e) the source and amount of the clients regular income; (f) the financial commitments of the client; (g) the current investment portfolio of the client, including any life policy; (h) whether the amount to be invested is a substantial portion of the clients assets; and (i) for any recommendation made in respect of life policies, the number of dependants of the client and the extent and duration of financial support required for each of the dependants.
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Needs Analysis (FAA No 1)

13 Section 27 of the Act requires a financial adviser to analyse the information provided by the client and identify the product that is suitable for the client based on the information obtained from the client. 14 Where the financial adviser is unable to identify a suitable product, it shall inform the client accordingly.

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Documentation and record keeping (FAA No 1)

19 A financial adviser shall furnish the following to a client when making a recommendation: (a) .collective investment scheme or a debenture, a copy of the prospectus or profile statement and Product Highlight Sheet (if applicable).. and/or any other offer document.. .(b) ..a life policy, a copy of the Product Summary, Benefit Illustration, and Product Highlights Sheet

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Documentation and record keeping (FAA No 1)

20 A financial adviser shall furnish to its client a document containing the following when making a recommendation in respect of an investment product to the client: (a) a summary of the information gathered by the financial adviser ... (b) recommendatiosn made to the client by the financial adviser and the basis for the recommendation, and, where applicable, also furnish to its client a statement that the client does not want to (i) provide any information requested by the financial adviser ...(ii) accept the recommendation of the financial adviser and has chosen to purchase another investment product which is not recommended by the financial adviser; or (iii) receive any recommendation from the financial adviser,
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Documentation and record keeping (FAA No 1)

20A The financial adviser shall make reasonable efforts to document the basis for the recommendation referred to in paragraph 20(b), and such documentation shall include the following: (a) the clients statement of his investment objectives, financial situation and particular needs; (b) the financial advisers reasonable basis for making the recommendation to the client having regard to the information obtained from the client; and (c) the financial advisers assessment of the disadvantages of the investment product based on circumstances of the client. ]
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