Are you worried about the reliability and trustworthiness of financial advisors?
Do you want to ensure that your hard-earned money is in safe hands?
Look no further than the Monetary Authority of Singapore (MAS), the regulatory authority dedicated to protecting consumers from unscrupulous financial advisors.
With the rise of fraudulent schemes and misleading investment advice, it has become more important than ever to have a regulatory body that safeguards the interests of consumers.
MAS is at the forefront of this mission, implementing stringent regulations and guidelines to ensure that financial advisors act in the best interests of their clients.
In this article, we will explore the key initiatives and measures undertaken by MAS to protect consumers from financial advisors who may engage in unethical practices.
From licensing requirements to ongoing supervision and enforcement actions, MAS is committed to creating a safe and transparent financial landscape for all consumers.
Services Rendered by Financial Advisors
Have you ever wondered what kind of help you can get from a financial advisor (FA)?
The Financial Advisor Act of Singapore, Section 2, defines a financial adviser as a professional who is licensed to provide guidance and advice on financial matters.
They help individuals and businesses achieve their financial goals while adhering to the regulations and standards set out in the Act.
Importance of MAS Licensing
Financial advisors must obtain a license from the Monetary Authority of Singapore (MAS) before offering their services.
This ensures they meet the necessary qualifications and adhere to stringent regulatory standards, safeguarding the interests of the consumers.
Consumers are urged always to verify the credentials of financial advisors and ensure they are licensed by MAS before engaging in their services.
For the most accurate information, refer to the MAS’ official website.
Advisory Services Offered
Licensed financial advisors in Singapore offer a range of services including, but not limited to:
Guidance on selecting, managing, and arranging various investment products, aligning with your financial goals, risk tolerance, and investment horizon.
Financial advisors can help guide you in selecting the insurance policies you’ll need based on your own unique circumstances.
Comprehensive services to manage finances, set and achieve financial goals, and secure financial futures.
Unfortunately, we all know FAs to do 2 things – investing and insurance planning.
However, with their license, they can do much more than that.
For example, they can assist you with
- Tax planning
- Retirement planning
- Legacy planning
- Estate planning
- Mortgage financing/re-financing
- and more
This assumes that their firm has provided training and certified them in these aspects.
Understanding Financial Products
Understanding financial products is crucial, as they serve as the building blocks of your financial plan. Here are the primary products financial advisors deal with:
Capital Market Products
These facilitate the transfer of risk, capital, and liquidity between entities, including both debt and equity products.
- Equity Products: Represent ownership in companies or assets, such as common and preferred stocks, mutual funds, and ETFs.
- Debt Products: Are loans from investors to issuers, including bonds, debentures, and commercial paper.
Advisors also advise on various insurance products, ensuring you choose policies aligning with your needs, preferences, and risk tolerance.
Financial advisors are pivotal in arranging life insurance contracts and guiding you through available options.
They assess individual needs, financial situations, and risk appetites to recommend suitable life insurance policies, ensuring informed decisions that align with your financial goals and protection needs.
Independent Analysis and Reports
A financial advisor must provide independent and objective analyses or reports, ensuring you receive unbiased, factual information and advice that aligns with their financial goals and needs.
Regulatory Environment for Financial Advisors
Financial Advisors in Singapore operate within a stringent regulatory environment designed to protect consumers and maintain the financial system’s integrity.
Financial Advisers Act of Singapore (FAA)
The Financial Advisers Act of Singapore (FAA) is a cornerstone legislation that governs financial advisors and their representatives, ensuring the provision of high-quality financial advisory services in Singapore.
MAS, the financial regulatory authority in Singapore, diligently enforces FAA compliance, especially among insurance advisors, safeguarding consumers from advisors who fail to comply with the prevailing standards and regulations.
MAS Enforcement Measures
MAS possesses the authority to enforce a range of punitive measures against non-compliant financial advisors, including:
Warnings and Reprimands: MAS can issue formal warnings or reprimands to financial advisors who have breached regulations.
Direction Orders: MAS may issue directions requiring adherence to specific conduct or operational standards, such as improving internal control systems or compliance functions.
MAS can impose monetary fines for breaches of the FAA, which can be substantial, depending on the severity and nature of the breach.
For severe law violations, MAS can pursue criminal prosecutions against financial advisors or their representatives, which may result in imprisonment and/or fines.
License Suspension or Revocation
MAS can suspend or revoke the licenses of financial advisors who fail to meet the necessary regulatory requirements or are found guilty of serious misconduct.
MAS can issue prohibition orders barring individuals from providing financial advisory services, either temporarily or permanently, due to misconduct or incompetence.
MAS Compliance Oversight
MAS ensures that all financial advisors operating in Singapore adhere strictly to the Financial Advisers Act and Regulations.
Regular Audits and Inspections
MAS conducts routine audits and inspections of financial advisory firms to ensure compliance with regulatory requirements and to assess the effectiveness of their internal control systems.
Financial advisory firms must submit regular reports to MAS, detailing their compliance with various regulatory requirements, such as capital adequacy, risk management, and business conduct.
MAS employs a risk-based approach to supervise financial advisors, focusing on areas with higher risks and requiring firms to address identified risk areas promptly.
MAS reviews consumer complaints against financial advisors and investigates potential breaches of regulations, ensuring that consumers’ rights and interests are protected.
Enforcement Actions Disclosure
MAS publicly discloses enforcement actions taken against financial advisory firms, promoting transparency and accountability in the industry.
Operational Requirements under MAS
The subsequent sections will delve deeper into the crucial prerequisites and operational guidelines financial advisors must fulfil to operate under a MAS-approved license.
These regulatory requirements are meticulously designed to ensure that the advisors are competent, ethical, and operate in the best interests of their clients, promoting a fair, transparent, and secure financial advisory environment in Singapore.
Financial advisors’ compliance requirements
Licence to operate
To offer any financial advisory service, a person must possess a valid financial adviser’s license and strictly adhere to the relevant provisions of the Financial Advisors Act (FAA).
This licensing ensures that consumers receive advice from qualified professionals and are shielded by the protections embedded in the FAA, subsequently boosting the credibility and reputation of financial advisors.
Restriction of using the title “Financial Advisor”
According to MAS, the term “Financial Adviser” can only be used by licence holders and exempt financial advisors, such as financial institutions, insurance companies, merchant banks, etc.
MAS believes restricting the term “financial adviser” will enable investors to identify whether they are receiving financial advice from an entity licensed by MAS or unregulated.
There are currently no restrictions on the use of titles and designations such as “financial planner”, “financial analyst” or “financial consultant”.
These titles are widely adopted by many professional bodies in Singapore and internationally.
However, you must be aware that individuals who use such titles may or may not be regulated by MAS, depending on their services.
That’s why it’s crucial that you ask for their credentials before engaging anyone for their services.
Disclosure and Transparency
Financial advisors must provide adequate, clear, and relevant information on financial products to allow consumers to make informed decisions.
Fees and Charges Disclosure:
MAS mandates the disclosure of all fees and charges associated with financial products and advice.
Appointment of key executives
Financial advisory companies must conduct a fit and propriety test when appointing executives to critical positions.
This helps consumers feel safe that their wealth is handled by experienced persons subjected to a very stringent hiring process.
MAS must also approve any change in the key executives of the financial advisory company.
Protection of consumer interest
MAS has foreseen that financial advisors may receive complaints and grievances from consumers.
MAS has issued separate regulations regarding complaint handling and resolution for financial advisors to support the consumer base.
Below are the critical points of the regulations for you to understand what protection you have if you have a complaint against a financial advisor:
- A financial advisor needs to establish a unit that consists of officers and employees who are not directly involved in providing financial advice.
- A financial advisor must write an acknowledgement to the complainant within 2 days of receiving a complaint.
- Your financial advisor will deliver a final response to your complaint within 20 days.
- Financial advisors must provide written reasons for rejecting complaints in their final answers to complainants.
- Financial advisors must ensure that a senior executive monitors their complaint redress procedures to ensure transparency concerning consumer interests.
- The complaint handling process for any financial advisor can be accessed through their official website.
- Regulatory requirements require financial advisors to publish records of complaints against them and their resolutions.
Financial advisors must follow regulations. They will commit an offence if they break the rules without reason.
If convicted, they will be fined up to $50,000. If the offence continues, they may be fined an additional amount of up to $5,000 for each day or part of a day after conviction.
Standards of conduct for financial advisors
The Monetary Authority of Singapore (MAS) has established comprehensive guidelines detailing conduct requirements for financial advisors and their representatives to safeguard investors and uphold public interest.
Adherence to these guidelines is imperative to maintain elevated professional standards and fortify consumer confidence in the industry.
For compliant practice, financial advisors must meet the following stringent standards:
Financial advisors should exhibit honesty, fairness, and professionalism, steering clear of fraudulent or dishonest conduct.
They must act to sustain public trust and integrity in the financial sector.
Financial advisors should exercise prudence and impartiality, abstaining from circumstances that may compromise the quality and objectivity of their recommendations.
Client information must be treated with utmost confidentiality, with disclosures only made when mandated by law or permitted by the client.
Financial advisors should exemplify proficiency and insight in their practice, restricting advice to areas of expertise or directing clients to suitable specialists.
The competence of staff and representatives should be continually assessed and enhanced through appropriate supervision and training.
Continuing Professional Development
Financial advisors must undergo professional training to maintain and enhance their knowledge and skills.
Due Care And Diligence
Advisors should execute client orders swiftly, accurately, and under optimal terms, confirming completion.
Rigorous supervision of staff, prompt settlement of debts and obligations, and secure transition of client affairs in case of business closure are also vital.
Conflicts of Interest
Transparent communication regarding potential conflicts of interest arising from affiliations with product providers is crucial to maintaining unbiased client representation.
Establishing robust and effective mechanisms for addressing client grievances is essential to uphold service quality and client satisfaction.
Compliance with Laws
Knowledge and adherence to all pertinent laws, rules, and regulations, including MAS guidelines, are non-negotiable to ensure lawful and ethical practice.
Surveillance and Enforcement
MAS maintains a rigorous oversight regime over financial advisory firms, executing regular and comprehensive supervisory reviews.
One of the most common ways of supervising financial advisors is through mystery shoppers, whereby individuals pretend to be interested customers engaging in a financial advisor’s services.
These assessments are meticulously designed to ascertain the consistent compliance of firms with prevailing laws, regulations, and guidelines.
The supervisory process is dynamic and adaptive, focusing on both the financial stability and the conduct of the entities to ensure the integrity of the financial advisory sector and the protection of consumers.
Persistency Rate Requirement
Persistency rate is a critical metric employed by MAS to monitor the performance and reliability of financial advisors.
This rate reflects the proportion of insurance policies that remain in force over 2 years without being lapsed or surrendered by their customers.
MAS mandates financial advisors to maintain a minimal persistency rate of between 75% to 85%, emphasising the importance of selling suitable insurance products and fostering long-term, sustainable client relationships.
The adherence to a high persistence rate ensures that advisors are not engaging in inappropriate practices such as policy churning and are genuinely acting in the best interests of their clients.
Financial Advisory (FA) firms must implement a clawback provision on the commissions paid awarded to financial advisors.
The clause will remain for 2 years after the FA leaves their previous firm.
Thus, if the persistency rate falls below the minimum threshold, the financial advisor must return those commissions.
In cases where discrepancies or violations are identified, MAS is empowered to institute stringent enforcement actions against individual financial advisors and their affiliated firms.
The spectrum of enforcement actions is broad and can include the imposition of monetary penalties, the revocation of licenses, and the issuance of prohibition orders, restricting the ability of the offending entities or individuals to operate within the sector.
Enforcement action is typically preceded by detailed investigations and is executed with the dual objectives of rectifying non-compliance and deterring future violations.
Each enforcement decision is calibrated to the severity and the impact of the breach, and it underscores MAS’s commitment to maintaining high standards of conduct and safeguarding consumer interests within the financial advisory industry in Singapore.
MoneySENSE is spearheaded by the Financial Education Steering Committee (FESC). MAS also chairs the FESC together with other Government Agencies.
MoneySENSE is the financial education programme launched in 2003. The programme aims to enable consumers to become more self-reliant in their financial affairs.
With MoneySENSE, Singaporeans will be equipped with the basic knowledge and skills they need to perform four vital prudent activities:
- Manage their cash flow and live within their means
- Buy a home that they can afford
- Be financially prepared should unforeseen events like accidents and illnesses occur.
- Plan and take steps to have sufficient income for life (including during retirement).
The MAS, Consumers Association of Singapore, Life Insurance Association, and MoneySENSE created CompareFIRST for consumers to find and compare insurance products more efficiently.
CompareFIRST was launched in 2015 to enhance financial advisors’ efficiency and professionalism.
This is an informational portal. It does not provide advisory services but can help you compare and choose the best insurance product.
Although this isn’t a conclusive list, you should feel safer knowing that MAS is dedicated to protecting consumers like yourself from unscrupulous financial advisors.
By implementing strict regulations and enforcing them, MAS is working towards creating a safe and trustworthy financial advisory industry.
With MAS in your corner, you can know that your financial interests are being safeguarded.
However, even though there are measures in place, some might still bend around them and might only get caught later. However, the damage to you would’ve already been done.
Thus, you should also do your own due diligence in ensuring that the FA is actually license and qualified to help you with your needs.