Monetary Authority of Singapore

FINANCIAL ADVISERS BILL 2001

FREQUENTLY ASKED QUESTIONS

























FREQUENTLY ASKED QUESTIONS

Q: Would financial advisory activities carried out by a person outside Singapore using
the internet medium be caught under the Bill?

A: If a person outside Singapore carries out financial advisory activities through the Internet
medium which are intended to or likely to induce the public (or any section of the public) in
Singapore to use any financial advisory service provided by him, he will be committing an offence
unless he holds a Financial Adviser's licence.

Q: Why does MAS selectively regulate certain aspects of financial planning and not the
full range of financial planning activities? What is the distinction between a Financial
Adviser and a Financial Planner?

A: The types of services provided by financial planners vary widely. Some planners assess
every aspect of the clients' financial profile, including savings, investments, insurance, tax,
retirement and estate planning, and help them develop detailed strategies for meeting their financial
objectives. Others may call themselves financial planners, but may only provide advice on a
limited range of products and services to their clients.

Currently, MAS regulates all financial planning activities relating to securities, futures and
insurance. Tax, retirement and estate planning activities do not come under MAS' regulatory
ambit. This will continue to be the case under the Bill. Hence, only financial planners who
conduct activities regulated under the Bill need be licensed as a Financial Adviser, and only in
respect of those regulated activities. The financial planner may conduct other activities such as
retirement and tax planning but this will not be subject to MAS' supervision. This is very much in
line with the regulatory framework in other jurisdictions.

Q: Why are the following products not covered under the FA Act?
(a) General insurance policies;
(b) Deposit-taking products;
(c) Loans and mortgages

A: The Bill will cover products with an investment element. General insurance policies are not
considered investment products as they are consumption-based. Deposit-taking products offered
by banks are excluded as such products are at the low end of the risk spectrum and are generally
well understood. Loans and mortgages do not have any investment element and relates more to
liability management.

Notwithstanding the above, MAS will have the power under the FAA to include additional
products where necessary, so that the regulatory framework will have the flexibility to cater to new
product developments.

Q: The current consolidation within the financial sector may well inspire some
experienced professionals to consider providing independent advice. Would the proposed
capital and licensing requirements be too stringent for this group of possible entrants?

A: The introduction of the Bill will help to foster the development of independent financial
advisers (IFAs). Their entry will provide greater depth to the local industry, alongside the
existing players in the market. These IFA firms are likely to be owned and operated by
experienced professionals. In licensing such IFA firms, MAS will take into consideration the
financial resources of the company as well as the qualifications, integrity and experience of the
key officers.

The capital requirements for a corporation applying for a Financial Adviser?s licence will not be
onerous and are expected to be lower than existing requirements. These new capital requirements
for Financial Advisers do not mean that MAS is relaxing its prudential standards. Rather, it is
another example of MAS? shift away from the one-size-fits-all regulatory regime to a more risk-
based supervisory approach.

Q: Will the passing of the Bill into law result in any person presently engaged as an
insurance agent or investment adviser to be disqualified or prohibited from doing what he
has been doing?

A: Existing professionals will be able to engage in the existing activities they have been
authorised to do when the Bill is enacted. A major objective of introducing the Financial
Advisers regulatory regime is to provide an integrated and consistent regulatory framework for
market intermediaries engaging in similar activities across the broad spectrum of different
investment products. This would facilitate the setting and maintenance of consistent professional
standards and business conduct rules for the provision of financial advice. Existing players in the
market will need to meet these new standards.


Q: Rather than a single Financial Advisers licence, could MAS have introduced distinct
categories to denote specialization in the respective regulated financial advisory services and
investment products? In this way, the public would be able to better distinguish the types of
services or products an adviser could offer.

A: The creation of different categories of licences will defeat the objective of single licensing
and is likely to confuse the public. MAS proposes to deal with the problem by requiring advisers
to disclose what products they are qualified or authorised to provide financial advice on before
they deal with the investing public.

Q: An individual representing multiple Financial Advisers may offer consumers a wider
range of products. Why does MAS restrict an individual to act as a representative of only
one Financial Adviser as opposed to multiple Financial Advisers?

A: The objectives of the one-representative-one-principal provision under Section 12 of the
Bill are two-fold:
(a) to secure clarity for investors about the status of the licensed individuals, the
principals they represent and most importantly where responsibility rests for
complaints and redress; and
(b) to ensure that the principal monitors and supervises their representatives at all
times. The principal will be responsible and liable for the conduct of their
representatives.

MAS is of the view that at the current stage of development, it is important that consumers are
clear about the status of the persons they are dealing with. If necessary, MAS will review the
need for such a prohibition in light of developments in the financial advisory market in the future.
The one-rep-one-principal rule, however, does not restrict the product range that an adviser can
represent. Principals (e.g. banks, fund managers, securities firms and insurance companies that
distribute life insurance and unit trusts) are free to enter into contracts to sell on behalf of other
product providers and hence, expand the range of their products they advise on.

MAS will allow an individual to act as a representative for more than one principal if the two
principals are related companies, as defined under the Companies Act (Cap. 50).

Q: Why does MAS restrict the use of the term Financial Adviser to only holders of a
Financial Advisers licence and Exempt Financial Advisers?

A: MAS is mindful that some market participants currently hold themselves out as "financial
advisers". However, we believe that restriction on the usage of the term ?financial adviser? will
better enable investors to identify whether they are receiving financial advice from an entity
which is licensed by MAS, as opposed to an entity not regulated by MAS.

Q: How about the use of similar titles?

A: MAS does not intend to restrict the use of titles and designations like "financial planner",
"financial analyst" or "financial consultant", as such designations are currently adopted by a
number of professional bodies, both internationally and within Singapore. However, the investing
public should be aware that persons who use such titles may or may not be regulated by MAS,
depending on the services they offer.

Q: What is MAS rationale for restricting the grant of a Financial Advisers licence to
corporations only?

A: The rationale for granting a Financial Adviser?s licence to only corporations is because we
believe that corporations have better resources to establish proper checks and balances as well as
maintain proper records and audit trails.

Q: The Bill does not make reference to the new class of Independent Financial Advisers
(IFAs). How is independence defined and how are IFAs regulated?

A: The use of the word independent by a person providing financial advisory services has
strong connotations for retail investors. It suggests to the investing public that the adviser:
(a) does not have any actual or potential conflict of interest in relation to any investment
products recommended; and
(b) will exercise objectivity in recommending products appropriate for the personal
investment needs and circumstances of the client. It suggests that the recommended
products are selected without any bias.

It is important to ensure that the word independent is not used in circumstances which do not
meet these investor expectations. MAS will formulate guidelines that licensees must follow when
using the word "independent". These guidelines will be contained in the Regulations.

Q: It is noted that financial institutions which are already supervised by MAS under
other Principal Acts will be exempted from licensing under the Bill. However, these Exempt
Financial Advisers will have to comply with similar requirements as Licensed Financial
Advisers. What are some of these requirements?

A: These requirements will relate mainly to business conduct and professionalism. For
instance, all licensed and exempt financial advisers will have to comply with a uniform set of
conduct requirements in respect of the financial advisory process and product information
disclosure. In addition, their advisory staff will have to meet similar training and competence
standards as the representatives of licensed financial advisers.

Q: What is the objective of prohibition order under Section 59? Given the severity of
such orders, what measures are being put in place to ensure that MAS exercises its power in
a fair manner?

A: The objective of the prohibition order is to keep unfit persons from engaging in any or all
of the financial advisory services regulated under the Bill. MAS' ability to issue a prohibition
order would be especially useful in cases where there is a need to prevent a representative of an
Exempt Financial Adviser from conducting financial advisory activities. This is because these
representatives are not licensed by MAS and therefore the revocation of licence is not an action
MAS could take. This helps to ensure that only fit and proper persons are permitted to participate
in the industry. An order will only be issued in cases where very serious offences have been
committed.

MAS recognises the severity of such an order, especially if it affects the livelihood of a person. To
date, MAS has exercised its powers judiciously and will continue to do so.Where MAS proposes
to issue an order, it will allow that person an opportunity to be heard prior to issuing the
order. The person may, at this juncture, show cause to MAS why the order should not be
issued. In addition, that person has a right of appeal to the Minister, who will be advised by an
independent advisory panel, in respect of MAS decision.

The use of prohibition order is also practised in Australia and the UK.

Q: What codes, policy statements or guidelines are envisaged to be issued under Section
64 of the Act?

A: MAS intends to issue guidelines and policy statements to provide clarity to some of its
policies or as an indication of how we will administer the Bill. Guidelines may also be issued to
provide guidance to practitioners on reporting and compliance matters or on best practices.

Q: Do you think consumer protection will be improved with the introduction of financial
advisers or do you think financial advisers will exacerbate the problem?

A: The Bill will introduce business conduct requirements in respect of the financial advisory
process, product information disclosure as well as training and competence requirements. These
requirements will apply to all intermediaries providing financial advice on investment products as
well as distributing unit trusts and life insurance products.

The proposed requirements will raise standards of service and professionalism in the financial
advisory industry, and lead to comparable standards of professionalism across all intermediaries
providing financial advice. When implemented, consumers would be in a better position to make
more informed investment decisions where professional advice is given. However, the framework
will not ensure that consumers will always make good investment decisions. Consumers will still
have to exercise discipline and judgment when considering an investment decision.

Q: How does MAS intend to work with the industry bodies to improve standards and
professionalism?

A: There is currently a few industry associations or societies in Singapore whose objects
relate to the financial advisory industry. MAS will engage these industry bodies where
appropriate and seek their views on regulatory issues affecting the financial advisory market. As
a regulator, MAS will facilitate and encourage healthy market developments, and work with
industry bodies to encourage improved professional standards.

Q: How will the introduction of the Bill affect existing advisers in the life insurance
industry, i.e., life insurance brokers and life insurance agents? Will they require licensing
under the Bill?

A: Life insurance brokers who are currently registered under the Insurance Intermediaries Act
will be required to hold a Financial Advisers licence when the Bill is enacted. Their broking
staff will similarly be required to apply for a representatives licence. Notwithstanding this, these
life insurance brokers and their broking staff will be permitted to carry on with their life insurance
broking business until their licence applications are approved by MAS. Insurance agents, who
have separate written agency agreements with their life insurers, will not need to be licensed by
MAS.

MAS will ensure that the transition for the affected intermediaries to the new Bill will be smooth
and undisruptive. The transitional arrangements will be contained in the Regulations to be issued
shortly.

Q: With the enactment of the Bill, life insurance brokers and their broking staff will
require licensing. Why is MAS licensing representatives of life insurance brokers but not
those of general or reinsurance brokers or even agents of insurance companies? Will MAS
consider licensing agents in the future?

A: Unlike life insurance brokers who handles mainly personal life insurance business and
whose staff are on contract basis, general or reinsurance brokers handle largely corporate accounts
and their staff are their salaried employees. MAS do not view it necessary to license reps of
general or reinsurance brokers.

For insurance agents, MAS currently exercises control over them through their principals/insurers
who are held accountable for their agents acts. This system has worked well. MAS will continue
to review developments in this aspect.

Q: Life insurance companies would be able to sell one anothers products when the Bill
comes into effect. Is this insurance industry ready for this new development? Does that go
against the one-rep-one-principal provision under Section 12? Would this development
benefit consumers?

A: A typical life insurance company manufactures life insurance products and maintains a
sales force which distribute its own products. All life insurance advisers are required to pass the
necessary exams stipulated by MAS before they are allowed to provide advice or arrange life
insurance contracts.

The life insurance companies, especially the smaller ones, see value in cross selling each others
products. Since not all life insurers will have all types of life insurance products, allowing them
to cross sell one anothers products benefits the consumers ultimately as the advisers will have
access to a wider product range and consumers will have wider choice.

The one-rep-one-principal requirement will not be compromised. This is because the insurance
agent can only have one principal, i.e., the life insurer with whom he has an agency agreement,
and can distribute only those products authorized by that same life insurer. The life insurer, as
exempt Financial Adviser, is responsible for the conduct of its agent including the provision of
advice and distribution of financial products belonging to other financial institutions. Consumers,
in general, will be able to benefit from the wider range of products the insurance agents could
recommend.

Q: Will the recommendationis by Committee of Efficient Distribution of Life Insurance
(CEDLI) be incorporated into the Bill?

A: The underlying principles of the major CEDLIs recommendations have already been
incorporated into the regulatory framework of the Bill.

Q: MAS has encouraged life insurance companies to explore alternative distribution
channels and raised professional standards. The introduction of the Bill is going to be
another major change to the industry. Will this create a difficult business environment for
the market players and result in higher unemployment for agents which may not be
appropriate under the current economic condition?

A: The impact of globalisation and the convergence of financial products and services apply
to all financial services sector. Financial institutions, including life insurers, need to operate more
efficiently in this competitive environment.

The MAS encouraged the life insurers to enhance their distribution efficiency and exploring
alternative distribution channels is one possible solution. It is a commercial decision that life
insurers have to make on which distribution channels to use. The introduction of Bill on its own
should not create higher unemployment for agents.

Q: Financial Advisers arranging life insurance contracts are not allowed to place
domestic business with unregistered / overseas insurers without MAS prior approval. This
requirement appears restrictive. What is the rationale for this requirement? Are individuals
similarly restricted from purchasing life policies from overseas insurers?

A: There is no restriction on any individual wishing to purchase his life policies from
unregistered/overseas insurers. However, Financial Advisers are required to seek MAS? approval
should they wish to place their clients? life insurance risks with unregistered/overseas insurers.
This is to ensure that no Financial Advisers are being used by unregistered insurers to assist them
to write domestic Singapore risks, since unregistered insurers (including overseas insurers) are not
allowed to write domestic Singapore risks. Such a requirement is not unique to Singapore and
similar prohibitions can be found in most jurisdictions, including US.

Generally, the life insurance needs of our domestic market have been adequately met by
registered life insurers in Singapore. However, where there are special needs that are not met by
our local insurance industry, MAS grants exemptions for these risks to be placed directly with
overseas insurers.