FTT Financial Advisers Act — Questions and Answers
Question 1: What is the primary purpose of the Financial Advisers Act (FAA) in Singapore?
- To regulate the giving of financial advice and the marketing and sale of investment products in Singapore (Correct answer)
- To regulate banking activities and deposit taking
- To govern the listing of companies on SGX
- To set standards for audit and accounting firms
Correct answer: To regulate the giving of financial advice and the marketing and sale of investment products in Singapore
The Financial Advisers Act (FAA) regulates financial advisory businesses in Singapore, covering the giving of advice on investment products, the marketing of collective investment schemes, and the issuing of investment analyses and research reports.
Question 2: What is the 'Know Your Client' (KYC) obligation for financial advisers under the FAA?
- To gather information on a client's financial situation, risk tolerance, investment experience, and investment objectives before making recommendations (Correct answer)
- Only to verify a client's identity for AML purposes
- To collect the client's contact details and employment information only
- To conduct KYC only for clients investing more than S$200,000
Correct answer: To gather information on a client's financial situation, risk tolerance, investment experience, and investment objectives before making recommendations
The KYC obligation under the FAA requires financial advisers to collect information about a client's financial situation, investment experience, risk tolerance, and investment objectives so that any recommendations made are suitable for that specific client.
Question 3: The 'suitability' requirement under MAS guidelines means that:
- A financial adviser must only recommend products that are appropriate for the client's specific financial profile (Correct answer)
- All products offered must be the cheapest available in the market
- Advisers must recommend the product with the highest potential returns
- Clients must be offered all available products regardless of their profile
Correct answer: A financial adviser must only recommend products that are appropriate for the client's specific financial profile
Suitability requires that financial advisers assess a client's financial situation, risk tolerance, and investment objectives and only recommend products that are appropriate for that particular client. A suitable product for one client may be unsuitable for another.
Question 4: What is the 'Customer Knowledge Assessment (CKA)' under MAS guidelines?
- An assessment to determine whether a customer has the relevant knowledge or experience to transact in specified investment products without further advice (Correct answer)
- An exam that customers must pass before opening any brokerage account
- A credit assessment of a customer's ability to repay investment loans
- An MAS-administered test for all retail investors
Correct answer: An assessment to determine whether a customer has the relevant knowledge or experience to transact in specified investment products without further advice
The CKA is an assessment process where financial institutions evaluate whether a retail customer has sufficient knowledge or experience to understand the risks of specified investment products (SIPs) before allowing them to transact in those products without investment advice.
Question 5: Under the FAA, what must a financial adviser provide to a retail client before recommending a specified investment product?
- A Product Highlights Sheet (PHS) and the relevant prospectus or profile statement (Correct answer)
- Only an email summary of the product
- A verbal explanation without any written document
- The adviser's own internal research report
Correct answer: A Product Highlights Sheet (PHS) and the relevant prospectus or profile statement
Before recommending specified investment products to retail clients, advisers must provide the Product Highlights Sheet (PHS), which summarises key product features and risks, along with the relevant prospectus or profile statement registered with MAS.
Question 6: What is the 'balanced scorecard (BSC) framework' for financial advisory firms?
- A framework linking representatives' remuneration to multiple criteria beyond just sales volume, to reduce mis-selling incentives (Correct answer)
- A framework requiring advisers to maintain equal proportions of each asset class in client portfolios
- A framework requiring equal service to retail and institutional clients
- A framework requiring commissions to be equally split between adviser and firm
Correct answer: A framework linking representatives' remuneration to multiple criteria beyond just sales volume, to reduce mis-selling incentives
The BSC framework requires financial advisory firms to link representatives' remuneration to a balanced set of criteria including quality of advice, customer satisfaction, and compliance standards — not just sales volume. This aims to reduce commission-driven mis-selling.
FTT Financial Advisers Act
What is the primary purpose of the Financial Advisers Act (FAA) in Singapore?