RES5 Ch.3 Full Facts

🎯N16 Scope

FAA-N16: legal basis, applicability, exclusions and the section 27 reasonable-basis foundation.

Section 27 of the Act requires a licensed financial adviser to have a reasonable basis for any recommendation on an investment product made to a person who may reasonably be expected to rely on it, giving due consideration to that person's investment objectives, financial situation and particular needs. — p. 3A-5
⚠ s27 (reasonable basis) is the FAA-N16 anchor — distinct from s25 (disclosure) and s26 (false statements) under FAA-N03.
Notice FAA-N16 (Recommendations on Investment Products) is issued pursuant to section 58 of the Financial Advisers Act (2001) and took effect on 1 January 2012.2012-01-01 — p. 3A-2
⚠ FAA-N16 commenced 1 Jan 2012; do not confuse with FAA-N11 (1 Mar 2006).
FAA-N16 applies to licensed financial advisers, exempt financial advisers, representatives of financial advisers, persons exempt under Regulation 29 of the FAR, and representatives of such Regulation 29-exempt persons. — p. 3A-3
FAA-N16 does not apply to a recommendation on simple life policies sold as an ancillary product to loans with a simple payment basis (e.g. covering personal loans, car loans and credit card balances), but this exclusion does not extend to mortgage reducing term assurance plans. — p. 3A-2
⚠ Mortgage reducing term assurance (MRTA) is EXCLUDED from the carve-out — FAA-N16 still applies to it.
Where the investment product recommended is a Specified Investment Product, the financial adviser shall also give due consideration to the person's knowledge or experience in that Specified Investment Product. — p. 3A-5
FAA-N16 does not apply to a transaction where only factual information is provided in respect of an Excluded Investment Product and no advice or recommendation is made to the client before the transaction. — p. 3A-2
Unless otherwise specified, a representative shall comply with any requirement imposed on a financial adviser in FAA-N16 when acting on the financial adviser's behalf. — p. 3A-4

🧾Know Your Client

FAA-N16 E1: KYC information collection, the digital-advice carve-out and reliance on prior information.

Under Know Your Client, a financial adviser shall take reasonable steps to collect and document the client's financial objectives, risk tolerance, employment status, financial situation (assets, liabilities, cash flow and income), source and amount of regular income, financial commitments, current investment portfolio (including any life policy), and whether the amount to be invested is a substantial portion of the client's assets. — p. 3A-5
For any recommendation made in respect of life policies, the financial adviser shall also collect the number of dependants of the client and the extent and duration of financial support required for each dependant. — p. 3A-6
A financial adviser recommending through a digital advisory platform may elect not to collect the paragraph 11(c)-(i) information, provided the process is fully automated with no human intervention, the platform uses compulsory questions to preclude unsuitable recommendations, it detects and resolves inconsistent responses, a risk disclosure statement accompanies the recommendation, and the recommendation is limited to compliant collective investment scheme units. — p. 3A-6
⚠ Digital-advice carve-out covers only 11(c)-(i); objectives/risk tolerance are still assessed, and it is limited to compliant CIS units.
A financial adviser may rely on information previously provided by the client only if the client confirms, at the time of the transaction, that there are no material changes to the information. — p. 3A-6
A financial adviser shall highlight in writing to its client that the information provided will be the basis for the recommendation and that any inaccurate or incomplete information may affect the suitability of the recommendation. — p. 3A-7

🧠Customer Knowledge Assessment

FAA-N16 E2: CKA for UNLISTED SIPs — factors, deemed outcome, senior-management approval, 1-year validity, third-party reliance, Annex 2 criteria.

Where the investment product is an unlisted Specified Investment Product, a financial adviser shall conduct a Customer Knowledge Assessment (CKA) based on the criteria in Annex 2 before making a recommendation on that unlisted SIP to a client. — p. 3A-6
⚠ CKA is for UNLISTED SIPs (Annex 2); the Customer Account Review (CAR) is for LISTED SIPs/derivatives (Annex 3).
Where the client does not wish to receive advice on the unlisted SIP, the financial adviser shall document the decision and warn the client in writing that it is the client's responsibility to ensure suitability and that the client will not be able to rely on section 27 of the Act to file a civil claim for any alleged loss. — p. 3A-7
⚠ Declining advice forfeits the client's ability to rely on s27 for a civil claim — a key consequence to warn about in writing.
Where a client who failed the CKA insists on transacting in a non-recommended unlisted SIP, the adviser shall not allow the trade unless its senior management (not involved in the trade and not a connected person to the client) has confirmed the client was properly informed, is satisfied the adviser complied with paragraphs 22 and 24, and has approved the trade. — p. 3A-9, 3A-10
Where a client is assessed to have the knowledge or experience, the financial adviser may allow the client to transact in the unlisted SIP for a period of one year from the date of the Customer Knowledge Assessment; after a year, a new CKA must be conducted.1 year — p. 3A-10
⚠ CKA is valid ONE year; the Customer Account Review (CAR) is valid THREE years — the classic near-miss.
For a Customer Knowledge Assessment the financial adviser shall consider the client's educational qualifications, investment experience and work experience; where the client does not provide this information, the adviser shall deem the client not to possess knowledge or experience in the unlisted SIP. — p. 3A-6, 3A-7
⚠ No information provided => DEEMED to lack knowledge/experience (a fail-safe default), not deemed to possess it.
A financial adviser shall not allow a client to transact in an unlisted Specified Investment Product unless it is satisfied, on the basis of the CKA outcome, that the client has the knowledge or experience set out in Annex 2. — p. 3A-7
Notwithstanding a positive Customer Knowledge Assessment outcome, the financial adviser shall still offer to provide advice concerning the unlisted Specified Investment Product to the client. — p. 3A-7
⚠ A PASS does not remove the duty to offer advice — the offer of advice is required even after a positive outcome.
Notwithstanding its reliance on a Customer Knowledge Assessment conducted by a third party, a financial adviser remains responsible for its own CKA obligations under the Notice. — p. 3A-11
A client may be assessed as possessing knowledge or experience in an unlisted SIP if the client holds a relevant diploma or higher qualification, holds a professional finance-related qualification, has made the required number of relevant transactions, or has the required relevant working experience. — p. 3A-25
A client meets the transaction-experience criterion if the client has transacted in the relevant products at least 6 times in the preceding 3 years (for the CKA: CIS/ILPs, or other unlisted SIPs; for the CAR: Listed SIPs).6 transactions — p. 3A-25, 3A-26
⚠ Transaction criterion is 6 times in the preceding 3 YEARS — same figure for CKA and CAR.
A client meets the work-experience criterion if the client has a minimum of 3 consecutive years of working experience in the past 10 years in the development, structuring, management, sale, trading, research or analysis of, or training in, investment products (including accountancy, actuarial science, treasury or financial risk management).3 years — p. 3A-26
⚠ Work experience: 3 CONSECUTIVE years within the PAST 10 years — both figures are testable.
Before recommending an investment product that is not approved for listing, a financial adviser shall ensure it has been informed by the issuer whether the product is a Specified Investment Product, keep proper records of that information, and convey it to a client who intends to transact. — p. 3A-6
A financial adviser may rely on a Customer Knowledge Assessment previously conducted by a third party if it is satisfied the third party complied with Annex 2 and paragraphs 17-18, the third party has not been specifically precluded by MAS, and the third party will provide the underlying data without delay on request. — p. 3A-11
For the purposes of conducting a Customer Knowledge Assessment, the reference to a 'client' refers only to a natural person. — p. 3A-11
A client assessed as not possessing knowledge or experience may nevertheless be deemed to possess the knowledge to transact in that unlisted SIP after demonstrating sufficient understanding through a learning module provided by an independent body as set out in Practice Note FAA PN-02. — p. 3A-26

📋Customer Account Review

FAA-N16 E3: CAR for LISTED SIPs/derivatives — factors, deemed outcome, senior-management approval, 3-year validity, Annex 3 criteria.

A financial adviser shall conduct a Customer Account Review (CAR) based on the criteria in Annex 3 before making a recommendation on any Listed Specified Investment Product. — p. 3A-11
⚠ CAR = LISTED SIPs (derivatives), Annex 3; CKA = UNLISTED SIPs, Annex 2. Swap them and you fail the question.
No financial adviser shall recommend a Listed SIP more than 3 years after the date of the Customer Account Review, unless the client has transacted in a Listed SIP more than once during the preceding 3-year period (and in every subsequent 3-year period) or a new CAR has been conducted.3 years — p. 3A-15, 3A-16
⚠ CAR validity is THREE years (with an active-trading exception); CKA validity is ONE year.
For a Customer Account Review the financial adviser shall consider the client's educational qualifications, investment experience and work experience; where the client does not provide this information, the adviser shall deem the client not to possess knowledge or experience in derivatives. — p. 3A-11
⚠ For a CAR the deemed shortfall is knowledge/experience in DERIVATIVES; for a CKA it is the UNLISTED SIP.
Where a client who failed the CAR insists on transacting in a non-recommended Listed SIP, the adviser shall not allow the trade unless its senior management (not involved and not a connected person) has confirmed the client was properly informed, is satisfied of compliance, and has approved the trade. — p. 3A-13
For the purposes of conducting a Customer Account Review, any reference to a 'client' refers only to a natural person. — p. 3A-14

🔍Needs Analysis

FAA-N16 E4: analysing information to identify a suitable product; client-chosen non-recommended products; LIA standard; bundled products.

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. — p. 3A-16
Where a client declines to provide requested information or rejects the recommendation and chooses a non-recommended product, the financial adviser may proceed with the client's request but shall document the decision and highlight in writing that ensuring the product's suitability is the client's responsibility. — p. 3A-17
Where a financial adviser makes a recommendation on a bundled product, it shall disclose to the client the option of purchasing a comparable term life insurance product as set out in the bundled product disclosure document. — p. 3A-17
Where the financial adviser is unable to identify a suitable product, it shall inform the client accordingly. — p. 3A-16
Where a financial adviser makes a recommendation on life policies or arranges contracts of insurance for life policies, it is expected to comply with the LIA Minimum Standard for Life Insurance Advisory Process issued by the Life Insurance Association of Singapore. — p. 3A-17
⚠ Worded as 'expected to comply' with an industry standard — an expectation, not a hard statutory requirement.

🗄️Documentation Record Keeping

FAA-N16 E5 (and the para 13 dealer profile update): documents furnished, CKA/CAR records, communication records.

Paragraph 11 does not apply to a financial adviser who is also a dealer providing execution-related advice, provided the paragraph 11 information was already collected when the relationship was first established and the client's profile is updated at least annually or whenever the client informs the adviser of a change.1 year — p. 3A-7
When making a recommendation on an investment product, a financial adviser shall furnish the client, before the client signs the application form, a document containing a summary of the information gathered under paragraph 11 and the recommendation made together with its basis. — p. 3A-18
A financial adviser shall document every Customer Knowledge Assessment and every Customer Account Review, including the information collected on the client's education, work and investment experience, the assessment made, the outcome, and any senior-management or designated-person approval. — p. 3A-18
A financial adviser who is also a dealer is not required to furnish to its client the paragraph 36 document when making a recommendation on an investment product. — p. 3A-18
A financial adviser shall maintain records of all communication with the client relating to financial advisory in respect of a Listed Specified Investment Product, including a file note or a tape recording of the telephone conversation. — p. 3A-18

🌏Overseas Listed Products

FAA-N16 H: Annex 4 risk warning, acknowledgement, 5-year retention and default SIP classification.

A financial adviser shall provide the Annex 4 risk warning statement to a client before making a recommendation on an Overseas-Listed Investment Product where it is the first time, on or after 8 October 2018, that the adviser makes such a recommendation to the client.2018-10-08 — p. 3A-22
A financial adviser shall maintain records of the client's acknowledgement of the overseas-listed risk warning statement for a period of not less than 5 years.5 years — p. 3A-22
⚠ Overseas-listed acknowledgement records: keep at least 5 years — distinct from CKA (1 yr) and CAR (3 yr) validity periods.
Where a financial adviser does not implement a system to classify an Overseas-Listed Investment Product as an Excluded Investment Product, the product is classified as a Specified Investment Product and the Customer Account Review requirements apply. — p. 3A-21

♻️Eip Transitions

FAA-N16 F/G: EIP-CIS and EIP-ILP sub-funds that become SIPs on a change of mandate.

Where units in an EIP-CIS or an EIP-ILP sub-fund become Specified Investment Products due to a change in investment objective, focus or approach and the adviser cannot conduct (or the client fails) the required CAR/CKA, the adviser may let the client keep the existing position or, on instructions, reduce it; such transactions are not counted as investment experience. — p. 3A-19, 3A-20

🔄Product Switching

FAA-N16 I: prohibition on detrimental switching, detriment factors, fee disclosure, and the s58(5) penalty.

A financial adviser shall not recommend a client to switch from one designated investment product to another in a manner that would be detrimental to the client. — p. 3A-23
Under section 58(5) of the Act, any person who contravenes a requirement in a written direction issued by the Authority (which includes these Notices) is guilty of an offence and liable on conviction to a fine not exceeding $25,000 and, for a continuing offence, a further fine not exceeding $2,500 for every day the offence continues after conviction.25000 SGD — p. 3A-24, 3B-13
⚠ Contravening a MAS Notice (s58(5)) = fine up to $25,000 + $2,500/day continuing. Same figure applies to FAA-N16 and FAA-N03.
In assessing whether a switch is detrimental, the Authority may consider whether the client suffers a penalty for terminating the original product, incurs transaction cost without real benefit, receives a lower benefit at higher/same cost (or the same benefit at higher cost), or ends up with a less suitable replacement product. — p. 3A-23
A financial adviser shall disclose in writing to a client any fee or charge the client would bear on switching from one designated investment product to another, so the client can make an informed decision. — p. 3A-23

📄N03 Scope

FAA-N03: applicability and the statutory disclosure duties — section 25 (disclosure) and section 26 (false/misleading statements).

Section 25 of the Act imposes on licensed financial advisers an obligation to disclose to their clients and prospective clients all material information relating to any designated investment product they recommend, including the form and manner of disclosure. — p. 3B-3
⚠ s25 = duty to DISCLOSE material product information; s26 = prohibition on FALSE/MISLEADING statements; s27 = reasonable basis. Do not swap them.
Section 26 of the Act provides that no licensed financial adviser shall, with intent to deceive, make a false or misleading statement as to any amount payable in respect of a proposed contract relating to an investment product or as to the effect of any provision of a contract or proposed contract. — p. 3B-3
⚠ s26 requires INTENT TO DECEIVE and targets false statements on amounts payable or contract effect; contrast with s25's disclosure duty.
FAA-N03 applies to licensed financial advisers, exempt financial advisers, representatives of financial advisers, persons exempted under Regulation 29 of the FAR, and representatives of such persons. — p. 3B-2

✨General Disclosure Principles

FAA-N03 s3: the Clear / Adequate / Not False or Misleading standards and annual document review.

In all product-information disclosures a financial adviser is expected to meet three general standards: information must be Clear (plain language, jargon explained), Adequate (sufficient for an informed decision, with warnings prominent), and Not False or Misleading (unambiguous, objective and unbiased). — p. 3B-4
Under the Not False or Misleading standard, documents given to clients should be kept up to date and reviewed at least annually.1 year — p. 3B-4

🪪Adviser Representative Info

FAA-N03 s4: what a financial adviser vs a representative must disclose in writing.

A financial adviser shall disclose in writing to a client its business name, address and telephone number; the types of financial advisory service it is authorised to provide; the types of investment products it may advise on; any unregulated activities it carries out; and the product providers whose products it procures, recommends, markets or markets on their behalf. — p. 3B-5
A representative shall disclose in writing to the client his name, the financial adviser(s) for which he acts, the types of financial advisory service he is authorised to provide, and the types of investment products he may advise on. — p. 3B-5
⚠ A representative discloses his name + FA(s) he acts for + authorisations; he does NOT disclose business address/telephone or the product-provider list required of the FA.

💰Remuneration Disclosure

FAA-N03 s5: disclosing remuneration/commissions and the life-policy distribution-cost substitution.

A financial adviser shall disclose in writing to a client all remuneration — including any commission, fee and other benefits — it has received or will receive that is directly related to making a recommendation on an investment product or executing a purchase or sale of a designated investment product for the client. — p. 3B-6
For a life policy, a financial adviser shall disclose the 'distribution cost' item in the policy illustration (where a policy illustration is available) and is not required to disclose the amount and type of remuneration otherwise required under paragraphs 16 to 21. — p. 3B-6
⚠ For life policies, disclosing the 'distribution cost' in the policy illustration substitutes for the paragraphs 16-21 remuneration disclosure.

⚖️Conflicts Disclosure

FAA-N03 s6: disclosure of actual or potential conflicts of interest.

A financial adviser shall disclose in writing to its clients any actual or potential conflict of interest arising from any connection to or association with a product provider, including any material information or facts that may compromise its objectivity or independence. — p. 3B-7

🗒️Product Information Disclosure

FAA-N03 s7: the product-information categories for a designated investment product, including free-look vs cancellation rights.

When recommending a designated investment product, a financial adviser shall disclose, clearly, adequately and not misleadingly, the product's nature and objective, product-provider details, contractual rights, client profile, commitment required, benefits, risks, pricing, fees and charges, reports, free-look/cancellation rights, withdrawal/surrender/claim procedures, and any warnings, exclusions and disclaimers. — p. 3B-7
For a life policy, the financial adviser shall disclose and explain that the client is responsible for the accuracy and completeness of information given to the insurer both in the application and when making a claim, and that any mis-statement or non-disclosure of material facts may affect the validity of the policy. — p. 3B-7, 3B-8
For a life policy, the financial adviser shall disclose the time frame for the client to reconsider the purchase (the free-look period), the terms and procedures for exercising it, and, for an investment-linked policy, that the client may bear the risk of any fall in value of the underlying investment during the free-look period. — p. 3B-10
⚠ Free-look period applies to LIFE POLICIES; the analogous 'cancellation period' applies to UNIT TRUSTS.
Where a unit trust provides for a cancellation period, the financial adviser shall disclose the time frame for the client to reconsider the purchase, the terms and procedures for exercising the right to cancel, and that any fall in value of the units during the cancellation period would be borne by the client. — p. 3B-10
⚠ Cancellation period = UNIT TRUSTS; free-look period = LIFE POLICIES. The concepts mirror each other but attach to different products.

📈Performance Illustration

FAA-N03 s8 + Annex A: rules on illustrating past and future performance of CIS.

When using past performance to illustrate possible returns, a financial adviser shall advise the client that past performance is not necessarily indicative of future performance, and the source of the data used must be provided by the product provider or an independent agency and made known to the client. — p. 3B-11
When advising on a collective investment scheme, a financial adviser may disclose orally any past/future performance from the registered prospectus only if a copy of the prospectus is given at the same time and, where the last day of the past-performance period is more than 3 months before the disclosure, the adviser informs the client of that fact.3 months — p. 3B-12
⚠ Oral CIS performance disclosure requires giving the prospectus at the same time; flag if past-performance data is more than 3 months stale.
Where a financial adviser discloses the past performance of a CIS, the return must be presented over a period of not less than a year, calculated on an offer-to-bid basis, with a prominent statement that past performance is not necessarily indicative of future performance.1 year — p. 3B-15, 3B-16
A financial adviser shall not disclose to its clients any information on past performance in relation to a CIS based on the simulated results of a hypothetical CIS. — p. 3B-15

📢Marketing Materials

FAA-N03 s9: approval of marketing materials and direct-response advertising warnings.

Where a financial adviser markets designated investment products using direct response advertising designed to solicit and close a sale, it shall include in all its marketing materials a prominent warning that the client may wish to seek advice from a financial adviser and, if he chooses not to, should consider whether the product is suitable for him. — p. 3B-13
A representative shall only use marketing materials approved by the financial adviser for which he acts. — p. 3B-13

💱Dci Definitions

FAA-N11: scope, investor exception and the key DCI definitions (base/alternate currency, strike/spot rate, rate-fixing/maturity/value dates).

For a dual currency investment, the 'base currency' is the currency in which the initial investment is made, while the 'alternate currency' is the currency (other than the base currency) in which the principal sum could be repaid. — p. 3C-2, 3C-3
⚠ Base currency = where you invested; alternate currency = the other currency the principal could be repaid in. Do not swap them.
Notice FAA-N11 (Dual Currency Investments) is issued pursuant to section 58 of the Financial Advisers Act (2001) and takes effect on 1 March 2006.2006-03-01 — p. 3C-2, 3C-6
⚠ FAA-N11 commenced 1 March 2006; FAA-N16 commenced 1 January 2012.
FAA-N11 applies to any licensed or exempt financial adviser or its representative who advises on any dual currency investment, except where the advice is given to an accredited investor, expert investor or institutional investor as defined in the FAR. — p. 3C-2
⚠ FAA-N11 does NOT apply when advising accredited, expert or institutional investors on a DCI.
The 'strike rate' is the exchange rate at which the principal sum is converted into the alternate currency if it is to be repaid in the alternate currency at maturity, whereas the 'spot rate' is the prevailing exchange rate between the base and alternate currencies at the time of investment. — p. 3C-3
⚠ Strike rate = conversion rate for repayment in the alternate currency at maturity; spot rate = the rate at the time of investment.
The 'rate-fixing date' is the date on which the deposit-taking institution determines whether to pay interest and principal in the base or alternate currency; the 'maturity date' is the date the principal sum is repaid; and the 'value date' is the date from which interest accrues. — p. 3C-3

RES5 — Rules, Ethics and Skills for Financial Advisory Services — Full Facts