effective compliance for financial advisers...accredited investor means: - an individual whose net...

Effective ComplianceEffective Complianceforfor

Financial AdvisFinancial Adviseersrs

Organized By: Financial Planning Association ofOrganized By: Financial Planning Association of Singapore (FPAS) Singapore (FPAS)PresentePresenterr:: Wong Teck KowWong Teck Kow Legal Counsel Legal Counsel iFAST Financial iFAST Financial Pte Pte LtdLtdDate: Date: 117 November7 November 2005 2005

A ManA Man’’s Brains Brain

SexSex??

Care

Share

Talk

Love

A WomanA Woman’’s Brains Brain

TalkShare

Love Care

Sex

Sex

Sex

FAFA’’s Mindset Nows Mindset Now

SalesTarget

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Compliance

FAA

FAR

MAS

FAFA’’s Mindset After This Courses Mindset After This Course

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ComplianceFAA

MAS FAR

OverviewOverview

Part 1Part 1: : Conduct of BusinessConduct of Business- Introduction to Compliance- Introduction to Compliance- Needs-Based Sales Process- Needs-Based Sales Process- Other Good & Bad Practices- Other Good & Bad Practices- FPAS Code of Ethics- FPAS Code of Ethics

Part 2:Part 2: Internal ControlsInternal Controls- Use of Introducers- Use of Introducers- Training & Competency- Training & Competency- - Recruitment of RepresentativesRecruitment of Representatives- Complaints Handling Process- Complaints Handling Process- Money Laundering- Money Laundering- Lessons from DCW- Lessons from DCW

IntroductionIntroduction To Compliance To Compliance

What What iis Compliance?s Compliance?- - Compliance with FAA, SFA, Compliance with FAA, SFA, MAS MAS Notices,Notices, Circulars, Circulars, Guidelines, Practice Notes, Information PaperGuidelines, Practice Notes, Information Paperss..

- - Compliance with industry guidelines, Compliance with industry guidelines, norms.norms.

- - Common LawCommon Law

Why we need Compliance?Why we need Compliance?- P- Protect the interest of rotect the interest of cclientslients

- P- Preserve integrity of the financial marketreserve integrity of the financial market

Role of Compliance DepartmentRole of Compliance Department- - To incorporate the principle of To incorporate the principle of ““treating the customertreating the customer fairlyfairly”” into into tthe corporate strategy, culture & day to dayhe corporate strategy, culture & day to day operations of the firm.operations of the firm.

- To put in place - To put in place adequate & eadequate & effectiveffective policies, operational policies, operational procedures & procedures & internal internal controls.controls.

What if FA fail to comply?What if FA fail to comply?

Simple offence (Simple offence (EgEg. Failure to notify MAS of change in place of. Failure to notify MAS of change in place ofkeeping register of interest in securities)keeping register of interest in securities)

Liable to max. fine $10KLiable to max. fine $10K

Serious offence (Serious offence (EgEg. Continuing to act as FA after license is. Continuing to act as FA after license issuspended or revoked)suspended or revoked)

FA liable to max. fine $150KFA liable to max. fine $150K Rep liable to max. fine $25K and/or 12 months imprisonmentRep liable to max. fine $25K and/or 12 months imprisonment

($2.5K per day offence continues)($2.5K per day offence continues)

Common offence (Common offence (EgEg. Fail to disclose material info to client). Fail to disclose material info to client)Liable to max. fine $25K and/or 12 months imprisonment.Liable to max. fine $25K and/or 12 months imprisonment.

(S25 FAA) (S25 FAA)

Common offence (Common offence (EgEg. Making false or misleading statement on. Making false or misleading statement onan investment product)an investment product)

Liable to max. fine $50K and/or 12 months imprisonment. Liable to max. fine $50K and/or 12 months imprisonment. (S26 FAA) (S26 FAA)

General Penalty: Max. fine of $12,500General Penalty: Max. fine of $12,500 (S87 FAA) (S87 FAA)


ManagementManagement’’s Responsibilitys Responsibility

- - An Officer of FA convicted of failure to take reasonable stepsAn Officer of FA convicted of failure to take reasonable steps to secure compliance with FAA or the accuracy & correctnessto secure compliance with FAA or the accuracy & correctness of statements to MAS is liable to max. fine $100K orof statements to MAS is liable to max. fine $100K or imprisonment 2 years or both. (S84 FAA)imprisonment 2 years or both. (S84 FAA)

- - Where an offence is committed by a body corporate with theWhere an offence is committed by a body corporate with the consent, connivance or neglect of an Officer, both the Officer &consent, connivance or neglect of an Officer, both the Officer & body corporate are liable. (S83 FAA)body corporate are liable. (S83 FAA)

- - ““OfficerOfficer”” includes director, CEO, manager, management includes director, CEO, manager, management committee member, secretary & other senior members.committee member, secretary & other senior members.


Financial Advisers Financial Advisers RegulationsRegulations (F (FARAR))

- - Penalties for BreachPenalties for Breach m max. fine $50K and/or 12 months imprisonment (& fine ofax. fine $50K and/or 12 months imprisonment (& fine of

10% max per day offence continues).10% max per day offence continues). (S104(4)(c) FAA)(S104(4)(c) FAA)

Written DirectionsWritten Directions (incl. (incl. Notices & CircularsNotices & Circulars))

- - Penalties for BreachPenalties for Breach max. fine $25K (& $2.5K per day offence continues)max. fine $25K (& $2.5K per day offence continues) (S58(5) FAA)(S58(5) FAA)


Compoundable FAA offencesCompoundable FAA offences

- - Certain FAA offences are compoundable by paying a fine.Certain FAA offences are compoundable by paying a fine. - - Offences punishable by fine onlyOffences punishable by fine only - - Breach of MAS written directionsBreach of MAS written directions (S89 FAA, (S89 FAA, regreg 41 FAR) 41 FAR)

- - Subject to MAS discretion.Subject to MAS discretion.

- - Fine limited to max. prescribed penalty.Fine limited to max. prescribed penalty.

Prohibition OrderProhibition Order

- - MAS may issue Prohibition Order against FA for breach of FAAMAS may issue Prohibition Order against FA for breach of FAA t to prohibit FA from providing financial advisory service oro prohibit FA from providing financial advisory service or impose conditions.impose conditions.

(S59 FAA)(S59 FAA)


““Name them & shame themName them & shame them”” approach orapproach or publishing publishingregulatory actionsregulatory actions ((egeg. DC William). DC William)

- S67 FAA gives MAS power to publish info on action taken- S67 FAA gives MAS power to publish info on action taken against FA. against FA.

- - FA/FI who have failed to deal with customers in a fair &FA/FI who have failed to deal with customers in a fair & transparent way, or guilty of other market misconduct.transparent way, or guilty of other market misconduct.

- - Rule of thumb: Rule of thumb: Public InterestPublic Interest to disclose. to disclose.

- - Details published: name of FI/FA, brief description of actions &Details published: name of FI/FA, brief description of actions & reasons for intervention.reasons for intervention.

- - Forms of regulatory action: reprimand, written directions,Forms of regulatory action: reprimand, written directions, composition of offences, referral to CAD, revocation of license.composition of offences, referral to CAD, revocation of license.

Common LawCommon Law

Breach of ContractBreach of Contract

- - Letter of Engagement: Have FALetter of Engagement: Have FA’’s contractual obligations beens contractual obligations been fulfilled?fulfilled?

- - EgEg. Annual review of client. Annual review of client’’s portfolios portfolio

- - Limitation of Liability ClausesLimitation of Liability Clauses

- - Subject to Unfair Contract Terms Act & statutory requirementsSubject to Unfair Contract Terms Act & statutory requirements ((EgEg. S27 FAA).. S27 FAA).


TortTort ((Civil WrongCivil Wrong))

- - NegligenceNegligence ( (EgEg. Fail to enquire client. Fail to enquire client’’s marital status & no.s marital status & no.ofof dependents)dependents)

- - MisrepresentationMisrepresentation ( (EgEg. FA makes statement that . FA makes statement that ““aa protected fund carries no riskprotected fund carries no risk””.).)

- - Fiduciary DutyFiduciary Duty:: FA is in a position of trustee & must ensure FA is in a position of trustee & must ensurethat the interest of client is protected.that the interest of client is protected.

- - ConfidentialityConfidentiality ( (EgEg. Client. Client’’s income, health, investment &s income, health, investment &personal details)personal details)


Compensation for Breach of Common Law DutiesCompensation for Breach of Common Law Duties

- - Basis: Basis: Law of Damages & RestitutionLaw of Damages & Restitution

- - If you cause someone loss, you have to pay the amount thatIf you cause someone loss, you have to pay the amount that will restore that person in the position he would have been ifwill restore that person in the position he would have been if the loss had not happened.the loss had not happened.

- - Complex Interrelation Between Legislation & Common Law.Complex Interrelation Between Legislation & Common Law.

- - Where FA breached S27 FAA, he may also be negligent underWhere FA breached S27 FAA, he may also be negligent under Common Law.Common Law.

Needs-Based Sales ProcessNeeds-Based Sales Process

DisclosureDisclosure: What information must FA disclose to client?: What information must FA disclose to client?

Needs-Based Sales ProcessNeeds-Based Sales Process- Know-Your-Client- Know-Your-Client- Financial Needs Analysis- Financial Needs Analysis- Documentation & Record Keeping- Documentation & Record Keeping- Exclusions from Business Conduct Provisions- Exclusions from Business Conduct Provisions- Case Studies- Case Studies

SwitchingSwitching

Sales & Marketing Techniques (Regulatory Perspective)Sales & Marketing Techniques (Regulatory Perspective)- Using Illustrations of Past & Future Performance- Using Illustrations of Past & Future Performance- Case Studies- Case Studies

Disclosure: What info must FA disclose to client?Disclosure: What info must FA disclose to client?

InfoInformationrmation about FA & rep about FA & representative.resentative.

FAFA’’s remunerations remuneration

ClientClient’’s rightss rights- - ClientsClients’’ entitlement to info on products recommended entitlement to info on products recommended

- - Nature and Objective of ProductNature and Objective of Product- - Details of Product ProviderDetails of Product Provider- - Intended Client Profile of ProductIntended Client Profile of Product- - Commitment required from ClientCommitment required from Client- - Benefits of ProductBenefits of Product- - Risks of the ProductRisks of the Product- - Pricing of the ProductPricing of the Product- - Fees & Charges to be borne by ClientFees & Charges to be borne by Client- - Reports to ClientReports to Client- - Withdrawal, surrender or claimsWithdrawal, surrender or claims- - Warnings, exclusions & disclaimersWarnings, exclusions & disclaimers

- - 7-day cancellation period for purchase of UT7-day cancellation period for purchase of UT- - 14-day free-look period for purchase of life policy14-day free-look period for purchase of life policy

Disclosure: What info must FA disclose to client?Disclosure: What info must FA disclose to client?

How the needs-based sales process will be conducted & theHow the needs-based sales process will be conducted & thedifferences in the 4 types of advice differences in the 4 types of advice ieie. . full fact-find, partialfull fact-find, partialfact-find, product advice and no advicefact-find, product advice and no advice

The importance for client to provide complete & accurate info forThe importance for client to provide complete & accurate info forneeds analysis & making suitable recommendations, & aneeds analysis & making suitable recommendations, & awarning that incomplete or inaccurate info may affect suitabilitywarning that incomplete or inaccurate info may affect suitabilityof recommendationof recommendation

Avenues for client to seek redress (Avenues for client to seek redress (egeg FidRecFidRec, courts, courts, FPAS, FPAS).).


KnowKnow-Y-Yourour-C-Clientlient- F- Financial objectives of clientinancial objectives of client

- R- Risk tolerance of clientisk tolerance of client

- E- Employment status of clientmployment status of client

- F- Financial situation of the client, including assets, liabilities,inancial situation of the client, including assets, liabilities, cash cash flow flow && income; income;

- T- The current investment portfolio of the client, including any lifehe current investment portfolio of the client, including any life policy policy

- F - For life policies, the nor life policies, the no. o. of dependents of the clientof dependents of the client, , thethe extent and duration of financial support extent and duration of financial support forfor each dependant. each dependant.


KnowKnow-Y-Yourour-C-ClientlientFAFARR should highlight the following in writing to client: should highlight the following in writing to client:- - the info provided by client will be the basis on which thethe info provided by client will be the basis on which the

recommendation will be made; andrecommendation will be made; and

- - any inaccurate or incomplete information provided byany inaccurate or incomplete information provided by the client may affect the suitability of thethe client may affect the suitability of the recommendation.recommendation.

Financial Financial Needs AnalysisNeeds Analysis:: Based on the fact-findBased on the fact-find, , has thehas the FA FARR made made a a reasonablereasonable

recommendationrecommendation which f which fulfills clientulfills client’’ss specificspecific investmentinvestmentobjectives, financial situation or particular needsobjectives, financial situation or particular needs??


Documentation & Documentation & RRecord ecord KKeepingeeping FA FARR mustmust ke keepep & furnish the & furnish thesese documents to clients: documents to clients:

- - CISCIS:: the the prospectus or profile statementprospectus or profile statement;;

- L - Life ife PPolicyolicy: the: the Product Summary Product Summary && Benefit illustration Benefit illustration;;

- - A summary of the fact-find; &A summary of the fact-find; &

- - Any recommendation made to clientAny recommendation made to client & & its basisits basis..

- Or- Or a statement that a statement that CLIENT DOES NOT WANT TOCLIENT DOES NOT WANT TO::- - provide any infoprovide any info requested by the FArequested by the FARR;;- a- accept the ccept the FARFAR’’ss recommendation recommendation && chosechose to purchase to purchase

another product not recommended by FAanother product not recommended by FARR; or; or- - receive any recommendation from the FAreceive any recommendation from the FARR,,

BEFOREBEFORE CLIENT SIGNSCLIENT SIGNS on the application form for the on the application form for the purchase or sale of a product.purchase or sale of a product.

Exclusions from Business Conduct provisionsExclusions from Business Conduct provisions

Recent amendments to FAA effective 1st July 2005Recent amendments to FAA effective 1st July 2005

Applicable to licensed and exempt FAApplicable to licensed and exempt FA

4 Categories of Exclusions:4 Categories of Exclusions:

- - Generally Circulated AdviceGenerally Circulated Advice

- - Institutional investorsInstitutional investors, , related corporation or connectedrelated corporation or connected person to FA, approved HQ company or approved FTCperson to FA, approved HQ company or approved FTC..

- - Overseas InvestorsOverseas Investors

- - Accredited or Expert InvestorsAccredited or Expert Investors

Generally Circulated AdviceGenerally Circulated Advice

Generally Circulated AdviceGenerally Circulated Advice is excluded from is excluded from reasonablereasonablebasis requirementbasis requirement under s27 FAA provided the following under s27 FAA provided the followingconditions are met:conditions are met:

- The recommendation is made to the public or to a- The recommendation is made to the public or to a section of the public section of the public

- Not regarded by a reasonable person of the public or a- Not regarded by a reasonable person of the public or a section of the public as having considered his specific section of the public as having considered his specific investment objectives, financial situation or particular investment objectives, financial situation or particular needs; and needs; and

- Must be accompanied by a - Must be accompanied by a prominent disclaimerprominent disclaimer stated in regulation 18A FAR. stated in regulation 18A FAR.

(Regulation 18A FAR)(Regulation 18A FAR)

Institutional investors, related corporation orInstitutional investors, related corporation orconnected person to FA, approved HQ companyconnected person to FA, approved HQ company

or approved FTCor approved FTC..

In providing FA services to the above investors,In providing FA services to the above investors,

FA and reps are exempt from complying with the business FA and reps are exempt from complying with the businessconduct provisions of S25 to 29, 32, 34 and 36 FAA &conduct provisions of S25 to 29, 32, 34 and 36 FAA &Regulations 37 & 38 FAR.Regulations 37 & 38 FAR.

No requirement to disclose the above exemption to the No requirement to disclose the above exemption to therelevant investors.relevant investors.

(Regulation 32B FAR)(Regulation 32B FAR)

Overseas InvestorsOverseas Investors

Overseas InvestorsOverseas Investors is defined as: is defined as:- An individual outside - An individual outside SS’’porepore who is not a who is not a SS’’porepore citizen or PR citizen or PR & not wholly or partly dependent on a & not wholly or partly dependent on a SS’’porepore citizen or PR. citizen or PR.

- A non-individual with no commercial or physical presence in- A non-individual with no commercial or physical presence in SS’’porepore..

- In providing FA services to - In providing FA services to Overseas InvestorsOverseas Investors,, FA & rep are exempt from complying with the business FA & rep are exempt from complying with the business conduct provisions of conduct provisions of ssss 25-29, 32, 34 & 38 FAA 25-29, 32, 34 & 38 FAA

FA & rep must disclose the above exemption to the relevant FA & rep must disclose the above exemption to the relevant investors. Otherwise he is guilty of an offence. investors. Otherwise he is guilty of an offence.

(Regulation 36 FAR) (Regulation 36 FAR)

Accredited or Expert InvestorsAccredited or Expert Investors

Accredited InvestorAccredited Investor means: means:- an indi- an individual whose net personal assets exceedvidual whose net personal assets exceedss SS$2 million or$2 million orwhose income in the whose income in the lastlast 12 12 months is not less than months is not less than SS$300,000$300,000- - a corporationa corporation, trust or other entity, trust or other entity w whichhich net assets exceed net assets exceedSS$10 million$10 million- a partnership of which each partner is an accredited investor- a partnership of which each partner is an accredited investor- a holding company owned by accredited investors- a holding company owned by accredited investors

Expert InvestorExpert Investor means a person whose business involves the means a person whose business involves theacquisition & disposal or holding of capital markets products, asacquisition & disposal or holding of capital markets products, asprincipal or agent.principal or agent.

(Regulation 2(1) FAR)(Regulation 2(1) FAR)


- FA are exempted from S25, 27 & 36 FAA when advising- FA are exempted from S25, 27 & 36 FAA when advising Accredited or Expert Investors. Accredited or Expert Investors.

- - Exemption from S25 FAAExemption from S25 FAA FA & rep who advise:FA & rep who advise:

a. an Accredited Investor on CIS or life policy; ora. an Accredited Investor on CIS or life policy; orb. an Expert Investor on CISb. an Expert Investor on CIS

are are exempt from the S25 FAA requirement to discloseexempt from the S25 FAA requirement to disclose product information product information to client. to client.

FA & rep FA & rep must disclose the exemptionmust disclose the exemption unless the unless the Accredited or Expert Investor is an institutional investor, a Accredited or Expert Investor is an institutional investor, a

related corporation, a connected person, an approved HQ related corporation, a connected person, an approved HQ or approved FTC. or approved FTC.

(Regulation 33 FAR) (Regulation 33 FAR)


Exemption from s27 FAAExemption from s27 FAA FA & reps who recommends:FA & reps who recommends: a. an investment product to an Accredited Investor; a. an investment product to an Accredited Investor; b. a capital markets product to an Expert Investor; or b. a capital markets product to an Expert Investor; or c. Government securities c. Government securities

are are exempt from theexempt from the S27 FAA requirement to have a S27 FAA requirement to have a reasonable basisreasonable basis for their recommendation. for their recommendation.

FA & rep FA & rep must disclose the exemptionmust disclose the exemption unless the unless the Accredited or Expert Investor is an institutional investor, a Accredited or Expert Investor is an institutional investor, a related corporation, a connected person, an approved HQ or related corporation, a connected person, an approved HQ or approved FTC. (Regulation 34 FAR) approved FTC. (Regulation 34 FAR)

- - ““Investment ProductInvestment Product”” is defined in s2(1) FAA as any capital market is defined in s2(1) FAA as any capital market product defined in SFA, life policy or other prescribed products. product defined in SFA, life policy or other prescribed products.- - ““Capital market productsCapital market products”” is defined in s2(1) SFA as securities, is defined in s2(1) SFA as securities, futures, futures, forexforex, leveraged , leveraged forexforex & other prescribed products. & other prescribed products.- - ““SecuritiesSecurities”” is defined broadly in s2(1) SFA as debentures, stocks & is defined broadly in s2(1) SFA as debentures, stocks & shares (including government-issued ones), derivatives, CIS & shares (including government-issued ones), derivatives, CIS & business trust. business trust.


Exemption from s36 FAAExemption from s36 FAA FA & reps who send circulars or written communication inFA & reps who send circulars or written communication in which a recommendation is made on: which a recommendation is made on: a. any securities to an Accredited or Expert Investor a. any securities to an Accredited or Expert Investor b. any government securities b. any government securities

FA & rep are FA & rep are exempt from s36 FAA requirement toexempt from s36 FAA requirement to disclose their interest in the securities recommended disclose their interest in the securities recommended..

FA & rep FA & rep must disclose the exemptionmust disclose the exemption unless the unless the Accredited or Expert Investor is an institutional investor, a Accredited or Expert Investor is an institutional investor, a related corporation, a connected person, an approved HQ or related corporation, a connected person, an approved HQ or approved FTC. approved FTC.

Case StudiesCase StudiesHK: Susan Field v Barber AsiaHK: Susan Field v Barber Asia

Summary of factsSummary of facts

- - MrsMrs Field (Client) invested in a scheme which involved taking a Field (Client) invested in a scheme which involved taking a JPY loan to invest in GBP. When interest rates in JPY rose, JPY loan to invest in GBP. When interest rates in JPY rose, MrsMrs Field suffered substantial exchange losses & value ofField suffered substantial exchange losses & value of investments also plunged.investments also plunged.

- - MrsMrs Field sued Barber Asia (FA) Field sued Barber Asia (FA) for breach of contract and tort of for breach of contract and tort of negligence negligence. She claimed that she was inexperienced & had relied. She claimed that she was inexperienced & had relied on the advice from FA.on the advice from FA.

- - Client claimed that FA had advised her to enter into anClient claimed that FA had advised her to enter into an investment that was unsuitable for her & inconsistent with herinvestment that was unsuitable for her & inconsistent with her objectives (N.B. S27 FAA)objectives (N.B. S27 FAA)

- - Client also claimed that FA did not explain to her the nature ofClient also claimed that FA did not explain to her the nature of the risk involved (N.B. S25 FAA)the risk involved (N.B. S25 FAA)

HK: Susan Field v Barber Asia (contHK: Susan Field v Barber Asia (cont’’d)d)

High Court & Court of Appeal findingsHigh Court & Court of Appeal findings

- - FA knew or ought to know that client was inexperienced &FA knew or ought to know that client was inexperienced & conservative but advised her to invest her whole savings into theconservative but advised her to invest her whole savings into the scheme.scheme.

- - FA had not sufficiently warned client of the nature & riskFA had not sufficiently warned client of the nature & risk associated with the scheme.associated with the scheme.

- - Damages of Damages of ££219,890 awarded to client.219,890 awarded to client.

HK: Susan Field v Barber Asia (contHK: Susan Field v Barber Asia (cont’’d)d)

Lessons LearntLessons Learnt

- - Have proper documentation of recommendationHave proper documentation of recommendation

- - Draw clientDraw client’’s attention to the warnings, exclusions of risks.s attention to the warnings, exclusions of risks.

- - ClientClient’’s signing a form that highlights or excludes risk does nots signing a form that highlights or excludes risk does not absolve FA from explaining the risk to client.absolve FA from explaining the risk to client.

- - Conduct proper KYCConduct proper KYC

- - No contract does not mean no liabilityNo contract does not mean no liability

- - Voluntary assumption of responsibility if FA gives financialVoluntary assumption of responsibility if FA gives financial advice.advice.

Singapore: CitibankSingapore: Citibank

AllegationsAllegations- - MdmMdm Lim Ah Nee bought funds in 1999 & engaged in currency Lim Ah Nee bought funds in 1999 & engaged in currency trading from 2001 to 2003.trading from 2001 to 2003.- - Lost more that S$171,600. Sued Citibank for professionalLost more that S$171,600. Sued Citibank for professional negligence & breach of FAA.negligence & breach of FAA.- - Client alleged that Citibank had failed to advise & provideClient alleged that Citibank had failed to advise & provide adequate warning on the risk of investment funds & currencyadequate warning on the risk of investment funds & currency trading.trading.- - Client claimed that Citibank advised her to invest in riskyClient claimed that Citibank advised her to invest in risky products despite knowing her retirement needs & limitedproducts despite knowing her retirement needs & limited investment experience.investment experience.- - Client claimed that the investments recommended did not suitClient claimed that the investments recommended did not suit her investment objectives & risk appetite.her investment objectives & risk appetite.

[ [The Straits Times/Business Times, September 2004The Straits Times/Business Times, September 2004]]

Lessons LearntLessons Learnt- - Needs-based fact-find, reasonable basis for recommendations &Needs-based fact-find, reasonable basis for recommendations & adequate disclosure must be strictly complied. (S25, 27 FAA)adequate disclosure must be strictly complied. (S25, 27 FAA)

HK: HK: TowryTowry Law International Law International

Summary of factsSummary of facts

- - TowryTowry Law International ( Law International (““TLITLI””) sold two failed offshore hedge) sold two failed offshore hedge funds funds –– Global Opportunities Trading & Global Diversified Global Opportunities Trading & Global Diversified Trading. Liquidators have identified the funds as part of a HongTrading. Liquidators have identified the funds as part of a Hong Kong-based securities price-ramping fraud.Kong-based securities price-ramping fraud.- - Securities and Futures Commission instituted disciplinarySecurities and Futures Commission instituted disciplinary proceedings against TLI.proceedings against TLI.- - TLI will pay up to HK$250 mil to clients but denies liability.TLI will pay up to HK$250 mil to clients but denies liability.

[[South China Morning Post, Aug 04South China Morning Post, Aug 04]]

Securities & Futures Commission findingsSecurities & Futures Commission findings

- - Insufficient due diligence into the funds before recommending toInsufficient due diligence into the funds before recommending to customers.customers.- - CustomersCustomers’’ investment objectives & risk tolerance did not match investment objectives & risk tolerance did not match the risk profiles of the funds.the risk profiles of the funds.

HK: HK: TowryTowry Law International (cont Law International (cont’’d)d)

Securities & Futures Commission findingsSecurities & Futures Commission findings

- - Failure to conduct proper enquiries into the circumstancesFailure to conduct proper enquiries into the circumstancessurrounding the funds.surrounding the funds.

- - Failure to advise customers when it became clear that the fundsFailure to advise customers when it became clear that the fundshad problems.had problems.

Quote from Quote from MrMr Alan Alan LinningLinning ( (SFCSFC’’ss Executive Director of Executive Director ofEnforcementEnforcement))::

-- ““We are concerned at standards in parts of the investment adviserWe are concerned at standards in parts of the investment adviserindustry. We have a sense that there is industry. We have a sense that there is too much emphasis ontoo much emphasis onearning commissionearning commission and and too little on ensuringtoo little on ensuringsuitabilitysuitability……However, investors must also play their part &However, investors must also play their part &consider whether an investment is right for themconsider whether an investment is right for them……AssumingAssuminginvestors are properly advised, any losses arising from theinvestors are properly advised, any losses arising from theperformance of a product may have to be borne by investors.performance of a product may have to be borne by investors.””

[ [SFC Press Release, Aug 04SFC Press Release, Aug 04]]

HK: HK: TowryTowry Law International (cont Law International (cont’’d)d)

Lessons LearntLessons Learnt

- - Sufficient due diligence into funds & products must be carried outSufficient due diligence into funds & products must be carried out

- - Need to sell based on customerNeed to sell based on customer’’s suitability (N.B. S27 FAA)s suitability (N.B. S27 FAA)

- - Importance of product disclosure to customers (N.B. S25)Importance of product disclosure to customers (N.B. S25)

UK: Lloyds Bank TSB Bank PLCUK: Lloyds Bank TSB Bank PLC

Summary of FactsSummary of Facts- - Lloyds Bank was fined Lloyds Bank was fined ££1.9 million for unsuitable sales of Extra1.9 million for unsuitable sales of Extra

Income Growth Plan (EIGP), a high income equity-linked bondIncome Growth Plan (EIGP), a high income equity-linked bondproduct classified as medium to high riskproduct classified as medium to high risk

- - TSB paid compensation of TSB paid compensation of ££98 million in respect of sale of 22,50098 million in respect of sale of 22,500EIGPEIGP[[FSA Press Release, Sept FSA Press Release, Sept ’’0303]]

Financial Services Authority findingsFinancial Services Authority findings- - Product was not suitable for 22,500 customers (44% of total EIGPProduct was not suitable for 22,500 customers (44% of total EIGP

sold)sold)- 16,500 customers had no previous equity-related investment- 16,500 customers had no previous equity-related investmentexperience, yet they had put 20% of their investment in theexperience, yet they had put 20% of their investment in theproductproduct- 6,000 customers had previous equity-related experience, but- 6,000 customers had previous equity-related experience, butthey had put 35% of their investment in the productthey had put 35% of their investment in the product

UK: Lloyds Bank TSB Bank PLC (contUK: Lloyds Bank TSB Bank PLC (cont’’d)d)

Financial Services Authority findingsFinancial Services Authority findings- - TSB acted without due skill, care & diligenceTSB acted without due skill, care & diligence- - Suitability of recommendation not demonstrated (N.B. S27 FAA)Suitability of recommendation not demonstrated (N.B. S27 FAA)

- Over-concentration of customers- Over-concentration of customers’’ total financial assets in a total financial assets in a medium to high risk productmedium to high risk product..

- Client- Client’’s risk profile does not match the product risks risk profile does not match the product riskclassificationclassification..

- - Did not disclose the inherent risk of capital loss (N.B. S25 FAA)Did not disclose the inherent risk of capital loss (N.B. S25 FAA)- High risk that customers might not understand the maturity- High risk that customers might not understand the maturity

returnreturn and/or that capital was not guaranteedand/or that capital was not guaranteed..

Lessons learntLessons learnt- - Proper fact-find & needs analysis must be conducted beforeProper fact-find & needs analysis must be conducted before

makingmaking r recommendationsecommendations- - Reasonable basis for recommendationReasonable basis for recommendation- - Disclose to clients material information such as risks associatedDisclose to clients material information such as risks associated

with the product.with the product.

SwitchingSwitching

CCost-Benefit Analysisost-Benefit Analysis::- Will - Will client suffer any penalty for terminatingclient suffer any penalty for terminating the original productthe original product??- Will- Will client incur any transaction cost without gaining client incur any transaction cost without gaining any real benefit from the switchany real benefit from the switch??- Does- Does the replacement product confer lower the replacement product confer lower benefit atbenefit at higher higher or same or same cost to client or same level of benefit atcost to client or same level of benefit at higher cost andhigher cost and- Is - Is the replacement product less suitable for clientthe replacement product less suitable for client??

( (parapara 23 FAA-N01) 23 FAA-N01)

Comply Comply with the with the Needs-Based Sales ProcessNeeds-Based Sales ProcessEnsure FAEnsure FA’’s disclosure to client ofs disclosure to client of a prominent warning on a prominent warning on::- - any fee or charge on client to switch productany fee or charge on client to switch product; and; and- - any pecuniary or other disadvantages that the client will sufferany pecuniary or other disadvantages that the client will suffer from switchingfrom switching..

SwitchingSwitching

ClientClient’’s Declarationss Declarations- - Client to declare whether Client to declare whether FA had FA had advised advised himhim to switch. to switch.- - If If yes, yes, client should maclient should makeke further declarefurther declare:: - - whether the FA rep has drawn his attention to the costs &whether the FA rep has drawn his attention to the costs & possible disadvantages of switching.possible disadvantages of switching. - - whether he wishes to proceed with the switch, whether he wishes to proceed with the switch, despitedespite the the

fees, charges or disadvantages could fees, charges or disadvantages could ooutweigh any utweigh any potential benefits.potential benefits.

RepRep’’s Declarations Declaration- R- Rep ep toto declare whether client is entitled to free switching. declare whether client is entitled to free switching.

SupervisorSupervisor’’s s RolRolee- - Review the switch recommendation, indicate in writingReview the switch recommendation, indicate in writing

whether he agrees & if not, the actions taken to rectify thewhether he agrees & if not, the actions taken to rectify the situation. Supervisor should consider the same factors in situation. Supervisor should consider the same factors in parapara 23 FAA-N01.23 FAA-N01.

Sales & Marketing TechniquesSales & Marketing Techniques(regulatory perspective)(regulatory perspective)

Future Performance of CISFuture Performance of CISFA shall notFA shall not::(a) predict, project or forecast the future performance of the(a) predict, project or forecast the future performance of the CISCIS(b) use words like (b) use words like ““targetedtargeted””, , ““expectedexpected”” or any similar words or any similar words to describe the rate of return, unless:to describe the rate of return, unless: (i) (i) it is disclosed in the registered prospectusit is disclosed in the registered prospectus (ii) (ii) FA highlights to client all assumptions, warnings FA highlights to client all assumptions, warnings && other other

info on the future performance stated in the prospectus.info on the future performance stated in the prospectus.

Forecast on marketsForecast on marketsWhen FA uses a forecast on the economy, stock market, bondWhen FA uses a forecast on the economy, stock market, bondmarket market && economic trends of the markets targeted by the CIS, economic trends of the markets targeted by the CIS,FA shall highlight that the FA shall highlight that the market forecast is not necessarilymarket forecast is not necessarilyindicative of the future or likely performance of the CISindicative of the future or likely performance of the CIS;;

Sales & Marketing TechniquesSales & Marketing Techniques((RRegulatory egulatory PPerspective)erspective)

Past Performance of CISPast Performance of CISWWhen using past performance of the CIS to illustrate possiblehen using past performance of the CIS to illustrate possiblefuture future returns, FA shall disclose to client:returns, FA shall disclose to client:

- - that past performance that past performance may not may not indicatindicatee future performance. future performance.

- - all assumptions, warningall assumptions, warningss & other info relating to the past & other info relating to the past performance in the prospectusperformance in the prospectus..

- - the source of data used in the illustrationthe source of data used in the illustration..

- where applicable, that- where applicable, that the past performance is more than the past performance is more than 3 months ago.3 months ago.

- - offer-to-bid basis or a single pricing basis (offer-to-bid basis or a single pricing basis (factoring in thefactoring in the subscription & realization fee)subscription & realization fee)..

Sales & Marketing TechniquesSales & Marketing Techniques(Regulatory Perspective)(Regulatory Perspective)

Past Performance of CIS (contPast Performance of CIS (cont’’d)d)- - return return basedbased on the assumption that all dividends & on the assumption that all dividends & distributions are reinvested, distributions are reinvested, factoring infactoring in all charges all charges..

- - return return of of a period not less than 1 yeara period not less than 1 year ( (from the time offrom the time of inception if CIS is less than 1 yearinception if CIS is less than 1 year).).

- indicate the period.- indicate the period.

- - average annual compounded returnaverage annual compounded return..

- - prominent warning where any past performance if due toprominent warning where any past performance if due to exceptional circumstances which may not be sustainable.exceptional circumstances which may not be sustainable.

Sales & Marketing TechniquesSales & Marketing Techniques(regulatory perspective)(regulatory perspective)

Marketing MaterialsMarketing Materials

- M- Must comply with guidelines on past & future performance.ust comply with guidelines on past & future performance.

- - Where FA uses direct response advertising (through mail,Where FA uses direct response advertising (through mail, print, TV, radio and electronic media), the marketing materialprint, TV, radio and electronic media), the marketing material must contain a must contain a prominent warningprominent warning that: that:

a. a. the client may wish to seek advice from an FA beforethe client may wish to seek advice from an FA before committing to buy productcommitting to buy product

b. b. if client chooses not to seek advice from an FA, he shouldif client chooses not to seek advice from an FA, he should consider whether the product in question is suitable forconsider whether the product in question is suitable for

him.him.

Case Study: Case Study: David M AaronDavid M Aaron Ltd (UK) Ltd (UK)

Regulatory Regulatory SSanctionanction- - The UK FSA revoked the firmThe UK FSA revoked the firm’’s FA license for widespread s FA license for widespread mismis--

selling of bonds to nearly 8,000 customers between Jan 1998 selling of bonds to nearly 8,000 customers between Jan 1998 ––Jun 2003.Jun 2003.

[ [FSA Press Release, Sept FSA Press Release, Sept ’’0404]]

FSA FSA FiFindingsndings- - FSA criticized FA for failing to conduct advertisement & financialFSA criticized FA for failing to conduct advertisement & financial

promotions that were clear, fair & not misleading.promotions that were clear, fair & not misleading.

- - Promotional material quoted comments & risk ratings fromPromotional material quoted comments & risk ratings fromsupposedly supposedly ““independentindependent”” panelists who were journalists paid for panelists who were journalists paid forby the FA. The fact that the panelists were paid for writing theby the FA. The fact that the panelists were paid for writing themarketing materials was not disclosed to customers.marketing materials was not disclosed to customers.

- - The panelistsThe panelists’’ quotes created a misleading impression that the quotes created a misleading impression that theproduct was either of a low risk, or suitable for cautiousproduct was either of a low risk, or suitable for cautiouscustomers; & the FAcustomers; & the FA’’s uncritical use of the quotes compoundeds uncritical use of the quotes compoundedthe misleading description.the misleading description.

UK: David M Aaron Ltd (contUK: David M Aaron Ltd (cont’’d)d)

- - Examples of quotes in marketing material:Examples of quotes in marketing material: - -““In todayIn today’’s stock market environment this (plan) is a muchs stock market environment this (plan) is a much

better investment than a tracker fund & has a much lowerbetter investment than a tracker fund & has a much lowerdownside risk.downside risk.””

- -““The panelists considered the results of The panelists considered the results of ““back testingback testing”…”…In each &In each &every case, capital would have been returned in full, in addition toevery case, capital would have been returned in full, in addition tothe income or growth selectedthe income or growth selected…”…”

- -““An excellent income product with good downside capitalAn excellent income product with good downside capitalprotection. It is difficult toprotection. It is difficult to……find elsewhere such a securefind elsewhere such a secureinvestment offering anything like such a high income.investment offering anything like such a high income.””

- - The promotion did not highlight that back testing informationThe promotion did not highlight that back testing informationshould not be used for assessing the risk of a product.should not be used for assessing the risk of a product.

- - The loss of capital risk warnings within the promotion wereThe loss of capital risk warnings within the promotion wereinadequate as they were placed after the benefit statements.inadequate as they were placed after the benefit statements.Furthermore, the generic investment warnings were located onFurthermore, the generic investment warnings were located onthe final page of the promotion.the final page of the promotion.

UK: David M Aaron Ltd (contUK: David M Aaron Ltd (cont’’d)d)

Lessons learntLessons learnt

- - Promotional materials should be clear, adequate & not false orPromotional materials should be clear, adequate & not false ormisleading.misleading.

- - Sources of information, research, endorsement, comments etc.Sources of information, research, endorsement, comments etc.should be disclosed.should be disclosed.

- - Customers have to be informed where the source is notCustomers have to be informed where the source is notindependent of sales or contributors are paid to endorse aindependent of sales or contributors are paid to endorse aproduct.product.

- - Use of back testing information to support sales should beUse of back testing information to support sales should becontrolled as the information could be misinterpreted & overlycontrolled as the information could be misinterpreted & overlyrelied on by customers.relied on by customers.

Other Good & Bad PracticesOther Good & Bad PracticesMystery shopping exercise by ST journalist Lorna TanMystery shopping exercise by ST journalist Lorna Tan

(published in ST on 1 Nov 2005)(published in ST on 1 Nov 2005)

Bank ABank AQuote: Quote: ““After determining that my risk appetite belonged toAfter determining that my risk appetite belonged tothe the ““balancedbalanced”” category, the planner proceeded to category, the planner proceeded torecommend a UT & a bond. The manager also pointed out that ifrecommend a UT & a bond. The manager also pointed out that ifI chose the more aggressive funds, I could receive the freeI chose the more aggressive funds, I could receive the freepromotional gifts like cameras & mobile phones.promotional gifts like cameras & mobile phones.””

““He highlighted the sales charge of 5% for a UT, but wasHe highlighted the sales charge of 5% for a UT, but washesitant when I asked if I could buy other UT at lower rates.hesitant when I asked if I could buy other UT at lower rates.He eventually said it is the same charge at all banks, withoutHe eventually said it is the same charge at all banks, withoutmentioning that funds have lower sales charges whenmentioning that funds have lower sales charges whenpurchased over the Internet.purchased over the Internet.””

Dislikes: Dislikes: ““I felt the entire 50-minute process was too product-I felt the entire 50-minute process was too product-oriented. Instead of beginning with a financial health check byoriented. Instead of beginning with a financial health check byexamining issues like my debt level & monthly commitments,examining issues like my debt level & monthly commitments,he went straight to identifying my risk profile & thenhe went straight to identifying my risk profile & then

recommending products. recommending products.””

Other Good & Bad PracticesOther Good & Bad PracticesMystery shopping exercise by ST journalist Lorna TanMystery shopping exercise by ST journalist Lorna Tan

(published in ST on 1 Nov 2005)(published in ST on 1 Nov 2005)

Bank BBank BQuote: Quote: ““Instead of an electronic questionnaire, he (planner)Instead of an electronic questionnaire, he (planner)quickly determined my risk profile as quickly determined my risk profile as ““balancedbalanced”” by simply by simplyasking if I was willing to lose a little or nothing at all.asking if I was willing to lose a little or nothing at all.””

Dislikes: Dislikes: ““I was disappointed that he did not do a proper riskI was disappointed that he did not do a proper riskassessment &, like the officer at Bank A, did not offer to conductassessment &, like the officer at Bank A, did not offer to conducta financial health check.a financial health check.””

Bank CBank CQuote: Quote: ““No attempts were made to determine my risk profile.No attempts were made to determine my risk profile.The female bank officer appeared to be more interested inThe female bank officer appeared to be more interested inknowing my knowing my ““investment horizoninvestment horizon”” , which I said ranged from 3 , which I said ranged from 3to 5 years. Despite my response, she proceeded to recommendto 5 years. Despite my response, she proceeded to recommendan insurance product, with guaranteed returns, that matured inan insurance product, with guaranteed returns, that matured in8 years. She later explained that she preferred to run through8 years. She later explained that she preferred to run throughthe entire range of investment products from the entire range of investment products from ““conservativeconservative”” to to““aggressiveaggressive”” so I could get a better understanding of the risks & so I could get a better understanding of the risks &returns before deciding on my risk profile.returns before deciding on my risk profile.

Dislikes: Dislikes: ““Instead of conducting a risk analysis, she used herInstead of conducting a risk analysis, she used herproducts to help me decide on my risk appetite. She was alsoproducts to help me decide on my risk appetite. She was alsounable to provide a cup of water when requested.unable to provide a cup of water when requested.””

Other Good & Bad PracticesOther Good & Bad Practices

Clients with limited Clients with limited investment kinvestment knowledgenowledge((EEgg.. elderly, illiterate or elderly, illiterate or notnot conversant with English conversant with English))- - Good PracticeGood Practice::(a) Suggest that client be accompanied by a person who (a) Suggest that client be accompanied by a person who cancan explain to him explain to him the FAthe FA’’s recommendations.s recommendations.(b) (b) RRepep’’s supervisor s supervisor should should be present be present at at the sales the sales ppresentationresentation to ensure that client fully understands material factsto ensure that client fully understands material facts..(c) (c) Rep shouldRep should execute sales transaction only upon approval by execute sales transaction only upon approval by supervisor.supervisor.

Sales Sales involvinginvolving CPF CPF fundsfunds- - Good PracticeGood Practice::(a) I(a) Inform clients of the current interest rate under the CPFnform clients of the current interest rate under the CPF OOA/SAA/SA, & the min, & the minimumimum rate guaranteed under the CPF Act. rate guaranteed under the CPF Act.(b) Highlight to(b) Highlight to client that the recommended investments may client that the recommended investments may yield lower returns than the CPF yield lower returns than the CPF OA/SAOA/SA..


Sales at seminars & promotional eventsSales at seminars & promotional events- - Problem: Clients being pressured into making hastyProblem: Clients being pressured into making hasty investment decisions at seminars & promo eventsinvestment decisions at seminars & promo events..- - Good PracticeGood Practice: FA should find a conducive place to conduct: FA should find a conducive place to conduct fact-find & needs analysis, before concluding a sale at suchfact-find & needs analysis, before concluding a sale at such events.events.

Use of GiftsUse of Gifts- - Problem: Problem: CClients may be enticed lients may be enticed by the gift by the gift to enter into ato enter into a transactiontransaction, instead of a, instead of a proper assessment of the investment. proper assessment of the investment.- - Good PracticeGood Practice::(a) P(a) Policies to ensure that gifts are of nominal value relative toolicies to ensure that gifts are of nominal value relative to the the clientclient’’s investment.s investment.

(b) (b) MMonitor the reponitor the rep’’s conduct to ensure that gifts s conduct to ensure that gifts are notare not the main focus of any transaction.the main focus of any transaction.

((MAS Information Paper On Good Practices ForMAS Information Paper On Good Practices For Licensed &Licensed &Exempt FA)Exempt FA)


Common MistakesCommon Mistakes By FABy FA

(1) Fact Find is done after product discussion or sales closed.(1) Fact Find is done after product discussion or sales closed.

(2) For investment products, risks, fees and charges,(2) For investment products, risks, fees and charges, cancellation periods are not disclosed. cancellation periods are not disclosed.

(3) Mandatory disclosures in Regular Premium Plan are not(3) Mandatory disclosures in Regular Premium Plan are not disclosed. Mandatory disclosures include (a) guaranteed & disclosed. Mandatory disclosures include (a) guaranteed & non-guaranteed sum assured, (b) guaranteed & non- non-guaranteed sum assured, (b) guaranteed & non- guaranteed surrender value, (c) project rate of return, (d) guaranteed surrender value, (c) project rate of return, (d) distribution costs, (e) effect of deduction, (f) reduction in distribution costs, (e) effect of deduction, (f) reduction in yield, (g) annual administration charge, and (h) 14-day free yield, (g) annual administration charge, and (h) 14-day free look. look.

(4) Failure to highlight that partial withdrawal of the(4) Failure to highlight that partial withdrawal of the investment-linked funds before end of 6th year is subject to investment-linked funds before end of 6th year is subject to a surrender charge & market value of the units. a surrender charge & market value of the units.


(5) Some reps just focus on the potential return of the Regular(5) Some reps just focus on the potential return of the Regular Premium Plan without providing clients additional protection Premium Plan without providing clients additional protection such as riders. such as riders.

(6) When the past record of a product was disclosed, reps did(6) When the past record of a product was disclosed, reps did not disclose to clients that past performance is not an not disclose to clients that past performance is not an indication of future performance. indication of future performance.

(7) Reps do not have a reasonable basis of recommendation(7) Reps do not have a reasonable basis of recommendation based on client based on client’’s investment objective, financial situation &s investment objective, financial situation & particular needs. Some reps appear to select the same particular needs. Some reps appear to select the same recommendation from the Financial Planning System drop- recommendation from the Financial Planning System drop- list for every client, irrespective of the client list for every client, irrespective of the client’’s specifics specificprofile.profile.

(8) In sale of investments to elderly persons, reps fail to take(8) In sale of investments to elderly persons, reps fail to take into account client into account client’’s age & liquidity needs & were not able tos age & liquidity needs & were not able to make suitable recommendations to these clients. make suitable recommendations to these clients.

FPAS Professional StandardsFPAS Professional Standards

FPAS Professional StandardsFPAS Professional Standards comprise of: comprise of:- - Code of EthicsCode of Ethics (Article 3) (Article 3)- - Rules of Professional ConductRules of Professional Conduct (Article 4) (Article 4)

FPAS will issue FPAS will issue Practice GuidelinesPractice Guidelines from time to time which from time to time whichcan be used to assess breach of Professional Standards.can be used to assess breach of Professional Standards.

Professional Standards set Professional Standards set standards of conductstandards of conduct for Members for Members

MAS or Court may use it as MAS or Court may use it as relevant standards for FArelevant standards for FA..

Enforced by FPAS Enforced by FPAS Disciplinary RegulationsDisciplinary Regulations Alleged breach will be investigated by Investigation Alleged breach will be investigated by InvestigationCommittee appointed by EXCO, & if warranted, referred forCommittee appointed by EXCO, & if warranted, referred forfurther disciplinary action.further disciplinary action.

Serious breaches may result in heavier penalties stated in the Serious breaches may result in heavier penalties stated in theConstitution.Constitution.

Code of EthicsCode of Ethics

IntegrityIntegrity

ObjectivityObjectivity

CompetenceCompetence

FairnessFairness

DiligenceDiligence

ProfessionalismProfessionalism

ConfidentialityConfidentiality

ComplianceCompliance

Rules of Professional ConductRules of Professional Conduct

General ConductGeneral Conduct- Rule 1: Not to engage in any misleading, deceptive, dishonest- Rule 1: Not to engage in any misleading, deceptive, dishonest or fraudulent act or omission. ( or fraudulent act or omission. (CfCf: S26 FAA): S26 FAA)

Disclosure Statements to Prospective ClientsDisclosure Statements to Prospective Clients- - Rule 2: Ensure that prospective clients are clearly informed inRule 2: Ensure that prospective clients are clearly informed in writing about: writing about:

(a) the identity of the FA firm (a) the identity of the FA firm (b) the identity of the Rep (b) the identity of the Rep (c) the nature of the services offered (c) the nature of the services offered (d) the access to internal & external complaint (d) the access to internal & external complaint

handling mechanisms; & handling mechanisms; & (e) any significant financial relationship with a product (e) any significant financial relationship with a product

provider & any other material conflict of interest. provider & any other material conflict of interest.


- - Rule 3: Clearly disclose the capacity in which they are able toRule 3: Clearly disclose the capacity in which they are able to provide financial planning services. provide financial planning services.

( (CfCf: FAA S25, FAA-N03): FAA S25, FAA-N03)

Financial Plan PreparationFinancial Plan Preparation- Rule 4: Disclose in writing to client at the earliest point of any- Rule 4: Disclose in writing to client at the earliest point of any limitations in the Member limitations in the Member’’s capacity or services.s capacity or services.

- Rule 5: Disclose in writing to client, when making written- Rule 5: Disclose in writing to client, when making written recommendations (including advising client to switch), recommendations (including advising client to switch),

any fees, commissions or rebates. any fees, commissions or rebates.

- Rule 6: If financial services are provided orally, disclosure of- Rule 6: If financial services are provided orally, disclosure of particulars in Rule 5 must be made orally. particulars in Rule 5 must be made orally.

- Rule 7: Collect sufficient information to ensure appropriate- Rule 7: Collect sufficient information to ensure appropriate advice is given. ( advice is given. (CfCf: Fact-Find): Fact-Find)


- Rule 8: Research on financial strategies & products - Rule 8: Research on financial strategies & products appropriate to achieve client appropriate to achieve client’’s needs & objectives.s needs & objectives.

- Rule 9: Develop a suitable financial strategy or plan for client- Rule 9: Develop a suitable financial strategy or plan for client based on relevant information collected & based on relevant information collected & analysedanalysed.. ( (CfCf: Reasonable recommendations in FAA S27): Reasonable recommendations in FAA S27)

- Rule 10: Explain the investments risks involved in terms that- Rule 10: Explain the investments risks involved in terms that client can understand. client can understand. ( (CfCf: Rules 7 to 1o with the needs-based sales process: Rules 7 to 1o with the needs-based sales process in FAA-NO1) in FAA-NO1)

- Rule 11: All significant recommendations must be in writing. If- Rule 11: All significant recommendations must be in writing. If given orally, then confirmation must be given in given orally, then confirmation must be given in writing soonest. writing soonest.

- Rule 12: Not to misrepresent the services Member can provide,- Rule 12: Not to misrepresent the services Member can provide, & the data or facts supporting any recommendation. & the data or facts supporting any recommendation.


Explanation of Financial PlanExplanation of Financial Plan- Rule 13: Take reasonable steps to place client in a position to- Rule 13: Take reasonable steps to place client in a position to

comprehend the recommendations & their basis. comprehend the recommendations & their basis.

Financial Plan ImplementationFinancial Plan Implementation- Rule 14: R7-10 (i.e. needs-based sales process) does not - Rule 14: R7-10 (i.e. needs-based sales process) does not

apply when there is an express documented apply when there is an express documented instruction by client to limit the scope of the FA instruction by client to limit the scope of the FA service ( service (egeg. Execution-only advice, product advice or. Execution-only advice, product advice or client refuse to provide necessary info). Client must client refuse to provide necessary info). Client must be warned prior to implementing the instruction be warned prior to implementing the instruction about consequences. about consequences.

- Rule 15: Implement all recommendations agreed by client in- Rule 15: Implement all recommendations agreed by client in an accurate, efficient & timely manner. an accurate, efficient & timely manner.

- Rule 16: Confirm in writing to client where subsequent - Rule 16: Confirm in writing to client where subsequent instruction by client significantly alters the financial instruction by client significantly alters the financial strategy or balance of client strategy or balance of client’’s existing portfolio.s existing portfolio.


Client ServiceClient Service- Rule 17: Promptly disclose in writing any actual or potential- Rule 17: Promptly disclose in writing any actual or potential

conflict of interest to client. conflict of interest to client.

- Rule 18: Not to move client from 1 investment to another - Rule 18: Not to move client from 1 investment to another without explaining the reasons. Must demonstrate without explaining the reasons. Must demonstrate that it is appropriate for client. ( that it is appropriate for client. (CfCf: FAA-N01, : FAA-N01, Guidelines on Switching of Designated Investment Guidelines on Switching of Designated Investment Product) Product)

ComplaintsComplaints- Rule 19: All Members must comply with the relevant FPAS- Rule 19: All Members must comply with the relevant FPAS

Disciplinary Regulations concerning complaints Disciplinary Regulations concerning complaints handling, dispute resolution & disciplinary procedures. handling, dispute resolution & disciplinary procedures.


Document AdministrationDocument Administration- Rule 20: Information & documents must be securely stored to- Rule 20: Information & documents must be securely stored to

establish that Member has complied with FPAS establish that Member has complied with FPAS’’ Professional Standards, & available for inspection Professional Standards, & available for inspection when required. Period of retention is 7 years. when required. Period of retention is 7 years.

- Rule 21: Member must when requested give to client the - Rule 21: Member must when requested give to client the original document related to the FA service paid for original document related to the FA service paid for by client. Except for working papers e.g. internal by client. Except for working papers e.g. internal notes, memo, quotes etc. notes, memo, quotes etc.

FPASFPAS’’ Reporting & Requirements Reporting & Requirements**- Rule 22: No misrepresentation of Membership status.**- Rule 22: No misrepresentation of Membership status.

**- Rule 23: No misstatement of authority to represent FPAS, **- Rule 23: No misstatement of authority to represent FPAS, unless authorized by FPAS officers, directors or unless authorized by FPAS officers, directors or Regulations. Regulations.


**- Rule 24: FA who as a FPAS Member is privy to information **- Rule 24: FA who as a FPAS Member is privy to information about FPAS and/or other Members shall observe about FPAS and/or other Members shall observe confidentiality, unless required by law to disclose. confidentiality, unless required by law to disclose.

**- Rule 25: Advise FPAS within 2 business days of any material**- Rule 25: Advise FPAS within 2 business days of any material change to their Authorized status. change to their Authorized status.

**- Rule 26: Co-operate with FPAS in any investigation or **- Rule 26: Co-operate with FPAS in any investigation or compliance review authorized by FPAS Constitution. compliance review authorized by FPAS Constitution.

**- Rule 27: Effect & maintain professional indemnity insurance as**- Rule 27: Effect & maintain professional indemnity insurance as required by FPAS. Notify FPAS in writing immediately required by FPAS. Notify FPAS in writing immediately of any material change in PI. of any material change in PI.

Minimum Education & CompetenciesMinimum Education & Competencies- Rule 28: Satisfy continuing professional development - Rule 28: Satisfy continuing professional development

requirements of FPAS. requirements of FPAS.


**- Rule 29: Advice only in areas where Member is competent. In**- Rule 29: Advice only in areas where Member is competent. In other areas, seek or refer clients to qualified other areas, seek or refer clients to qualified professionals for advice ( professionals for advice (egeg. Legal, Tax)**. Legal, Tax)**

- Rule 30: Have reasonable & appropriate standards for - Rule 30: Have reasonable & appropriate standards for appointing Reps. appointing Reps.

SupervisionSupervision- Rule 31: Conduct of Member- Rule 31: Conduct of Member’’s Rep or employees shall be s Rep or employees shall be

treated as the conduct of Member. treated as the conduct of Member.

- Rule 32: Establish & maintain written policies & procedures for- Rule 32: Establish & maintain written policies & procedures for effective control & conduct of business. effective control & conduct of business.

- Rule 33: Member must have a written agreement with its Reps- Rule 33: Member must have a written agreement with its Reps to define the mutual rights & obligations. R32 & 33 do to define the mutual rights & obligations. R32 & 33 do not apply to Member with only 1 Rep. not apply to Member with only 1 Rep.

- Rule 34: Maintain an effective system to supervise Reps- Rule 34: Maintain an effective system to supervise Reps’’ activities, performance, training & recommendations. activities, performance, training & recommendations.

ConclusionConclusion

Conduct of BusinessConduct of Business- Introduction to Compliance- Introduction to Compliance- Needs-Based Sales Process- Needs-Based Sales Process- Other Good & Bad Practices- Other Good & Bad Practices- FPAS Code of Ethics- FPAS Code of Ethics

FAFA’’s Mindset Befores Mindset Before

SalesTarget

$$$Revenue

$$$

Compliance

FAA

FAR

MAS

FAFA’’s Mindset Nows Mindset Now

SalesRevenueTarget

$$$

ComplianceFAA

MAS FAR

Q & AQ & A

effective compliance for financial advisers...accredited investor means: - an individual whose net...

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