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CMFAS M5 Chapter 3 - Written Directions

The Financial Advisers Act (FAA) (Cap.110) sets out the general principles for the regulation of financial advisers and their representatives.

Regulations are considered subsidiary legislations. Sets out rules for the application of the FAA.

Notices (also known as written directions) are issued under Section 58 of the FAA and are legally enforceable.

The difference between Notices and Regulations is that Notices specify in more detail the standards expected of financial advisers in the conduct of their business.

A contravention of any requirement specified in the FAA, Regulations and Notices is an offence under the Act.

While representatives of exempt financial advisers are not required to hold a representative’s licence, the business conduct rules of the FAA apply to them. Section 58 empowers the MAS to issue written directions to representatives of exempt financial advisers.

The MAS may, if it thinks necessary or expedient in the public interest, issue written directions. The MAS is empowered to issue written directions on the standards with respect to qualifications, experience and training of representatives, and the reporting of misconduct.

Guidelines are issued under Section 64 of the FAA. 

They are intended to provide general guidance and are meant to be good practice which would apply generally across the financial advisory industry. Because Guidelines set out general guidance and good practice, they do not create any legally enforceable obligations or duties.

Obligations to be Complied when Recommending an Investment Product

The principle underlying the following obligations as set out in the “Notice On Recommendation On Investment Products” is to ensure that the prospective client makes an informed choice before he makes a purchase.

The obligations set out below shall not apply:

1. to any recommendation made with respect to simple life policies sold as an ancillary product to loans with a simple payment basis for the insurance cover. Those include policies that cover outstanding loans through
  • personal loans
  • car loans, and
  • credit card balances
but exclude mortgage reducing term assurance plans; and

2. in circumstances where no recommendation is made or where only factual information is provided with respect to any investment product.

Recommendations On Investment Products

Section 27 of the FAA requires licensees to have a reasonable basis for any recommendation made with respect to any investment product to a person who may reasonably be expected to rely on the recommendation. In particular, the licensee should give due consideration to the person’s investment objectives, financial situation and particular needs.

A financial adviser who is involved in making recommendations on investment products to clients shall comply with the requirements set out in the “Notice On Recommendations On Investment Products” in relation to the following aspects:
  1. know your client;
  2. needs analysis; and
  3. documentation and record keeping.

Know Your Client

The following information should be collected from the client:
  • financial objectives of the client;
  • risk tolerance of the client;
  • employment status of the client;
  • financial situation of the client, including assets, liabilities, cash flow and income;
  • current investment portfolio of the client, including any life policy; and
  • for any recommendation made in respect of life policies, the number of dependants of the client and the extent and duration of financial support required for each of the dependants.


A financial adviser should highlight the following in writing to its client:
  • the information provided by the client will be the basis on which the recommendation will be made; and
  • any inaccurate or incomplete information provided by the client may affect the suitability of the recommendation.


Needs Analysis
  • should explain to its client the basis for recommendation & the basis should be documented
  • Where the financial adviser is unable to identify a suitable product, it should inform the client accordingly
  • Where a client chooses not to receive any recommendation from a financial adviser, the financial adviser should ensure that there is proper documentation to demonstrate that this is so.

Documentation And Record Keeping

A financial adviser is required to furnish the following documents to a client when making a recommendation :
  1. in the case of a collective investment scheme (CIS), a copy of the prospectus or profile statement (if applicable) issued and/or any other offer document as may be prescribed by the relevant laws
  2. in the case of a life policy, a copy of the Product Summary and Benefit Illustration in respect of that policy.


A financial adviser should furnish to its client a document containing the following when making a recommendation in respect of a designated investment product to the client:
  1. a summary of the information gathered by the financial adviser;
  2. any recommendation made to the client by the financial adviser and the basis for the recommendation, and where applicable, a statement that the client does not want to:
  • provide any information requested by the financial adviser in accordance with Section 2.1.1 of this chapter;
  • accept the recommendation of the financial adviser and has chosen to purchase another designated investment product which is not recommended by the financial adviser; or
  • receive any recommendation from the financial adviser, before the client signs on the application form for the purchase of a designated investment product or gives his consent to dispose of a designated investment product.

Switching Of Designated Investment Products

A financial adviser should not make a recommendation to a client to switch from one designated investment product (referred to as “original product”) to another designated investment product (referred to as “replacement product”) in a manner that would be detrimental to the client.

In considering whether a switch is detrimental, MAS may have regard to a number of factors, including:
  1. whether the client suffers any penalty for terminating the original product;
  2. whether the client will incur any transaction cost without gaining any real benefit from such a switch;
  3. whether the replacement product confers a lower level of benefit at a higher cost or same cost to the client, or the same level of benefit at a higher cost; and
  4. whether the replacement product is less suitable for the client.

Information to Clients And Product Information Disclosure

The “Notice On Information to Clients And Product Information Disclosure” sets out the disclosure and information obligations of a financial adviser and its representatives to clients, including when they must provide the client with investment product information.

This Notice sets out the general principles that apply to all disclosure by a financial adviser to its client. It also sets out specific requirements as to the form and manner of disclosure that financial advisers have to comply with in relation to Sections 25 and 26 of the Act, as well as to the following matters:
  1. general information about the financial adviser and status of a representative;
  2. remuneration of the financial adviser;
  3. conflict of interest;
  4. designated investment products;
  5. illustration of past and future performance of designated investment products; and
  6. marketing materials.

In addition to the obligations under Section 25 of the FAA, a financial adviser shall ensure that any statement or representation made to its clients is not false or misleading. It shall also ensure that it does not omit to disclose any matter that is material to the statement or representation made.

The general standards which a financial adviser is expected to meet in all product information disclosures and information given to clients are as follows:
  1. Clear
  2. Adequate
  3. Not False or Misleading

General Information About The Financial Adviser And Status Of A Representative

A financial adviser shall disclose the following, in writing, to a client:
  1. its business name, business address and telephone number;
  2. the type or types of financial advisory service that it is authorised to provide under the FAA;
  3. the type or types of investment product in respect of which it is authorised to provide financial advisory service;
  4. any other type of activity carried out by the financial adviser which is not regulated by the MAS, if any; and
  5. the product providers whose products the financial adviser:
  • procures on behalf of its clients;
  • recommends or markets to its clients; or
  • markets to its clients on behalf of the product providers.


A licensed representative shall disclose the following, in writing, to the client:
  1. his name;
  2. the financial adviser(s) for which he acts;
  3. the type or types of financial advisory service that he is authorised to provide under the FAA; and
  4. the type or types of investment products in respect of which he is authorised to provide financial advisory service.


Remuneration Of The Financial Adviser
  1. A financial adviser is required to disclose, in writing, to a client all remuneration, including any commission, fee and other benefit that it has received or will receive that is directly related to the making of any recommendation in respect of an investment product, or executing a purchase or sale contract relating to an investment product on the client’s behalf.
  2. If a financial adviser charges a fee, it should disclose to the client details of the charges at the outset.
  3. If a financial adviser receives commissions from a product provider on investment products sold on behalf of the product provider, it should disclose to the client the amount of commissions it receives on the investment products it recommends.
  4. Where a financial adviser receives trailer commission, soft commission or such other benefit from a product provider, it should disclose to the client the amount of such commission and benefit.
  5. Where the amount of remuneration, commission fee or benefit is not quantifiable, a financial adviser should furnish its client with a description of how it will be remunerated.
  6. If the precise rate of remuneration or value of commission is not known in advance, the financial adviser should estimate the rate likely to apply in such description.
  7. In the case of a life policy, a financial adviser should disclose to its client the “distribution cost” item in the Benefit Illustration (where a Benefit Illustration is available in respect of the life policy)


Conflict Of Interest
  • A financial adviser should disclose, in writing, to its clients any actual or potential conflict of interest arising from any connection to or association with any product provider, including any material information or facts that may compromise its objectivity or independence in its provision of financial advisory services.

Designated Investment Products
When making a recommendation on any designated investment product to a client, a financial adviser is required to disclose the following information to the client in a form and manner that is clear, adequate and not false or misleading:
  1. Nature and Objective of the Product
  2. Details of the Product Provider
  3. Contractual Rights
  4. Client Profile
  5. Commitment Required From the Client
  6. Benefits of the Product
  7. Risks of the Product
  8. Pricing of the Product
  9. Fees and Charges to be Borne by the Client
  10. Reports to the Client
  11. Free-Look for Life Policies
  12. Cancellation Period for Unit Trust
  13. Withdrawal, Surrender or Claim
  14. Warnings, Exclusions and Disclaimers