RES 5 – Rules, Ethics and Skills for Financial Advisory Services

Correct: Statement I is correct because public accountants registered under the Accountants Act are defined as “excluded financial advisers” under the First Schedule of the FAA, provided the advice is solely incidental to their accounting practice. Statement IV is correct because Section 4.6 of the FAA explicitly clarifies that the term “financial adviser” refers to a corporation and does not include an individual.

Incorrect: Statement II is incorrect because a bank licensed under the Banking Act is classified as an “exempt financial adviser” under Section 23(1) of the FAA, not an “excluded financial adviser” under the First Schedule. Statement III is incorrect because a newspaper proprietor only qualifies as an excluded financial adviser if they receive no commission or consideration for the advice, other than subscription or purchase fees.

Takeaway: It is crucial to distinguish between “exempt financial advisers” (such as banks and insurance companies) and “excluded financial advisers” (such as incidental professional services) to determine the correct regulatory obligations under the FAA. Therefore, statements I and IV are correct.

Correct: Classifying the product as a Specified Investment Product and obtaining a written or other form of acknowledgement is the right answer because FAA-N16 states that without a classification system, overseas-listed products are SIPs. Furthermore, for recommendations to natural persons, the adviser must provide the risk warning statement and obtain acknowledgement before the recommendation.

Incorrect: The option suggesting classification as an Excluded Investment Product with verbal disclosure is wrong because the default classification is a Specified Investment Product and the regulation requires a specific risk warning statement and acknowledgement rather than just verbal disclosure. The option regarding three years of investment experience is wrong because the regulation mandates a Customer Account Review for Specified Investment Products rather than a specific three-year experience threshold. The option involving classification as an Excluded Investment Product with five-year record keeping is wrong because the product must be treated as a Specified Investment Product in the absence of a classification system.

Takeaway: Financial advisers must treat overseas-listed products as Specified Investment Products by default and must obtain a formal risk warning acknowledgement from natural persons before making a recommendation.

Correct: Providing a written disclosure of any fees or charges the client will incur is the right answer because Paragraph 44 of the Notice on Recommendations on Investment Products specifically mandates that financial advisers must disclose these costs in writing to ensure the client makes an informed decision.

Incorrect: The suggestion to obtain only verbal confirmation is wrong because the regulatory requirement explicitly demands written disclosure to the client. The claim that a higher benefit must be achieved regardless of costs is incorrect because the adviser is specifically required to evaluate if the client incurs transaction costs without gaining a real benefit. The requirement to file a report with the Authority within 14 days is wrong as the Notice focuses on client-facing disclosures rather than administrative reporting for every individual switch.

Takeaway: Financial advisers are legally required to provide written disclosure of all transaction costs when recommending a product switch to prevent clients from incurring unnecessary expenses.

Correct: Statement I is correct because the onus is on the relevant person to establish that they are fit and proper to the satisfaction of the MAS, rather than for the MAS to prove they are not. Statement III is correct because the MAS considers the relevance of a failure to the specific duties to be performed and the passage of time since the failure occurred when making an assessment.

Incorrect: Statement II is incorrect because a failure to meet one of the fit and proper criteria does not lead to an automatic refusal or revocation; the MAS evaluates the seriousness and surrounding circumstances of the failure. Statement IV is incorrect because the fit and proper criteria specifically apply to substantial shareholders of an institutional applicant, as well as its officers and representatives.

Takeaway: The fit and proper assessment is a non-automatic, holistic process where the burden of proof lies with the applicant to demonstrate honesty, competence, and financial soundness. Therefore, statements I and III are correct.

Correct: Statement I is correct because under FAA-N03, a representative must disclose the specific types of investment products they are authorized to provide advice on to ensure the client understands their scope of authority. Statement II is correct because if the exact remuneration amount is not quantifiable at the time of the recommendation, the financial adviser is required to provide a description of the remuneration method. Statement IV is correct because any actual or potential conflicts of interest arising from associations with product providers must be disclosed to the client in writing to maintain transparency.

Incorrect: Statement III is incorrect because according to Paragraph 22 of FAA-N03, for life insurance policies where a policy illustration is available, the adviser is required to disclose the “distribution cost” item rather than the specific remuneration amounts or types described in the general remuneration disclosure rules.

Takeaway: Financial advisers and their representatives must provide clear written disclosures regarding their authority, remuneration structures, and potential conflicts of interest, with specific disclosure requirements like “distribution costs” applying to life policies. Therefore, statements I, II and IV are correct.

Correct: Statement I is correct because paragraph 3.11(d) specifically identifies complaints made reasonably and in good faith regarding regulated activities as a relevant factor for assessing reputation. Statement II is correct because paragraph 3.10(a) requires persons holding 20% or more of issued shares to meet fit and proper criteria, and paragraph 3.11(b) lists prohibition orders as a key factor in that assessment. Statement III is correct because paragraph 3.10(b) requires key officers to be fit and proper, and paragraph 3.11(g) includes civil judgments involving misrepresentation as a relevant factor for honesty and integrity.

Incorrect: Statement IV is incorrect because paragraph 3.11(d) explicitly qualifies that only complaints made “reasonably, and in good faith” are considered relevant factors. Complaints made in bad faith or without reasonable grounds are not listed as criteria for assessing a person’s honesty, integrity, or reputation under these guidelines.

Takeaway: MAS assesses the fitness and propriety of an entity by evaluating the conduct of the entity itself, its key officers, and its substantial shareholders or controllers against specific criteria including regulatory history and good-faith complaints. Therefore, statements I, II and III are correct.

Correct: The requirement to review documents at least annually is the right answer because MAS Notice FAA-N03 specifically mandates that documents provided to clients must be kept up-to-date and reviewed at least annually to ensure the information remains accurate and not misleading.

Incorrect: The suggestion to review only during market volatility is wrong because the regulation requires a periodic review regardless of external market conditions. The option regarding updates only for business contact changes is wrong because it ignores the mandatory requirement for a regular annual review of all client documents. The proposal for a six-month review cycle is wrong because, while more frequent reviews are permitted, the specific minimum regulatory standard set by FAA-N03 is an annual review.

Takeaway: Financial advisers must ensure all client-facing documents are reviewed and updated at least annually to comply with the general disclosure principle of providing information that is not false or misleading.

Correct: Statement I is correct because paragraph 3.12(a) explicitly includes satisfactory past performance and expertise as key factors in assessing competence. Statement II is correct because paragraph 3.12(b) requires MAS to consider if concurrent responsibilities create conflicts of interest or impair the individual’s ability to discharge regulated duties. Statement III is correct because paragraph 3.12(d)(ii) specifically mandates that representatives must satisfy the minimum entry and examination requirements set out in Notice FAA-N13.

Incorrect: Statement IV is incorrect because the ability to fulfill financial obligations is a factor assessed under the ‘Financial Soundness’ category (paragraph 3.13) rather than the ‘Competence and Capability’ category.

Takeaway: The MAS Fit and Proper Criteria categorize assessment factors into distinct pillars, where competence focuses on skills and qualifications while financial soundness focuses on the individual’s solvency and debt management. Therefore, statements I, II and III are correct.

Correct: The requirement to explain that rights may only be enforced through the nominee company is the right answer because MAS Notice FAA-N03 specifically mandates that for collective investment schemes where units are held in a nominee’s name, the financial adviser must disclose this specific enforcement limitation to the client.

Incorrect: The statement that the client retains the legal standing to take direct action against the product provider is wrong because the nominee structure legally necessitates that enforcement actions be channeled through the nominee entity. The claim that the financial adviser firm acts as the primary counterparty for all legal claims is wrong because the adviser’s role is intermediary, and they do not assume the contractual obligations of the product provider. The suggestion that the nominee company is responsible for the accuracy of client information is wrong because, particularly in life policies and general applications, the responsibility for accuracy and completeness remains with the client.

Takeaway: When investments are held via a nominee, financial advisers must ensure clients understand that their contractual rights are not direct and must be exercised through the nominee company.

Correct: The adviser must disclose the timeframe for reconsideration, the terms and procedures for exercising the provision, and that for investment-linked policies, the client bears the risk of any fall in investment value. This ensures the client understands the window for changing their mind and the financial risks involved during that period.

Incorrect: The option regarding administrative fees and medical reports is incorrect because FAA-N03 focuses on the timeframe and procedures rather than specific medical documentation for the free-look period. The option mentioning guaranteed returns and the insurer absorbing losses is wrong because the regulation explicitly states the client bears the risk of a fall in value for investment-linked policies. The option about historical performance and tax implications is incorrect as these are not the specific disclosures mandated under the free-look provision of the notice.

Takeaway: Under FAA-N03, financial advisers must ensure clients understand the mechanics of the free-look period and specifically highlight that the client carries the market risk for investment-linked products during this time.

Correct: FIs must ensure representatives understand the risk-reward characteristics and target customer segments of the specific products they distribute because MAS expects representatives to have specific knowledge of product features and risks before engaging with customers.

Incorrect: The statement about minimum training hours is incorrect because the circular emphasizes that training should go beyond just satisfying hour requirements and focus on actual product knowledge. The statement about Board approval for every product is incorrect because the Board’s role is to establish high-level policies and procedures for recruitment rather than approving individual sales activities. The statement about a mandatory three-month probation is incorrect as the guidelines focus on competence and specific product training rather than a prescribed duration of supervision.

Takeaway: Representatives must be specifically trained on the features and target segments of an investment product before they are permitted to advise on or sell it.

Correct: A fine not exceeding $50,000 upon conviction for providing a misleading statement is the right answer because Section 23L of the FAA (and Section 99O of the SFA) specifically prescribes this maximum fine for individuals who provide false or misleading statements to their principal which are then lodged with MAS.

Incorrect: The option regarding a $25,000 fine and mandatory suspension is wrong because the statutory maximum fine is $50,000 and the Act does not specify mandatory suspension in this clause. The option citing a $75,000 fine and remedial training is wrong because it exceeds the $50,000 limit set by the FAA for this offence. The option mentioning a $10,000 fine and a permanent ban is wrong because the fine amount is lower than the statutory limit and a permanent ban is not the automatic criminal penalty for this specific section.

Takeaway: Under the Financial Advisers Act, providing false or misleading information to a principal for MAS lodgment is a criminal offense punishable by a fine of up to $50,000.

Correct: Statement I is correct because the MAS Guidelines on Fit and Proper Criteria explicitly include being the subject of a bankruptcy petition within the past 10 years as a factor for assessing an individual’s financial soundness. Statement II is correct because, as per Circular CMI 01/2011, a Financial Institution must notify MAS of any change in a representative’s particulars, including residential address or identification numbers, within 14 days of the change.

Incorrect: Statement III is incorrect because the Guidelines state that the onus is on the relevant person to establish that they are fit and proper, rather than for MAS to show otherwise. Statement IV is incorrect because the criteria regarding dismissal or resignation from a position of trust or a fiduciary appointment do not have a 5-year limit specified in the guidelines; these factors are relevant to the assessment of honesty, integrity, and reputation without such a restrictive timeframe.

Takeaway: The burden of proving fitness and propriety rests on the individual and the firm, while specific regulatory timelines govern both financial history disclosures (10 years) and administrative updates (14 days). Therefore, statements I and II are correct.

Correct: Statement I is correct because MAS Notice FAA-N11 explicitly exempts advice provided to institutional investors as defined in the Financial Advisers Regulations. Statement III is correct because the Notice does not apply to advice given to high net worth individuals served by specialized units that have been exempted under Section 100(2) of the Financial Advisers Act. Statement IV is correct because the Notice provides an exemption for advice given to persons outside Singapore that have no commercial or physical presence in Singapore.

Incorrect: Statement II is incorrect because the exemption for individuals residing outside Singapore specifically requires that the individual is not a citizen of Singapore; therefore, a Singapore citizen remains subject to the Notice regardless of their overseas residency.

Takeaway: MAS Notice FAA-N11 defines specific exemptions for dual currency investment advice based on the sophistication of the investor or the lack of a regulatory nexus to Singapore. Therefore, statements I, III and IV are correct.

Correct: The adviser must not use the term “deposit” or “structured deposit” to describe the dual currency investment because MAS Notice FAA-N11 explicitly prohibits these terms and their derivatives to prevent investors from misconstruing the product as principal-guaranteed in the base currency.

Incorrect: The suggestion to use “structured deposit” if the principal is guaranteed is wrong because the prohibition is absolute regardless of the product’s specific features. The idea that a disclaimer allows the use of the term “deposit” is incorrect as the regulation does not provide for such an exception. The requirement to use “foreign exchange deposit” is false because any derivative of the word “deposit” is strictly forbidden in the description of a dual currency investment.

Takeaway: To prevent investor confusion regarding principal protection, MAS Notice FAA-N11 prohibits the use of the terms “deposit” or “structured deposit” when referring to dual currency investments.

Correct: Obtaining records from the CPF Board is the right answer because the MAS Guidelines explicitly state that for candidates who were previously self-employed, the principal should verify that the individual is not in arrears of their contributions as required under the CPF Act.

Incorrect: The suggestion to request tax clearance from the Inland Revenue Authority is wrong because while tax compliance is important, it is not a specific minimum requirement mentioned in these guidelines for financial probity checks. The option regarding personal bank statements is incorrect as the guidelines focus on searches of the Insolvency and Public Trustee’s Office and Credit Bureau reports rather than private banking records. The requirement for an independent audit of net worth is wrong because the regulations do not mandate a specific net worth threshold or an auditor’s verification for representative fitness.

Takeaway: When hiring previously self-employed individuals, FIs must specifically verify CPF contribution status to ensure the candidate meets financial probity standards.

Correct: Statement I is correct because Section 5.25(a) of the MAS Guidelines requires a financial adviser to disclose the nature of the investment and how the underlying instruments work. Statement II is correct because Section 5.29 mandates that all remuneration, including commissions and fees, must be disclosed to the client in writing. Statement III is correct because Section 5.25(g) requires disclosure of any pecuniary or other disadvantages a client may suffer when switching from one product to another.

Incorrect: Statement IV is incorrect because Section 5.27 requires that all information provided to clients must be clear and not false or misleading. Guaranteeing that a client will not suffer any financial loss is a false representation and contradicts the requirement in Section 5.25(c) to disclose the risks involved in an investment.

Takeaway: Financial advisers are regulatory bound to provide transparent disclosures regarding product features, potential switching costs, and all forms of remuneration to ensure clients can make well-informed investment decisions. Therefore, statements I, II and III are correct.

Correct: Statement I is correct because the principal is expected to obtain written self-declarations from representatives on a periodic basis, such as annually, and should increase this frequency if the facts of a case warrant it. Statement III is correct because the Guidelines on Standards of Conduct allow for the disclosure of client information without consent if it is provided to MAS or other government agencies in accordance with relevant law.

Incorrect: Statement II is incorrect because MAS does not mandate a fixed two-year interval for due diligence checks; instead, the financial adviser determines the frequency based on the representative’s background and compliance track record. Statement IV is incorrect because the guidelines state that if a financial adviser lacks competence in a specific area, they should consult other qualified professionals rather than being prohibited from doing so.

Takeaway: Financial advisers must implement periodic monitoring of their representatives’ fitness and propriety while adhering to core conduct standards regarding client confidentiality and professional competence. Therefore, statements I and III are correct.

Correct: The disclosure must state that the institution has the right to repay the principal in either the base or alternate currency. This is a fundamental feature of a dual currency investment where the bank holds a currency option, allowing it to choose the currency of repayment at maturity, which may result in the client receiving the alternate currency if it has depreciated against the base currency.

Incorrect: The claim that the client chooses the repayment currency is wrong because the option is held by the bank, not the investor. The statement that the principal is protected against exchange fluctuations is incorrect because the investor may receive an alternate currency worth less than the original base currency investment upon conversion. The suggestion of an out-of-pocket premium is false because the interest earned on the investment itself represents the premium for the option.

Takeaway: A dual currency investment involves a currency option that grants the bank the right to repay the principal in an alternate currency, with the interest earned serving as the option premium.

Correct: The manager may engage in securities lending only for efficient portfolio management, provided the total value does not exceed 50% of the net asset value because MAS Notice FAA-N16 specifically allows this exception for ILP sub-funds to remain classified as Excluded Investment Products.

Incorrect: The statement that lending is permitted for any purpose at a 25% limit is incorrect because the regulation mandates the purpose must be efficient portfolio management and the limit is 50%. The claim that all lending is strictly prohibited is wrong because the Notice provides specific exemptions for portfolio management. The suggestion that yield enhancement is a valid purpose is incorrect as the regulation limits the scope strictly to efficient portfolio management.

Takeaway: To maintain Excluded Investment Product status, an ILP sub-fund must limit securities lending to efficient portfolio management and ensure such transactions do not exceed 50% of its net asset value.

Correct: Statement I is correct because Annex 2 of FAA-N16 explicitly lists a diploma in business administration as a qualifying educational qualification for the Customer Knowledge Assessment. Statement III is correct because the regulation accepts a minimum of 3 consecutive years of relevant work experience, such as treasury management, provided it occurred within the past 10 years.

Incorrect: Statement II is incorrect because the investment experience criteria for collective investment schemes (CIS) or investment-linked life insurance policies (ILPs) requires at least 6 transactions in the preceding 3 years, not 4. Statement IV is incorrect because the learning module used to demonstrate understanding must be provided by an independent body, rather than being developed and administered by the client’s own financial advisory firm.

Takeaway: To satisfy the Customer Knowledge Assessment for unlisted SIPs, a client must meet specific thresholds for education, professional certification, transaction history, or relevant industry work experience. Therefore, statements I and III are correct.

Correct: A standard home mortgage loan used for property financing is the right answer because the Financial Advisers Act (FAA) explicitly excludes loans and mortgages from the definition of investment products, as these instruments relate to liability management rather than investment.

Incorrect: A life insurance policy providing a death benefit and savings is wrong because it is specifically listed as an investment product under Section 2(1) of the FAA. A structured deposit issued by a licensed commercial bank is wrong because, since December 2005, these have been classified as investment products under the Financial Advisers Regulations. A spot foreign exchange contract used for currency exposure is wrong because it is included in the definition of an investment product under the FAA, whether for leveraged trading or other purposes.

Takeaway: The FAA excludes products that are consumption-based or involve liability management, such as general insurance, loans, and mortgages, from its regulatory scope.

Correct: Statement I is correct because according to Guideline 5.34, 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 the description provided to the client. Statement IV is correct because Guideline 5.41 explicitly requires management to regularly review records of client information and recommendations to evaluate whether the advice provided by representatives is suitable.

Incorrect: Statement II is incorrect because Guideline 5.35 states that for life policies, if the “distribution cost” is disclosed in the Benefit Illustration, the adviser is not required to separately disclose the amount and type of remuneration. Statement III is incorrect because Guideline 5.39 specifically prohibits a financial adviser from using any rebate of commissions as the basis for its recommendation to a client.

Takeaway: Financial advisers must maintain transparency regarding remuneration through estimates or specific disclosures while ensuring that recommendations are based on client suitability rather than commission incentives. Therefore, statements I and IV are correct.

Correct: Holding a diploma in business management is explicitly listed as a qualifying educational criterion for assessing a client’s knowledge or experience in derivatives under Annex 3 of FAA-N16.

Incorrect: The transaction-based criteria requires the client to have transacted in Listed Specified Investment Products at least 6 times in the preceding 3 years, so 4 transactions is insufficient. The work experience criteria requires a minimum of 3 consecutive years in a relevant role within the past 10 years, making 2 years of experience inadequate. While work experience is a factor, a qualification in civil engineering is not recognized as a relevant professional finance-related qualification or educational field under the Notice.

Takeaway: To pass a Customer Account Review, a client must meet specific thresholds regarding relevant education, professional certifications, transaction frequency, or specialized work experience.

Correct: The requirement for a scheme constituted for less than a year to use an underlying fund’s performance is that it must invest at least 90% of its funds in that underlying fund, which itself must have a track record of at least one year.

Incorrect: The suggestion that a 75% investment or a two-year track record is required is incorrect as it does not align with the 90% and one-year regulatory thresholds. The option citing an 80% investment and a six-month track record is wrong because both the investment percentage and the track record duration are below the legal minimums. The option requiring a 95% investment and a three-year track record is incorrect because it imposes stricter requirements than the actual 90% and one-year standards set by the Authority.

Takeaway: For a new Collective Investment Scheme to use proxy performance data, it must meet the specific regulatory thresholds of 90% asset allocation and a one-year underlying track record.

Correct: Statement I is correct because according to Regulation 21(1) of the FAR and MAS Guidelines, a financial adviser may use the term “independent” if any commissions received are rebated in full to the clients. Statement III is correct because MAS Guidelines (Paragraph 6.18) specify that a firm may not be restricted from using the term if the commissions or benefits received are insignificant relative to its total revenue, as these are unlikely to create product bias. Statement IV is correct because Regulation 21(1)(b) requires that an independent adviser must operate free from any direct or indirect restrictions regarding the investment products it provides advice on.

Incorrect: Statement II is incorrect because MAS Guidelines explicitly state that low-value financial benefits, such as a business lunch or a free seminar, would not generally give rise to a concern regarding the use of the term “independent” and do not constitute a strict prohibition.

Takeaway: The use of the term “independent” is restricted to firms that can demonstrate a lack of financial or commercial links to product providers that could influence their recommendations, though exceptions exist for insignificant benefits or fully rebated commissions. Therefore, statements I, III and IV are correct.

Correct: The statement regarding the Monetary Authority of Singapore’s inability to enforce foreign rules is correct because MAS does not have the legal jurisdiction to compel foreign regulatory authorities or markets to enforce their own rules for transactions executed in those jurisdictions.

Incorrect: The suggestion that foreign brokers must follow Singapore’s safekeeping rules is wrong because point (a) of the Risk Warning Statement explains that different jurisdictions have their own rules for the safekeeping of securities, which may offer different levels of protection. The claim that overseas exchanges must use equivalent reporting standards is incorrect as point (c) highlights that disclosure and accounting standards often differ significantly from Singapore’s requirements. The assertion that local regulators guarantee the remittance of proceeds is false because point (f) warns that foreign laws may restrict or prohibit the repatriation of capital and profits, meaning no such guarantee exists.

Takeaway: Investors must recognize that MAS cannot enforce foreign regulations and that overseas investments are subject to the specific legal and repatriation risks of the host jurisdiction.

Correct: Statement I is correct because Regulation 21(1)(i) of the FAR stipulates that a financial adviser must not receive commissions or other benefits from product providers that could create product bias. Statement III is correct because Regulation 21(1)(ii) requires that the adviser operate without any direct or indirect restrictions regarding the investment products it recommends.

Incorrect: Statement II is incorrect because Guideline 6.5 states that MAS uses a principle-based approach, rather than a detailed prescriptive approach, to determine if the term “independent” can be used. Statement IV is incorrect because Regulation 21(1)(iii) requires the firm to operate without any conflict of interest created by associations with product providers; merely providing disclosure of such conflicts is insufficient to qualify for the use of the term “independent.”

Takeaway: The use of the term “independent” is strictly regulated in Singapore, requiring the total absence of product bias, recommendation restrictions, and provider-related conflicts of interest. Therefore, statements I and III are correct.

Correct: The requirement for comparing a CIS to an index is that the index must be the benchmark for the scheme or reflect its investment focus, and the comparison must be made on an offer-to-bid or bid-to-bid basis with the basis clearly stated. This ensures the comparison is relevant and standardized for the client.

Incorrect: The suggestion to use a broad market index regardless of focus is incorrect because the index must specifically reflect the investment focus of the scheme. The use of simulated results for a hypothetical CIS is strictly prohibited under MAS guidelines. Using original currencies without conversion is incorrect because regulations require comparisons to be made using a common currency based on prevailing exchange rates.

Takeaway: When comparing CIS performance to an index, financial advisers must ensure the index is a relevant benchmark and use standardized valuation bases and common currencies.

Correct: Statement I is correct because Paragraph 11 of the First Schedule to the FAA requires the arrangement to be between a foreign company and its related corporation that is licensed or exempt under the FAA (excluding specific subsections). Statement III is correct because the MAS assessment criteria specifically require that the foreign related corporation be subject to proper supervision by its home regulatory authority.

Incorrect: Statement II is incorrect because the FAA specifies that individuals providing services under an approved Paragraph 11 arrangement are not considered representatives and are therefore not required to be appointed or provisional representatives. Statement IV is incorrect because MAS guidelines state that favourable consideration is given to arrangements where key processes, such as the “Advisory” process, are undertaken or controlled by the Singapore entity rather than the foreign entity.

Takeaway: Under Paragraph 11, foreign companies may provide financial advisory services through a Singapore-related entity without individual representative registration, provided the Singapore entity retains control over core advisory functions. Therefore, statements I and III are correct.