Martin Lee @ Sg
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How Do You Define Financial Advice?

A few weeks ago, Wilfred Ling wrote a letter to MAS asking questions on the regulating of investment seminars.

financial-adviserMAS responded by asking people to be beware of of those offering financial advice without a license.

Both letters can be found here:

ST Forum: Regulate investment seminars

The reply by MAS left some doubts in my mind, so I wrote in to ST Forum to seek clarification. My letter was published on the 9th June 2014.

Time to Review Financial Advisers Act

My original letter can be found below:

How Do You Define Financial Advice?

MAS mentioned that consumers who come across persons providing financial advice on stocks and other investment products without a licence as well as under the guise of educational training should report the matter to the MAS. (“Beware those offering financial advice without a licence”: Jun 02)

But what exactly is financial advice?

If someone is teaching a course on share investing, doing some case studies of companies would be expected as part of the course. If a case study shows that a particular company is good, is that considered as financial advice?

Does providing a disclaimer that the material is provided for information purposes only and is not meant as financial advice sufficient to protect the educator?

What if the educator is teaching the exact same course on a 1 on 1 basis, just like what a private tutor does?

Where do we draw the line that an educator has crossed the line and is deemed to be doing something illegal?

Do all qualified educators have to be licensed in order to conduct their courses? The problem is that licensing has to be tied to Financial Advisers (FA) and FA are licensed for certain products only.

So, it would be difficult for someone who wants to conduct a holistic investment course to be licensed for all the products.

Ironically, the 1 on 1 private tutor example is exactly the fee based approach that MAS is trying to advocate.

Nowadays, It is also common for people to dispense financial advice via social media, blogs, forums or even publish a book. Since MAS has said that the same law applies regardless of the mode or medium, aren’t many people contravening the Financial Adviser’s Act (FAA)?

The FAA was created at a time where it was not as easy to publish information and is slanted more towards regulations for product selling.

It might be timely to review the FAA now, to make it still applicable in this time and age.

Yesterday, MAS issued a reply to my letter which helped to clear some doubts.

Response to “Time to review Financial Advisers Act”

We refer to the letter “Time to review Financial Advisers Act” by Mr Martin Lee (The Straits Times, 9 June 2014), who asked under what circumstances would a person be considered as a “financial adviser”.

The Financial Advisers Act (FAA) defines “financial adviser” as a person who carries on a business of providing any financial advisory service. In determining if a person is carrying out such a business, MAS takes into account whether opinions or recommendations on investment products are made in a continuous manner.

MAS considers the context and circumstances in assessing if a person is acting as a financial adviser. Persons conducting courses relating to financial literacy or investor education are generally not considered as providing financial advisory services. In addition, the use of teaching aids such as illustrative case studies and trend charts, or the provision of factual information, will not constitute opinions or recommendations on investment products.

However, a person who induces a consumer to invest in a certain investment product under the guise of running a training course will generally be regarded as providing financial advisory services. This is especially so if the person receives compensation, directly or indirectly, as a result of a decision made by a consumer to buy or sell an investment product based on the contents of the course.

Nonetheless, we thank Mr Lee for his suggestion that there should be greater clarity on the definition of financial advice. MAS will consider issuing guidance on the circumstances that could constitute financial advice, taking into account consumer and industry feedback, market developments, and international norms.

I think there are a few key points that we can pick up from the reply of MAS:

  • Giving advice/recommendations on a continuous basis might constitute financial advise.
  • The word “induces” is ambiguous. Selling an investment product to seminar participants, especially when there is commissions payable, would definitely be considered an inducement. However, if you give a course and most of the participants proceed to buy a stock because it was featured positively in your case study and you derive no benefit from it, then it is not so clear to me.
  • The part on social media was not addressed but I take it that the above interpretation applies. If it is for the purpose of financial literacy, it is fine. But if you are trying to sell a regulated investment product (for which you are not licensed), then it is illegal. Inducement term is still ambiguous.

Hopefully, MAS will proceed on their consideration to issue a more complete guidance.

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