FAA Part III — Conduct of Business Requirements

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| Document Type | MAS Act | | Status | current | | Last Updated | 2026-05-02 | | Source | https://sso.agc.gov.sg/Act/FAA2001 |

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Overview

Part III of the Financial Advisers Act (Sections 23-36) establishes the conduct of business requirements that financial advisers must observe when providing financial advisory services. These requirements apply to both licensed financial advisers (LFAs) and exempt financial advisers (EFAs), forming the core consumer protection framework of the FAA.

The conduct requirements are supplemented by detailed rules in the Financial Advisers Regulations (FAR) and MAS Notices, particularly FAA-N16 (Recommendations on Investment Products) and FAA-N20 (Disclosure).

Duty to Disclose (Section 25)

Information to Be Disclosed

Financial advisers must disclose the following information to clients before providing any financial advisory service:

1. Identity and status — Whether the adviser is a licensed or exempt financial adviser, and the nature of the exemption
2. Scope of services — The range of financial advisory services the adviser is authorised to provide
3. Product range — Whether the adviser provides advice on products from a single provider or multiple providers (tied vs. independent)
4. Remuneration — The basis on which the adviser and its representatives are remunerated, including commissions, fees, and other forms of compensation
5. Conflicts of interest — Any material interest or conflict that may affect the objectivity of the advice
6. Complaints process — How clients can lodge complaints and the dispute resolution mechanisms available

Timing of Disclosure

Disclosures must be made: - Before or at the time of providing the financial advisory service - In writing, using clear and understandable language - In a manner that gives the client a reasonable opportunity to consider the information

Ongoing Disclosure

Financial advisers must provide updated disclosures if there is a material change in any previously disclosed information that could affect the client's decision.

Basis of Advice and Product Recommendations (Section 27)

Requirement to Have a Reasonable Basis

Section 27 requires that a financial adviser must have a reasonable basis for making any recommendation to a client with respect to any investment product. This is one of the most critical conduct obligations under the FAA.

What Constitutes a Reasonable Basis

A financial adviser has a reasonable basis for a recommendation if the adviser:

1. Has conducted adequate analysis of the investment product, including its features, risks, returns, and charges
2. Has assessed the client's needs through a fact-finding process (know-your-client or KYC)
3. Has matched the product to the client's profile — the recommendation must be suitable given the client's financial situation, investment objectives, risk tolerance, and particular needs
4. Has considered alternatives — the adviser should be able to explain why the recommended product is suitable compared to other available products

Know Your Client (KYC) Process

Before making any recommendation, the financial adviser must gather sufficient information about the client, including:

• Financial situation (income, assets, liabilities, commitments)
• Investment objectives (capital preservation, growth, income)
• Risk tolerance and appetite
• Investment horizon and liquidity needs
• Investment experience and knowledge
• Any particular constraints or preferences

MAS Notice FAA-N16 — Recommendations on Investment Products

This Notice provides detailed requirements for the suitability assessment process:

1. Customer Knowledge Assessment (CKA) — Clients must be assessed on their knowledge and experience with specific product types before being sold complex products (e.g., collective investment schemes, structured deposits, listed specified investment products)
2. Product due diligence — Financial advisers must conduct their own assessment of the products they recommend
3. Documentation — The basis for each recommendation must be documented and retained
4. Balanced presentation — Recommendations must present both benefits and risks in a balanced manner
5. Switching advice — Additional requirements apply when advising a client to switch from one product to another, including analysis of the costs and benefits of switching

Duty of Care and Suitability (Section 27 and FAR)

Suitability Requirement

The suitability requirement under Section 27, read with FAA-N16, is the cornerstone of the conduct framework. Financial advisers must ensure that:

1. Every recommendation is suitable for the specific client based on the client's needs analysis
2. The recommended product's risk profile matches the client's risk tolerance
3. The client can financially afford the recommended product
4. The client understands the key features and risks of the recommended product

Enhanced Suitability for Vulnerable Clients

MAS expects financial advisers to exercise heightened care when dealing with: - Elderly clients (aged 62 and above) - Clients with limited financial literacy - Clients who may not fully understand the products being recommended

Execution-Only Transactions

Where a client insists on purchasing a product against the adviser's recommendation or without seeking advice (execution-only), the financial adviser must: - Clearly document that the transaction was made without advice - Ensure the client acknowledges the transaction is execution-only - Not provide any recommendation in respect of the transaction

Disclosure of Remuneration and Conflicts (Section 25 and FAA-N20)

Remuneration Disclosure (MAS Notice FAA-N20)

Financial advisers must disclose to clients:

1. Commission structures — The amount or rate of commissions receivable from product providers for each recommended product
2. Fee arrangements — Whether the adviser charges fees and the basis for such fees
3. Soft commissions — Any non-monetary benefits received from product providers (e.g., training, travel)
4. Trailer fees — Ongoing commissions received for the duration a client holds an investment product
5. Comparison of remuneration — Where the adviser receives different levels of remuneration for different products, this must be disclosed so the client can assess potential bias

Conflicts of Interest Management

Financial advisers must: - Identify and manage conflicts of interest that may arise in the provision of financial advisory services - Disclose material conflicts to clients - Maintain policies and procedures for managing conflicts - Ensure that conflicts do not compromise the quality of advice provided

Prohibition on Certain Practices

The FAA prohibits financial advisers from: - Receiving or paying any benefit that would create a material conflict of interest, unless disclosed - Making recommendations primarily for the purpose of generating commissions (churning) - Misrepresenting the features, risks, or returns of any investment product

Client Agreements (Section 28)

Requirement for Written Agreement

Financial advisers must enter into a written agreement with each client before providing financial advisory services. The agreement must set out:

1. The services to be provided
2. The basis of remuneration
3. The rights and obligations of both parties
4. The dispute resolution process
5. Termination provisions

Content Requirements

The client agreement must be: - Written in clear, plain language - Provided to the client before or at the time of engagement - Signed by both parties - Retained by the financial adviser for the prescribed period

Record-Keeping Requirements (Section 29)

Records to Be Maintained

Financial advisers must keep and maintain proper records of:

1. Client information — All information gathered through the KYC process
2. Needs analysis — The assessment of the client's financial needs and objectives
3. Recommendations — The basis for each recommendation made, including the analysis conducted
4. Transactions — Details of all transactions executed on behalf of clients
5. Disclosures — Copies of all disclosures made to clients
6. Complaints — Records of all client complaints and how they were resolved
7. Correspondence — Material correspondence with clients

Retention Period

Records must be retained for a minimum of 5 years from the date of the transaction or the date of creation of the record, whichever is later. MAS may require longer retention periods for specific categories of records.

Balanced Scorecard Framework (Section 29A)

Purpose

Introduced by the 2015 amendments, Section 29A requires financial advisers to implement a balanced scorecard framework for the remuneration of their representatives. The objective is to reduce mis-selling by ensuring that representative compensation is not based solely on sales volume.

Components

The balanced scorecard must incorporate both quantitative and qualitative factors:

Quantitative measures: - Sales volume and revenue - Persistency ratios (client retention) - Business mix diversification

Qualitative measures: - Compliance record and audit findings - Quality of advice (needs analysis, documentation, suitability) - Client feedback and complaints history - Professional development and training

Application

The balanced scorecard requirements apply to representatives of both LFAs and EFAs who provide financial advisory services involving life policies and collective investment schemes.

Anti-Money Laundering and CFT (Section 30)

Financial advisers must comply with anti-money laundering (AML) and countering the financing of terrorism (CFT) requirements, including:

• Customer due diligence (CDD) procedures
• Enhanced due diligence for higher-risk clients
• Suspicious transaction reporting to the Suspicious Transaction Reporting Office (STRO)
• Ongoing monitoring of client relationships and transactions
• Record-keeping of CDD information

Detailed requirements are set out in MAS Notice FAA-N06.

Fair Dealing Outcomes (MAS Guidelines on Fair Dealing)

MAS expects financial advisers to deliver 5 fair dealing outcomes:

1. Outcome 1 — Clients have confidence that they deal with financial advisers where fair dealing is central to the corporate culture
2. Outcome 2 — Financial advisers offer products and services that are suitable for their target client segments
3. Outcome 3 — Financial advisers provide clear, relevant, and timely information to help clients make informed financial decisions
4. Outcome 4 — Financial advisers exercise care when advising clients, and provide suitable recommendations
5. Outcome 5 — Financial advisers handle client feedback and resolve complaints in an independent, effective, and prompt manner

Practical Implications

For Compliance Officers

1. KYC procedures — Establish robust fact-finding questionnaires and ensure all representatives conduct thorough needs analysis before making recommendations
2. Product due diligence — Maintain an approved product list with documentation of internal product assessments
3. Suitability documentation — Create standardized templates for documenting the basis of advice for each client interaction
4. Remuneration disclosure — Implement systems to calculate and disclose commissions and fees for each product recommendation
5. Balanced scorecard — Design and implement a balanced scorecard framework that meets MAS requirements and incentivises quality advice
6. Training — Ensure all representatives receive regular training on conduct requirements, product knowledge, and regulatory updates
7. Monitoring — Establish a compliance monitoring program to review the quality of advice and detect potential mis-selling

For Representatives

1. Conduct thorough KYC before every recommendation
2. Document the basis of advice for every product recommendation
3. Present product information in a balanced manner (risks and benefits)
4. Disclose all remuneration and potential conflicts
5. Ensure the client understands the product before proceeding
6. Retain copies of all disclosures and client communications

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