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New guidelines from the MAS clarify financial advice for consumers. Announced in June, the proposed guidelines bring more scrutiny to what constitutes the provision of financial advisory service under the Financial Advisers Act (FAA). The regulator aims to make sure that consumers only receive financial advice from those qualified to provide it, and that they enjoy the safeguards accorded under the FAA. Now is a good time to consider whether your activities – particularly digital ones – constitute financial advice.
The MAS proposes these guidelines in response to feedback that there is ambiguity on what form of communication could be construed as financial advice given the proliferation of online activity. The MAS might be referring to public websites that search and filter investment products by personal risk profiles or perhaps to influencers peddling investments on social media.
The proposed guidelines offer a two-stage test to assess whether the regulated activity is being carried out.
The two-stage test
The MAS provide a useful flow chart to help determine whether someone is providing financial advice – we have reproduced this below. If both stages of the test are passed, the person is likely to be providing financial advisory service and must ensure that one complies with licensing and business conduct requirements under the FAA. If either of the stages are not passed, the person is not likely to be providing financial advisory service. Still, the person is encouraged to provide a disclaimer to clarify this.
Source: Monetary Authority of Singapore Consultation Paper June 2018
Implications
The proposed guidelines provide a structure to the definition of ‘advice’, which is aligned with what is already recognised as industry practice. However, they are careful not to set hard lines for what is or is not financial ‘advice’. While financial advisors are directed to review the full circumstances of any potential financial advisory activity, the factors and considerations raised in the guidelines help to define that activity in terms of its probability of being construed as ‘advice’.
Most of the examples in the consultation paper involve financial advice via online activity, including one specifically on robo-advisory services, clearly demonstrating the MAS’ attention to this medium of advice.
Next steps
You may wish to start forming an internal position on whether or not any of your activities may be construed as financial advice, using the consultation paper as a guide. As mentioned earlier, this is especially so for your digital offering.
You should continue to be mindful of your discussions with clients. In particular, where you do not intend to provide financial advice, but may give that impression to a client or prospect. Even if you are licensed as a financial adviser, you could be misunderstood by your client as having provided financial advice when you have not yet done so. You may find yourself having to prove otherwise if your client acted upon it and made a loss.
You could mitigate this risk of confusion by making appropriate disclosures / disclaimers to clients as well as review your processes for how to do this most effectively.
How we can help
We can help you to assess whether or not your new or existing activity / content counts as providing financial advice. If so, we can advise you on any licencing requirements and of the ongoing business conduct rules that apply to you. If need be, we can further help you with your financial advisers license application. We would also offer to review your internal processes and controls to ensure your adherence to all applicable regulations.
If your new or existing activity / content is not financial advisory, we can help you in drafting and applying an appropriate disclaimer.
Get in touch to find out more.
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