Guidelines on the Use of the Term “Independent” by Financial Advisers

Monetary Authority of Singapore

• 13 pages
• Confidential
• July 30, 2002

1 INTRODUCTION

Background Information

1.1 Payment and ownership structures between financial advisers2 and product providers have become increasingly complex and diverse. Investors are often not fully aware of the existence, nature or implications of these payment or ownership structures. Commercial arrangements between financial advisers and product providers may also give rise to issues relating to the independence of financial advisers.

1.2 Some financial advisers may wish to use the word “independent” in their business names or in respect of their advice or recommendation. They may also wish to promote or advertise their services as being “independent”. However, the use of the word “independent” by a financial adviser has strong connotations for the investing public. It suggests to the investor that the financial adviser operates with objectivity and impartiality, and does not have any potential conflicts of interest when recommending an investment product as a result of commercial or financial links with a product provider. In the light of such public expectations, the Financial Advisers Regulations (“FAR”) limit the use of the word ‘‘independent’’ by financial advisers.

Objective of the Guidelines

1.3 The purpose of these guidelines is to give guidance to financial advisers on the circumstances they may use the term “independent” in the name, description or title under which they carry on business in Singapore, promote or advertise their services, or use the term in respect of their advice or recommendation.

2 CONDITIONS TO BE MET

Regulation 34 – Use of the Term “Independent” 3

2.1 Regulation 34(1) of the FAR states that no licensed financial adviser or exempt financial adviser shall use the word “independent” or any of its derivatives in any language or any other word or expression in any language that is of like import to “independent” in the name, description or title under which it carries on business in Singapore; to promote or advertise its services;
or in respect of any of its advice or recommendation unless it:

(a) Does not receive any commission or other benefit from a product provider which may tend to create a product bias or pay any commission to or confer other benefits upon its representatives which may tend to create a product bias;

(b) Operates free from any direct or indirect restrictions relating to any investment product which is recommended; and

(c) Operates without any conflicts of interest created by any connection to or association with product providers.

2.2 Regulation 34(2) of the FAR states that a financial adviser which is prohibited from using the word “independent” in the manner specified in Regulation 34(1) shall inform all of its representatives, in writing, of the prohibition.

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Same Level of Commission

3.5 A financial adviser is likely to be biased in favour of a particular product unless it receives a broadly similar level of commission for similar products or classes of products it recommends. This could also be the case if the level of commission received is similar, but the financial adviser receives significant other additional benefits, such as free research or training for recommending a particular product.

3.6 If there are any significant differences in the rate of commissions payable for different classes of products, such differences may create a bias in favour of the class of products that pay the higher commission. What is a significant difference is a question of fact in each case.