QUICK GUIDE TO DEALING WITH A FINANCIAL ADVISER

Some quick tips and case studies have been posted below to enable you to understand what you should do when dealing with your financial adviser.

(1) Deal only with financial advisers (FAs) regulated by the Monetary Authority of Singapore (MAS).

You should deal only with FAs regulated by MAS.  These FAs are required to comply with business conduct rules under the Financial Advisers Act. A list of the FAs regulated by MAS, and the types of services they are authorized to provide, is available on the MAS website at www.mas.gov.sg. Consumers should be aware that MAS only regulates firms with a presence in Singapore. You should do your own checks when dealing with entities or individuals based overseas.

Case Study 1: Deal only with regulated entities

Mr Leow was approached by an offshore financial company with a representative office in Singapore to invest with them. He invested with the company based on an email indicating the terms of the offer, without having met anyone from the company. The company recently sent him a letter informing that it will be moving out of Singapore. It was only then that Mr Leow conducted checks on the company and found out that the company was not licensed by MAS to deal in investments in Singapore. 

Tips for consumers:

• Deal only with entities and individuals regulated by MAS. Such persons are required to comply with business conduct rules, which would offer you better protection. Check the MAS Financial Institutions Directory (www.mas.gov.sg) to find out whether the entity you are dealing with is regulated by MAS. 
  
• Ensure that you do all necessary checks before dealing with entities based overseas. Find out more about the company, its track record and the background of the key people running the operation. Make sure that you have a chance to meet with some of the representatives. 
  
• Never sign on blank forms without understanding what you are signing. Be careful of verbal promises and guarantees of high returns - anything that sounds too good to be true probably is.
  
• If you have been approached by an unlicensed entity offering you an investment product, report the matter to MAS at email: consumers@mas.gov.sg.
  

(2) Engage a FA with proper qualifications and experience

Before you appoint a FA, find out as much as you can about the firm, such as its track record and the qualifications of your representative. Do not appoint a FA solely because of the wide range of products on offer or the company's independent status. A FA should be selected based on its merits.

(3) Make sure you ask for documentation and keep all your documents safely.

Before dealing with a FA representative, ask him to provide you with the following information in writing:

• The name of the FA firm that he represents; and
• The type of financial advisory service he is authorized to provide.

(4) When in doubt, always seek clarification and ask for more information.

You should not buy any investment product until you have fully understood what you are buying into. Ask for written materials on the product and read the documents and fine print carefully. Never sign on blank forms without understanding what you are signing. Do not release your identity card to someone you do not know or without first clarifying why it is needed.

Case Study 2: Understand what you are buying before committing to an investment product

Mr Cheong, a 52-year old retiree, visited his bank with the intention of putting $20,000 into a fixed deposit. At the bank, a financial adviser's representative recommended him a regional bond fund (a unit trust) that earned a return of about 5% per annum over a 10-year period. The adviser explained that the fund carried little risk, and while there were management fees involved, investing in a unit trust would earn better returns as compared to fixed deposits, which earned less than 1% interest. Mr Cheong had heard about unit trusts and was convinced that it was better to put his money into the regional bond fund instead of a fixed deposit given the low interest rate environment. However, he committed to the investment without fully understanding the fees and charges involved, or how bond prices will be impacted by changes in interest rates. Three months after he bought the fund, the market value of his fund fell to $18,500. When Mr Cheong's daughter saw the bank statements, she was shocked that a retiree like her father had been sold a unit trust instead of a fixed deposit, and encouraged him to give up the product. Mr Cheong approached the bank branch but was advised that any cancellation would lead to a loss based on the current market value. The bank advised him to stay invested in the fund in order to earn the yearly dividends and maintained that the fund matched his risk profile. As there was no evidence of the bank's representative having given inappropriate advice to Mr Cheong, he was not able to get a refund on his unit trust investment.

Tips for consumers:

• Never make a hasty decision without carefully understanding what the financial adviser is recommending to you. If necessary, bring the product brochures or product illustrations home and discuss them with a trusted family member or friend who has a good understanding of investment products.  
  
• Ask as many questions as you need to get a full understanding of the product. Consider asking the adviser to do a Financial Needs Analysis for you to better understand your risk profile before buying any investment product. Answer the questionnaires truthfully, so that your financial adviser will be able to recommend a suitable product for you.  
  
• Remember that there are risks involved in buying any investment product. Find out what these risks are, and whether you are able to ride out the ups and downs of the market over a longer time horizon.  
  
• Check how much fees and charges you have to pay and any penalties for exiting early from the fund. 
  
  

(5) Be careful of verbal promises and guarantees of high returns.

Never rely on verbal promises from your FA or its representative. Anything that sounds too good to be true probably is. Make sure that you understand what is guaranteed and what is not, and insist on written confirmation from your FA on any guaranteed returns or benefits.

Case Study 3: Read the terms and conditions of your insurance policy contract

Four years ago, Ms Shamila bought a life insurance policy with a projected maturity value of $330,000. She was shocked when her insurance company recently sent her a letter informing her that the projected maturity value of her policy has been revised downwards to $280,000, in view of the poor market conditions. At the time that Ms Shamila bought her policy, she had not read the benefit illustration and policy terms, which clearly spelt out that bonuses for with-profit life insurance policies were not guaranteed until they were declared by the company. Although her agent had told her that bonuses were not guaranteed and could vary with market conditions, he had also said the insurance company had always been paying higher than the estimated bonus in the past. As such, Ms Shamila had assumed that the projected maturity value of her policy was "guaranteed". Ms Shamila sought redress from her insurance company. However, as it was clearly spelt out in her policy contract that bonuses were not guaranteed, she did not have a case against the insurance company.

Tips for consumers:

• Before you purchase an insurance policy, read the brochures and other documents given to you carefully to have a good understanding of the product. Do not just rely on the words of your agent. Carefully study the benefit illustration and the accompanying product summary before you sign on the application form. 
  
• Read your contract terms and conditions very carefully, including all fine print. When your application for the policy is approved, you will receive the policy contract. Once the policy contract is sent to you, there is a 14-day free-look period for you to reconsider your purchase. You have to do your own homework, and not just rely on what your insurance company or agent has highlighted to you. It may seem like a simple straightforward product, but different companies and products have different contract terms, which you should read carefully and understand fully. 
  
• Ask your insurance company to explain all calculations to you in writing. If you return your policy within the 14-day free-look period, you may suffer a small loss, as the insurance company will deduct their expenses from your premium before refunding the money to you.
  
• Always check the statements sent by your insurance company. If there is anything that you do not understand, ask your insurance company immediately. 
  
  

For more information on what to look out for when dealing with a financial adviser, refer to the following Guide.