Safeguards for Sale of Financial Products to Vulnerable Groups

Mr Zainal Sapari asked the Prime Minister what are the safeguards that financial advisors must observe when selling financial products to vulnerable groups of people, especially the elderly and less educated people.

The Monetary Authority of Singapore (MAS) shares Mr Zainal Sapari's concern about the need for proper selling procedures when financial advisers (FAs) deal with the elderly or vulnerable in our population. Let me explain our current system of safeguards.

FAs and their representatives, including FA representatives in banks, are regulated under the Financial Advisers Act. The Act provides for safeguards for investment products sold to any member of the public. It also specifies additional safeguards when dealing with vulnerable customers.

First, assessing product suitability. Before an investment product can be marketed to customers, FAs are required to assess the nature of the product and identify the customer segments for which it is suitable. FAs are then required to ensure that their representatives bear in mind which products are suitable for each of the customers they deal with.

Second, information disclosure. FA representatives must disclose to customers material information on a product, especially the potential risks and benefits, and all applicable fees and charges. Such disclosures must be clearly communicated to customers to enable them to make informed investment decisions. It is an offence under the Act for FA representatives to omit or make false or misleading disclosures to customers.

Third, additional supervisory checks within an FA agency. Before a sale can be completed, supervisors of FA representatives are required to check their recommendations to ensure that the advisory process has been properly conducted, and that the products recommended are suitable for customers.

For vulnerable customers with limited knowledge of investment products, supervisors of FA representatives are required to take the additional step of calling the customers before the transaction can be executed. If the product is a complex one, the FA's senior management must confirm with the customer that he or she has been properly informed of the risks of proceeding with the investment. Such follow-ups also serve as an additional opportunity for vulnerable customers to state if they wish to proceed with their transactions, having understood the risks of the products.

But it is not just about what is provided under the law. Over the past few years, some FAs have made efforts to strengthen their advisory and sales processes beyond what is required under the law. For example, the forms and sales documents used by some FAs are available in different languages to help customers who are not well-versed in English. FAs also encourage vulnerable customers to bring along a relative or friend whom they trust and who is able to explain to them what is being presented by the representative. Some FAs have made it mandatory for their representatives to seek senior management's approval for all transactions entered into by vulnerable customers even where the product is not complex.

While the industry has made positive strides over the past few years, we need to continue raising the bar. MAS will continue to work with the industry to improve the quality of advice and competencies of FA representatives. We will also share common observations and weaknesses from our supervisory reviews and spread best practices that go beyond strict regulatory requirements.