As Singapore seeks to be a major financial hub, the financial services industry promises to be the industry of the future. Manufacturing, which had been the industry of Singapore’s economy for many decades and had contributed most to Singapore’s economic progress and prosperity, is contributing less and less to the total pie. Services, and particularly financial service, will be the key economic driver in the future.

Legislation, especially the Financial Advisers Act which came into effect in October 2002, has led to convergence and consolidation. Whereas there were once business barriers between banking, finance, insurance and stockbroking, the scene today is that of an open playing field. Everyone of these firms (banks, finance companies, insurance and stockbroking) can now provide a wide range of financial services and products.

The buzz word today is DISTRIBUTION. Clients have a choice of getting their financial needs met by many channels of distribution. This can be confusing. And making an uninformed choice may lead to limited choices and paying higher costs than necessary.

The first thing to note is that there is a difference between licensed Financial Adviser and Exempt Financial Adviser. At the moment, only the individual representatives of licensed Financial Adviser (firms) are scrutinised and licensed by MAS. The representatives of Exempt FAs (firms) such as banks, insurance companies, stockbroking firms and general insurance broker firms still do not have to be licensed individually.

The second thing to note is that some Financial Advisers (firms) are “independent” and their representatives are required to provide “fair and objective” advice which is not influenced by the commissions of products and they must be able to select products for clients from at least four product providers. Independent Financial Advisers may generally be expected to be able to provide more competitive products and terms. They may, however, vary in the number of product providers which they can transact business with. It is important to check which are the product manufacturers or providers they are able to place business with to ensure you have wide choices.

Financial Advisers who are not independent may not describe themselves as such. The representatives of these firms are from Exempt FAs (banks, stockbroking firms, insurance companies) and some licensed FA firms which have decided not to subject themselves to the more stringent requirements for claiming to be “independent”. Representatives of firms which do not claim to be independent are expected to give “reasonable basis” advice which is defined in the Financial Advisers Act, and not “fair and objective” basis. Under reasonable basis the representative has to base his recommendation having regard to the information possessed by him concerning the investment objectives, financial situation and particular needs of the person. The representative must give such consideration to and conduct such investigation of the subject matter of the recommendation as is reasonable in all the circumstances.