MAS to remove mandatory financial advice for complex products for most retail investors

[SINGAPORE] Most retail investors will no longer be required to seek mandatory financial advice before purchasing complex investment products such as investment-linked policies (ILPs).

This comes under changes finalised by the Monetary Authority of Singapore (MAS) on Friday (May 15).

The move aims to provide investors the flexibility to opt in or out of financial advice, said the regulator.

However, the regulation still applies to investors who need additional protection.

Examples of complex products include structured notes and derivatives. ILPs will also be considered a complex product following the implementation of the proposals.

The changes follow a consultation launched by MAS in July last year seeking public feedback on streamlining the framework for complex financial products, and enhancing the requirements for the Product Highlights Sheet (PHS).

At the time, the regulator said that its objective was to strengthen the effectiveness of a disclosure-based regime for investors.

This involves allowing them to make informed choices on their own, while requiring an appropriate level of intervention for consumers who need more assistance.

Flexibility and new safeguards

Stronger safeguards will remain in place for selected clients requiring additional protection, MAS said.

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Those who will fall into this group would have met two out of the three criteria.

• 62 years of age or older.
• Lacking proficiency in English.
• Academic qualifications below GCE O or N level certifications or equivalent.

For these individuals, requirements include mandatory advice, a trusted individual to accompany them during the sales and advisory process, and pre-transaction callbacks by financial institutions to check their understanding of the complex product.

MAS will also proceed with the proposals to enhance the PHS disclosure requirements and other distribution safeguards that financial institutions must provide to enable investors to make informed decisions.

To mitigate risks, the authority will introduce “pre-transaction alerts for complex products to remind investors to carefully understand the product to assess suitability”.

All investors will be alerted that a product is complex, with an accompanying reminder to review product documents carefully. Investors who fail the customer knowledge assessment will also be informed that complex products may not be suitable for them.

Alerts will further include a reminder to take a learning module on complex products or seek financial advice where needed.

Investors will have the option of receiving a streamlined version of the pre-transaction alerts for subsequent transactions within the month, if they have traded in complex products during this period.

Lim Tuang Lee, assistant managing director (capital markets) at MAS, said: “These measures foster an accessible and dynamic market. They acknowledge the growing sophistication of investors who can self-direct and analyse their own investments while catering to the needs of selected investors that may continue to require additional support and safeguards”.

While MAS has finalised PHS templates and distribution safeguards, legislative amendments to implement these changes will be consulted on at a later date.