Monday, September 22, 2008

Financial Adviser Act, Section 27

I researched the Financial Adviser Act and found section 27. It describes the responsibility of the financial adviser or its representative in giving proper advice to the consumer. The adviser is required by section 2 (a) to ensure that the recommendation (i.e. to invest in the credit linked securities) is appropriate to the consumer. I believe that the adviser has failed in this duty.

Recommendations by licensees
27. —
(1) No licensee shall make a recommendation with respect to any investment product to a person who may reasonably be expected to rely on the recommendation if the licensee does not have a reasonable basis for making the recommendation to the person.

(2) For the purposes of subsection (1), a licensee does not have a reasonable basis for making a recommendation to a person unless —

(a) he has, for the purposes of ascertaining that the recommendation is appropriate, having regard to the information possessed by him concerning the investment objectives, financial situation and particular needs of the person, given such consideration to, and conducted such investigation of, the subject-matter of the recommendation as is reasonable in all the circumstances; and

(b) the recommendation is based on the consideration and investigation referred to in paragraph

(3) Where —
(a) a licensee, in making a recommendation to a person, contravenes subsection (1);
(b) the person, in reliance on the recommendation, does a particular act, or refrains from doing a particular act;
(c) it is reasonable, having regard to the recommendation and all other relevant circumstances, for the person to do that act, or to refrain from doing that act, as the case may be, in reliance on the recommendation; and
(d) the person suffers loss or damage as a result of doing that act, or refraining from doing that act, as the case may be,

then, without prejudice to any other remedy available to that person, the licensee is liable to pay damages to that person in respect of that loss or damage.

(4) In this section, a reference to the making of a recommendation is a reference to the making of a recommendation expressly or by implication.

(5) This section shall not apply to any licensee or class of licensees in such circumstances or under such conditions as may be prescribed.


zhummmeng said...

The key phrase is "Reasonable Basis".
It is defined as what fellow financial planners would have recommended if given the same or similar sets of circumstances, needs, risk and financial situation.(many times you heard those rubbish about different people have different needs when they want to sell WL)
It is an US usage and for UK 'best advice' is used in the FSA.
Many "advices" by insurance agents NEVER meet this requirement especially those who recommend WL.
It is very important to the court when it rules whether a recommendation is of reasonable basis. It is not about gain or loss. It is also NOT about whether the customers like it or want it at the point of transaction. It is the responsibility of the adviser to meet the requirement and the adviser CANNOT absolve himself on the defence that the product was the customers' choice or wish.
Product advice is dangerous in this context. It leaves a lot of leeway and loopholes for the customers to pick fault with the adviser.Product advice should be banned.
A recommendation which gains for the insured or investor is not necessary of reasonable basis and vice versa.
Consumers must be aware of this provision in the FAA which allows them to take up a legal suit against the adviser if the KYC or fact finding form has evidence of inappropriate recommendation relative to your needs and circumstances.
Therefore I urge consumers to have their policies examined and reviewed by a qualified,honest and
competent adviser.

PS. i think you have noticed that I often use the words "honest and competent" together.They are provided in the FAA as an adviser who is "fit and proper". So if insurance agents say they are 'caring and sincere' better run as fast as you can. They are no substitute for "honest and competence"

Anonymous said...

If u think u are honest and competent, try to be an agent.

zhummmeng said...

You are trying to tell us that being agents cannot be honest. (this is a confirmation from an agent that all agents are dishonest) I can because i know more than you to be honest. Those who became dishonest because they are greedy and lack the skills to help others. As a result they have to resort to unethical means.
Also maybe they were born without conscience and insurance selling fits the bill.

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