Lesson 2: Financial Services – Advice vs Intermediary Services

Lesson 2: Financial Services – Advice vs Intermediary Services

Module 1: Introduction to the FAIS Act

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Lesson Overview

In this lesson, you will gain a deep understanding of the two core activities regulated by the FAIS Act:

1. Financial Advice.
2. Intermediary Services.

You will learn to:

• Define and differentiate financial advice and intermediary services.
• Identify real-world examples of each activity.
• Recognize activities that fall outside the scope of financial advice.

This lesson is critical for answering RE 5 exam questions accurately and ensuring compliance in real-world scenarios.

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1. Defining Financial Advice

Financial Advice refers to any guidance, recommendation, or opinion provided to a client about financial products.

Key Elements of Financial Advice:

1. It is provided to a client:

   • Individuals, businesses, or potential clients seeking financial solutions.

2. It relates to a financial product:

   • Examples include insurance policies, investments, pension funds, and credit products.

3. It involves a recommendation or opinion:

   • A suggestion based on the client’s needs, circumstances, or objectives.

Example of Financial Advice:

• Recommending a client purchase a specific life insurance policy to cover their family’s financial obligations.

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2. Defining Intermediary Services

Intermediary Services involve performing administrative or facilitative tasks to connect clients with financial product providers.

Key Elements of Intermediary Services:

1. It involves facilitation:

   • Assisting clients in completing transactions or accessing financial products.

2. It does NOT include providing personal recommendations.

3. It focuses on administrative tasks or enabling the transaction.

Examples of Intermediary Services:

• Assisting a client in completing and submitting an investment application form.
• Processing a short-term insurance policy application on behalf of the client.

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3. Financial Advice vs Intermediary Services

It is critical to differentiate between financial advice and intermediary services.

Aspect	Financial Advice	Intermediary Services
Definition	Providing recommendations or opinions on financial products.	Facilitating transactions between clients and product providers.
Key Focus	Personalized recommendations.	Administrative and facilitative support.
Client Involvement	Involves advising based on client needs.	Limited to assisting with forms and processes.
Example	Advising a client to invest in a retirement annuity.	Processing an application for a new insurance policy.

Real-World Scenario:

• Situation: A client is interested in saving for retirement.
  • Financial Advice: Recommending an appropriate investment fund based on the client’s income, risk profile, and retirement goals.
  • Intermediary Service: Assisting the client in filling out and submitting the necessary forms to invest in the chosen product.

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4. What Is NOT Financial Advice?

Certain activities do not qualify as financial advice under the FAIS Act. It is important to recognize these distinctions to ensure compliance.

Examples of Activities That Are NOT Financial Advice:

1. Providing factual product information:

   • Explaining the terms and conditions of a financial product without offering an opinion.
   • Example: Describing the features of a short-term insurance policy.

2. Marketing financial products:

   • General advertisements or promotions that do not target a specific client or offer tailored advice.
   • Example: Running a TV commercial for a retirement annuity.

3. Administrative assistance:

   • Performing tasks such as processing paperwork or updating client information.
   • Example: Helping a client with a change-of-address request for their investment account.

Key Note: The distinction between advice and non-advice activities often comes down to whether a recommendation or opinion is provided.

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5. Why Is This Distinction Important?

The FAIS Act requires individuals and businesses providing financial advice to:

• Obtain the necessary license as a Financial Service Provider (FSP).
• Meet fit-and-proper requirements (covered in Module 2).

Failing to differentiate between advice and non-advice activities could result in:

• Non-compliance penalties for operating without a license.
• Misleading clients and violating ethical standards under the General Code of Conduct.

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Key Takeaways

1. Financial Advice involves personalized recommendations or opinions about financial products.
2. Intermediary Services involve facilitation and administrative tasks without providing recommendations.
3. Recognizing activities that do not qualify as financial advice is critical to ensuring compliance with the FAIS Act.

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Lesson Recap

• Financial Advice: Providing tailored recommendations about financial products.
• Intermediary Services: Assisting clients with financial transactions in an administrative capacity.
• The FAIS Act distinguishes between these two activities to regulate advice appropriately and protect clients.