External asset managers (“EAMs”) generally provide asset management services to high net worth individuals (“HNWI”) for their segregated accounts on a discretionary basis through a power of attorney, or on an advisory basis. Aside from these core activities, certain EAMs engage in additional activities such as the management of proprietary funds, distribution of funds and offering of private deals. To carry out these activities in Singapore, different licences may be required from the Monetary Authority of Singapore (“MAS”).

Discretionary Asset Management including Fund Management

Capital markets services (“CMS”) licence for fund management (or exemption thereof as registered fund management company): The CMS licence for fund management allows the EAM to manage a segregated portfolio of a client on a discretionary basis as well as the management of investment funds (collective investment scheme, in short “CIS”).[1]

In addition to the management of investment funds (and segregated accounts), the fund management licence allows the EAM to offer investment funds that it manages or that are managed by other group companies (but the offering of investment funds is restricted to these types of investment funds under the fund management licence).

The CMS licence for fund management restricted to accredited and institutional investors (“A/I LFMC”) is commonly the main licence an EAM is holding or, in case of a smaller EAM, it will be authorised by MAS as a registered fund management company (“RFMC”). (For more information on these two licences please see our previous article “Starting an EAM in Singapore”.)

Provision of Financial Advice

Under the financial advisor’s licence, the EAM can advise its clients regarding investment products.[2] The EAM will provide its client recommendations regarding the buying, holding or selling of specific investment products with the client taking the decision on the transaction.

Following its financial advice, the financial adviser’s licence also allows the EAM to assist its financial advisory client to pass the client’s orders concerning any specified products to brokerage firms for execution.[3] (This is an exemption from the requirement to hold a capital markets services licence for dealing in capital markets products that is discussed below that is generally required for any dealing in capital markets products.)

The financial adviser’s licence would also allow an EAM to rebalance its clients’ portfolios to the extent that the portfolios comprise solely collective investment schemes and provided that the rebalancing is incidental to the advice provided, i.e. to align it again with the original recommended allocation. Safeguards apply to such rebalancing.[4] EAMs however need not rely on the authorisation under this exemption where they have discretionary power over the portfolio under their fund management licence (or as RFMC).

Commonly, EAMs obtain an exemption from the requirement to obtain a financial advisers licence complementing their fund management licence or status as RFMC.

Distribution of Capital Markets Products

The capital markets services (“CMS”) licence for dealing in capital markets products is required, if the EAM wants to offer capital markets products to prospects / clients or facilitate their transactions[5] for capital markets products other than collective investment schemes managed by the EAM or a group company of the EAM (See above under the CMS licence for fund management in this regard.) without providing financial advice to the prospect / client. (Where the EAM provides financial advice, assistance in the execution of the respective transaction is covered by the financial adviser’s licence or exemption thereof as explained above.)

It is also to be noted that an EAM wishing to carry out activities under the CMS licences for fund management and for dealing in capital markets products should employ different staff to carry out the respective activities due to conflicts of interest.[6]

Advising on Corporate Financing

The capital markets services (“CMS”) licence for advising on corporate finance is required, where the EAM also gives advice relating to the raising of funds by any entity or CIS, relating to the making of an offer to buy or sell specified products, or concerning a merger or take-over.[7] This would most of all be the case, where an EAM also wants to assist its HNWI clients with regards to corporate finance transactions of the clients’ companies.

The EAM should be cautious with regards to conflicts of interest that its corporate finance activities may create vis-à-vis its discretionary and advisory asset management activities and put adequate controls and measures in this regard in place.

Generally, the EAM – even when already holding another licence, or even more in that case – must obtain the appropriate licence (or exemption thereof) from the MAS before starting to carry out the respective activity. Where the EAM already holds a CMS licence for fund management for the discretionary management of segregated accounts, we also strongly recommend that it informs MAS before starting to manage an investment fund although this is covered by the same licence.

[1] Part II of the Second Schedule to the Securities and Futures Act.

[2] Second Schedule to the Financial Advisers Act.

[3] Para. 2(1)(j) of the Second Schedule to the SF(LCB)R; Q II.13 FAQs on Financial Advisers Act, Financial Advisers Regulations, Notices and Guidelines; A37.

[4] Para. 5(1)(g) of the Second Schedule to the SF(LCB)R; Q II.14 FAQs on Financial Advisers Act, Financial Advisers Regulations, Notices and Guidelines.

[5] Part II of the Second Schedule to the Securities and Futures Act.

[6] A7 FAQs on Licensing and Business Conduct (Other than for Fund Management Companies).

[7] Part II of the Second Schedule to the Securities and Futures Act.