Contract provisionsTypes of contract
Describe the various types of private banking and wealth management contracts and their main features.
The main types of private banking and wealth management contract are:
- discretionary contract, where the investment manager may make any investments he or she thinks suitable for the customer without reference to the customer. Under such contracts, the investment manager has broad discretion to make investments in accordance with the manager’s professional judgement, without the need to seek the customer’s prior approval. Such contracts sometimes require the manager to manage the portfolio in accordance with agreed investment objectives and restrictions;
- advisory contract, where the customer is in charge of making his or her own investment decisions in respect of his or her portfolio, with the benefit of the bank’s advice. Under such contracts, the bank cannot make investments or enter into any transactions without the approval of the customer. The bank has a contractual duty to advise and a duty to take care when giving advice; and
- execution-only contract, where the customer is in charge of making his or her own investment decisions in respect of his or her portfolio, but the bank has no obligation to provide advice. Under such contracts, the bank cannot make investments or enter into any transactions without the approval of the customer. The bank has no duty to provide advice.
The parties are generally free to agree on the applicable governing law for the various types of private banking and wealth management contracts, and the courts would generally respect the parties’ choice of governing law.Liability standard
What is the liability standard provided for by law? Can it be varied by contract and what is the customary negotiated liability standard in your jurisdiction?
Generally, the liability standard provided for by law is that of negligence, which needs to be proven by the plaintiff on a balance of probabilities.
In execution-only contracts, it is common to include disclaimers and non-reliance clauses to exclude any duty of care in relation to the introduction of products or recommendations made by relationship managers. Such disclaimers and non-reliance clauses are subject to the test of reasonableness under the Unfair Contract Terms Act, Chapter 396 of Singapore (UCTA). If the parties to the agreement are sophisticated businesspeople of equal bargaining strength, the courts would be less likely to hold that the disclaimers and non-reliance clauses are unreasonable.Mandatory legal provisions
Are any mandatory provisions imposed by law or regulation in private banking or wealth management contracts? Are there any mandatory requirements for any disclosure, notice, form or content of any of the private banking contract documentation?
There are no mandatory requirements for any disclosure, notice, form or content of any of the private banking contract documentation. However, there are various rules and regulations in relation to conduct of business that may be applicable to private banking.
The FAA imposes specific obligations on licensed financial advisers and exempt financial advisers in the conduct of their business, such as:
- disclosing to every client and prospective client all material information relating to any designated investment product that the financial adviser recommends to such person; and
- not making a recommendation with respect to any investment product if the financial adviser does not have a reasonable basis for making the recommendation.
Regulation 18B of the Financial Advisers Regulations also requires a financial adviser to carry out a due diligence exercise to ascertain whether a new product is suitable for the client before selling or marketing such new product.
Note, however, that some of the obligations in the FAA and the Financial Advisers Regulations (including those specifically identified above) do not apply to institutional investors, accredited investors and expert investors or banks who have a ‘unit exemption’ (ie, exemptions for specialised units serving HNWIs) from MAS.
There are also separate obligations imposed on CMSL holders, financial advisers and exempt persons in relation to the conduct of business under the SFA or the FAA, such as:
- furnishing customers with a written risk disclosure document prior to opening a trading account; and
- giving the investor clear and prominent notice in writing of his or her right to cancel an agreement to purchase units in a unit trust or an unlisted debenture.
MAS also issues other notices, guidelines, circulars and other written directions that may be applicable to private banking, such as:
- the Notice on the Sale of Investment Products;
- Notice on Recommendations on Investment Products; and
- Fair Dealing Guidelines.
As mentioned in question 1, the ABS’ Code of Conduct is supposed to ‘provide guidance on standards of good practice’ for private banks that provide services to HNWIs. These include disclosure standards, such as a requirement for private banks to provide clients with a fee schedule covering fees, charges and other quantifiable benefits for all investment products and services at the time of account opening. The Code of Conduct does not have the force of law but MAS expects private banks to comply with the Code of Conduct and will take into consideration the extent of the private bank’s compliance with the Code of Conduct when considering whether a private bank is a fit and proper person for licensing purposes. Further, the Code of Conduct may provide prima facie evidence on the standard of care expected by the industry.Limitation period
What is the applicable limitation period for claims under a private banking or wealth management contract? Can the limitation period be varied contractually? How can the limitation period be tolled or waived?
The Limitation Act, Chapter 163 of Singapore, provides generally that for actions for negligence or breach of contract, the limitation period is six years from the date on which the cause of action accrued (ie, six years from the events that give rise to the claim).
The limitation period can be varied contractually, although limitation periods which are shorter than the statutorily prescribed limit will be subject to a reasonableness test under the Unfair Contract Terms Act, Chapter 396 of Singapore (UCTA).
The limitation period can be suspended or waived by mutual agreement between the parties. Further, the normal limitation period may potentially be extended where the damage claimed consists of latent injuries and damage, the plaintiff was a minor or mentally incapacitated when the cause of action accrued or the action is based on fraud or a mistake.