The Answer in 60 Seconds

Section 36 of the Financial Advisers Act 2001 (numbered section 27 until the 2020 Revised Edition took effect on 31 December 2021) is the provision that requires licensed financial advisers (FAs) to have a reasonable basis for recommending an investment product, such as a life policy, having regard to the client's investment objectives, financial situation and particular needs. The obligation is operationalised through MAS Notice FAA-N16 which specifies fact-find and documentation requirements. Section 36 means: a licensed FA recommending a life policy cannot simply sell it - they must understand the client, assess needs, document the basis for recommendation, and ensure the product fits. For Singapore SMEs, section 36 protects advice on life policies and other investment products; it does not apply to general insurance such as public liability or property cover. Failure by the FA creates both regulatory consequences (administered by MAS) and civil claim exposure under FIDReC and the courts. Understanding section 36 helps SMEs evaluate FA quality on investment products and use the protections the provision creates.

The Sourced Detail

Section 36 (section 27 before the 2020 Revised Edition) sets the reasonable-basis duty for recommendations on investment products. It puts a duty on the adviser, and section 36(3) gives a client who reasonably relied on a recommendation made without a reasonable basis, and suffered loss as a result, a right to damages.

The text and structure of Section 36

Per FAA 2001 Section 36:

The section requires a licensed FA, when making recommendations on investment products (which include life policies but not general insurance), to have a reasonable basis for the recommendation. Reasonable basis is established through:

  • Regard to the information the adviser has on the client's investment objectives, financial situation and particular needs
  • Consideration of the subject matter of the recommendation
  • Specific consideration of the suitability of the recommendation in light of the investigation

The provision applies to FAs licensed under the FAA and, through section 20(2), to exempt financial advisers, which include banks, licensed insurers and companies registered as insurance brokers under the Insurance Act 1966, when they advise on investment products. It does not apply to introducers under FAA-N02 (see how an introducer differs from a licensed FA) since introducers do not make recommendations.

What "investigation" means in practice

Per MAS Notice FAA-N16, Section 36's investigation requirement is operationalised through fact-find. A proper fact-find covers:

Paragraph 11 of FAA-N16 lists the information to collect and document: the client's financial objectives, risk tolerance, employment status, financial situation (assets, liabilities, cash flow and income), source and amount of regular income, financial commitments, current investment portfolio including any life policy, whether the amount to be invested is a substantial portion of the client's assets and, for life policies, the number of dependants and the support each needs.

The investigation of the product must be what is reasonable in all the circumstances (section 36(2)(a)), so a more complex product calls for more. Neither section 36 nor FAA-N16 applies to general insurance such as a Public Liability renewal or a multinational liability programme.

What "suitability" means

Suitability is the alignment between the recommendation and the fact-find. A recommendation is suitable when:

  • It addresses the client's stated needs
  • It fits within the client's commercial circumstances (cost, complexity, capacity to manage)
  • It does not introduce risks the client wouldn't reasonably accept if informed
  • It is appropriate given the client's level of sophistication

In general insurance, which section 36 and FAA-N16 do not cover, advice can still go wrong in several ways: under-coverage (gaps that leave the client exposed), over-coverage (paying for cover the client doesn't need), unsuitable structure (single policy when tower would serve better, or vice versa), unsuitable insurer (insurer that doesn't have appetite or capability for the client's industry), and unsuitable terms (specific exclusions that make the cover ineffective for the client's actual risks).

Documentation obligation

Section 36 requires a reasonable basis, and FAA-N16 requires the FA to explain and document it (paragraphs 31 and 35). FAA-N16 specifies documentation expectations:

The fact-find should be documented contemporaneously (at the time of investigation, not reconstructed later). The recommendation should reference specific elements of the fact-find that drive the suitability conclusion. The documentation must also include the adviser's assessment of the disadvantages of the product for the client (paragraph 35(c)). For a life policy, the adviser must also give the client the insurer's product summary, policy illustration and product highlights sheet, where the insurer has prepared them (paragraph 37(b)).

For SMEs, this documentation is the protection: if a claim later arises and there's a question about whether the cover should have addressed it, the documented fact-find and suitability rationale provide the audit trail.

What happens when Section 36 is breached

Several remedies exist for breach:

Regulatory action by MAS. MAS can inspect and investigate, issue written directions, reprimand, and revoke or suspend a licence; fines for offences under the Act are imposed by the courts, and MAS can compound some offences.

FIDReC mediation. For SME consumer disputes, FIDReC provides mediation free of charge to the complainant and, if mediation fails, adjudication of claims of up to S$150,000 each (a Small Business pays a S$250 case fee for adjudication). SME businesses with annual turnover up to S$1 million qualify for the small business framework.

Civil claims. SMEs can sue the FA for breach of duty. Section 36(3) also gives a client who reasonably relied on a recommendation made without a reasonable basis, and suffered loss as a result, a right to damages from the adviser.

Section 36 and licensed advisers vs tied agents

Section 36 applies to licensed FAs and, through sections 20(2) and 46, to exempt FAs and representatives, but the practical implementation differs between:

licensed advisers. Not tied to a specific insurer. Section 36 investigation can consider products across multiple insurers, supporting recommendation that the client receives the best-fit option from the available market.

Tied agents. Restricted to products of a specific insurer (or limited group). Section 36 still applies, but the suitability assessment is constrained: the agent can only recommend within their available product range. This does not remove the suitability obligation: where the agent cannot identify a suitable product, FAA-N16 requires it to tell the client so (paragraph 30).

For Singapore SMEs, this distinction matters: working with a licensed adviser generally provides broader suitability assessment scope than working with a tied agent, though tied agents serving simple needs can still meet Section 36 requirements.

Section 36 and Covarage

Covarage is not a licensed FA. Section 36 therefore does not directly apply to Covarage's operations: Covarage does not make recommendations, does not conduct fact-finds, does not assess suitability. Covarage's role ends at introduction; the adviser that the SME engages is bound by section 36 when it recommends a life policy or other investment product.

This complementary model serves SMEs by separating the gateway function (where introducers reduce friction and provide factual orientation) from the regulated advisory function (where licensed FAs deliver section 36-compliant fact-find and recommendation on investment products). The SME benefits from lower friction at engagement, and from section 36's protection when the advice is on a life policy or other investment product.

Specific industry-specific considerations

Section 36 does not apply to general insurance, but the depth of investigation an SME can expect from a careful adviser still scales with industry complexity:

For specific industries (technology with complex IP / Cyber considerations, financial services with regulatory layers, healthcare with HCSA framework, manufacturing with substantial WICA / Product Liability exposure, construction with elevated WICA / WSHA), the fact-find requires industry-specific knowledge. SMEs in these industries benefit from FAs with specific industry expertise.

Specific claim scenarios

Three advice disputes that can arise in general insurance, which section 36 does not cover:

Coverage gap revealed at claim time. The SME suffers a loss; the policy doesn't respond because of a specific exclusion or scope limitation; the SME questions whether the FA should have flagged or addressed the issue. The fact-find and recommendation documentation determines liability allocation.

Inappropriate product recommendation. The SME purchased a product that didn't fit the operational reality (e.g. simple PL for an operation with substantial Product Liability exposure). The fact-find quality and the recommendation rationale are central.

Limit inadequacy. The SME's actual claim exceeds the policy limit; the question is whether the recommended limit reflected reasonable assessment of exposure. Documentation of the limit recommendation rationale matters.

What this means for SME procurement

SMEs can hold their FA relationships to the following expectations; for life policies and other investment products, section 36 and FAA-N16 require a fact-find and an explained, documented basis for the recommendation:

The FA should conduct comprehensive fact-find at engagement and renewal. The FA should explain the recommendation rationale referencing fact-find elements. The FA should disclose commercial scope (commission, fees, available alternatives). The FA should document the engagement contemporaneously. The FA should be available for follow-up questions and updates as the SME's circumstances evolve.

Where a recommendation on an investment product had no reasonable basis, section 36(3) gives a client who reasonably relied on it and suffered loss as a result a right to damages.

Common Mistakes / What Goes Wrong

  1. No documented fact-find at engagement. A section 36 and FAA-N16 compliance gap for investment products.
  2. Recommendation without explained rationale.
  3. No operational scope disclosure. Specific transparency gap.
  4. No industry expertise for specialised SME needs. Specific suitability inadequacy.
  5. Tied agent serving SME needs requiring broader market access. A section 36 tension for investment products.
  6. No renewal-cycle update of fact-find. Specific evolving circumstances.
  7. No limit rationale documentation. Specific exposure mismatch risk.
  8. No exclusion / scope limitation flagging. Specific claim-time disputes.
  9. No FIDReC / dispute resolution awareness. Specific protection underutilisation.
  10. No cross-border or specialty considerations. Specific suitability gaps.

What This Means for Your Business

For Singapore SMEs working with FAs:

  1. Expect comprehensive fact-find at engagement and renewal. An FAA-N16 expectation for life policies and other investment products.
  2. Recommendation rationale should reference fact-find specifics. Specific suitability demonstration.
  3. Commercial scope disclosure is the SME's right. Commission, fees, alternatives.
  4. For specialised industries, specialised FA. Section 36 does not require it, but complex risks can benefit from it.
  5. Documentation matters for protection. Both FA's records and SME's own records.
  6. For dispute scenarios, FIDReC and courts provide framework.
  7. For tied agent vs licensed adviser decision, consider scope of need. Specific suitability implications.
  8. Annual review even if FA hasn't initiated. Specific evolving circumstances trigger refresh.

Section 36 is the protection that separates regulated advice on investment products from pure sales. SMEs buying life policies or other investment products through an FA can hold it to section 36 standards; for general insurance, section 36 does not apply, though a claim may still lie against the adviser for breach of its duty of care.

Questions to Ask Your Adviser

  1. What does your fact-find process cover for my SME profile?
  2. How does my recommendation rationale align with my fact-find?
  3. What operational scope (commission, fees, alternatives) applies?
  4. For my industry, what specialist expertise do you bring?
  5. As my circumstances evolve, what fact-find refresh is appropriate?

Related Information

Published 5 May 2026. Source verified 5 May 2026.