The reasonable basis requirement of the Financial Advisers Act requires an adviser to take into account factors relating to the customer and product ("Use incentives to spur financial sales reps" by Mr Wilfred Ling; Monday).
He has to consider the customer's investment objectives, financial situation and particular needs.
He is also required to have conducted investigation and gained knowledge of the product by performing product due diligence.
Putting the two components together, an adviser is then to assess and recommend a product that is suitable to the customer.
This process takes care of a customer's interest.
The problem of recommending a product that pays the adviser a higher commission can be better resolved by banning product commissions.
The Monetary Authority of Singapore (MAS) considered such a measure in 2013 ("S'pore 'not ripe' for fee-based finance advice"; Jan 17, 2013). Though it was not eventually implemented, the MAS said it intended to review it again after a period of time.
In fact, a number of countries, such as Britain, Australia and the Netherlands, have introduced the removal of commissions, and it has been found to reduce product bias in adviser recommendations.
Goh Chuan Yong