CHAPTER 7
PRIVATE RETIREMENT SCHEME DISTRIBUTOR AND
CONSULTANT

Learning objectives
Only a PRS Provider who has been approved by the SC can establish, offer or provide a PRS or hold himself out as establishing, offering or providing a PRS.
At the end of this chapter, you should be able to:
This chapter discusses the role of the PRS Distributor and Consultant in the distribution of the PRS and the regulation of the distribution channel. It also covers the guidelines governing the behaviour of the PRS Consultant when servicing clients and rendering investment advice.
At the end of this chapter, you should be able to:
(a) describe why the PRS distribution channels are regulated;
(b) explain the different types of corporations and their representatives who are involved in the distribution of the PRS;
(c) list the eligibility requirements of a PRS Distributor;
(d) recognise that PRS Distributors and Consultants who do not adhere to good conduct will face disciplinary proceedings;
(e) acknowledge the value of good service to the PRS member;
(f) recall the factors to consider when rendering investment advice to the PRS member; and
(g) cite the guidelines on marketing of the PRS.
7.1 Regulating the distribution channel
PRS Distributors are entities such as financial institutions that enter into agreement with PRS Providers to market and distribute the PRS to individuals and employers. The individuals representing the PRS Distributor are PRS Consultants who are required to be registered with the Federation of Investment Managers Malaysia (FIMM). It is essential that the distribution channel and the PRS Consultant are regulated to ensure—
(a) high standards of conduct; and
(b) the delivery of reasonable advice or basis for recommendations to
individuals and corporations.
7.2 Licences for dealing in PRS
The requirement to obtain a Capital Markets Services Licence (CMSL) for dealing in PRS is only applicable to a Principal who deals in PRS, including—
(a) an approved PRS Provider under the CMSA;
(b) unit trust management companies;
(c) a CMSL holder licensed for fund management;
(d) a CMSL holder licensed for financial planning distributing PRS following a financial plan;
(e) a CMSL holder licensed for dealing in securities;
(f) a CMSL holder licensed for dealing in securities restricted to unit trusts;
(g) an insurance company licensed under the Insurance Act 1996;
(h) financial advisers licensed under the Insurance Act 1996; and
(i) any other person as the SC deems appropriate.
With reference to the SC Licensing Handbook, agents and employees of a holder of a CMSL for dealing in PRS or of a registered person dealing in PRS will not be required to hold a Capital Markets Services Representative’s Licence (CMSRL). All PRS Distributors and their agents and employees are however, required to be registered with a body approved by the SC, i.e. the FIMM.
Further, these agents and employees must pass the examinations for persons dealing in PRS or any other qualification recognised by FIMM in order to carry out their dealing in PRS.
7.3 Registration of the PRS Consultant
(a) Eligibility requirement
Eligibility requirements for a person to be registered as a PRS Consultant is set out in Appendix A of the Guidelines on Registration of Private Retirement Scheme Distributors and Consultants (FIMM Guidelines) which includes the following-
(i) Be at least 21 years of age;
(ii) Has passed the PRS Examination (unless exempted by FIMM);
(iii) Has not been convicted of any criminal offence either locally or abroad;
(iv) Has not been censured or reprimanded by any professional or trade body;
(v) Has not been denied or disqualified from memberships in any
professional or trade body; and
(vi) Is not an undischarged bankrupt or subjected to any bankruptcy
proceedings or has failed to meet any judgment debt.
(b) Registration
Any eligible person intending to register as a PRS Consultant must make an application through a PRS Distributor who will make the application to FIMM in the format and manner required. The PRS Distributor is responsible for ensuring the eligibility of any applicant and the accuracy and completeness of information and documents furnished by the applicant.
PRS Distributors must ensure that their PRS Consultants observe the following:
(i) A PRS Consultant must only represent one Principal;
(ii) A PRS Consultant must only deal in the PRS of his Principal or those distributed by his Principal and cannot make arrangements to distribute PRS of other PRS Distributors or those distributed by other PRS Distributors;
(iii) A PRS Consultant of a PRS Provider or an Institutional PRS Adviser who holds a CMSRL to carry out the regulated activity of financial planning as defined in the CMSA and intends to represent a Corporate PRS
Adviser must duly terminate his registration as the PRS Consultant of
the PRS Provider before applying to register as a PRS Consultant of the
corporate PRS Adviser.
Institutional PRS Advisers must ensure that only their fulltime employees
may register as PRS Consultants. This restriction does not apply where the
Institutional PRS Adviser is a unit trust management company or a licensed
insurance company or a registered takaful operator.
Corporate PRS Advisers must ensure that only their fulltime employees who hold a CMSRL for regulated activity of financial planning may register as PRS Consultants.
(c) Duration and reregistration
The registration of a PRS Consultant will continue unless and until it is either terminated or revoked, provided that the PRS Consultant settles in full all necessary fees as prescribed by FIMM in the relevant manual.
A PRS Distributor may reregister the following PRS Consultant or former PRS Consultant in the format and manner set out in the relevant manual, including where—
(i) A PRS Consultant who has changed his agency or employment status
with the PRS Distributor;
(ii) A former PRS Consultant who resigned from the PRS Distributor;
(iii) A former PRS Consultant whose registration was not renewed by PRS Distributor whereby the non-renewal was not due to any misconduct
or non-compliance of the former PRS Consultant; and
(iv) A former PRS Consultant of another PRS Distributor.
Any former PRS Consultant who has left the PRS industry for more than three years must sit for the PRS examination if he intends to reregister as a PRS Consultant.
(d) Revocation, suspension, termination and resignation
In the event a PRS Consultant resigns from his Principal or is terminated by his Principal, the Principal must—
(i) require the PRS Consultant to surrender his FIMM authorisation card;
and
(ii) update the registration status of the PRS Consultant in the records of the FIMM.
The FIMM may suspend or revoke the registration of a PRS Consultant in the event that—
(i) the PRS Consultant ceases to be eligible for whatever reason;

(ii) the relevant CMSRL of the PRS Consultant is suspended or revoked by
the SC;
(iii) the PRS Consultant fails to comply with the relevant rules, guidelines, by-laws, codes, directive or standards issued by the FIMM, regulations or guidelines issued by the SC, securities laws or such other applicable laws;
(iv) the SC issues a directive to the FIMM to suspend or revoke the registration of the PRS Consultant; or
(v) any information or declaration in any statutory declaration provided by the PRS Consultant for purposes of his registration with the FIMM is
found to be false, in part or as a whole.
The registration of a PRS Consultant will lapse in the event that—
(a) the registration of his Principal is revoked;
(b) the registration of his Principal is suspended; or
(c) his Principal ceases operations.

7.4 Code of ethics and standard of professional conduct
(a) General
This section borrows heavily from the Code of Ethics and Standards of Professional Conduct for the Unit Trust Industry (the Code) issued by the FIMM.
Given that the PRS Distributor and Consultant are also registered with the FIMM, they should also adhere to this code of ethics and standards of professional conduct.
The Code sets out the general principles and minimum standards of good practices for all who are registered with the FIMM and is intended to guide the conduct of business affairs in the best interest of members of the PRS and the PRS industry in general.
(b) Code of ethics
(i) Professionalism
PRS Distributors and Consultants should conduct their dealings in a professional manner ensuring that they themselves are knowledgeable in all aspects of the PRS and the funds that they are marketing and that they are in compliance with the best business practices. The PRS Distributor and Consultant should behave with dignity and courtesy to all persons whom they come in contact with in the course of rendering their service especially to the members and other persons in the PRS industry.
(ii) Honesty. dignity and integrity
The PRS Distributor and Consultant should at all times act with honesty,
dignity and integrity, and should conduct and encourage others to
conduct themselves in a professional and ethical manner that will bring
credit to themselves and the PRS industry.
The PRS Distributor and Consultant must also maintain a high standard
of personal integrity and not engage in activity that may bring discredit to the industry. In particular, the PRS Consultant must not misrepresent—
(a) his qualifications or that of the PRS Provider he represents;
(b) the funds and its characteristics offered by the PRS Provider he
represents; and
(c) the past investment performances of the funds or Scheme he is
marketing.
Omission of a material fact is considered a dishonest conduct. A
material fact is one, which if made known to the member, will cause
the member to discern that the fund or PRS is materially different from
what was represented to him.
(iii) Confidentiality
The PRS Distributor and Consultant must maintain the confidentiality of
information of PRS members and not disclose any personal or financial
information except where expressly authorised or where such disclosure
is required by law.
(iv) Fair dealing
The PRS Distributor and Consultant must deal fairly and reasonably with
the member and must disclose any risks to the transaction, any conflict
of interest that may arise and other relevant information including fees
and charges, necessary to make the transaction fair to the member.
Fair dealing requires impartiality, intellectual honesty and disclosure of
conflicts of interest. In simple terms, fair dealing is treating others in the same way that you want to be treated. Overly aggressive and offensive
sales practices and techniques should be avoided.
(v) Good faith
The PRS Distributor and Consultant should always act in good faith and with the best of intentions. The member should be treated with respect
and be given full disclosure of all pertinent information to make a good
investment decision.
(vi) Competence
The PRS Distributor and Consultant should maintain the necessary
knowledge and skill to serve the member competently in the areas that
the PRS Distributor is engaged in.
(vii) Acting with due care, skill and diligence
The PRS Distributor and Consultant should conduct all his dealings
with every care, skill and diligence. In particular, the PRS Distributor and Consultant must—
(a) ensure that the funds and Scheme are suitable to the needs
and not beyond the resources of the member;
(b) take all reasonable steps to provide the member with
comprehensive and relevant information for him to make a
balanced and informed decision;
(c) only provide information that the PRS Distributor and Consultant
are competent to deal with and to seek specialists’ advice where
appropriate;
(c) make every effort to convey information in the correct context
so as not to be misconstrued by the member. Overly technical
explanations or too brief an explanation should be avoided as
they can cause confusion and misunderstanding;
(d) not omit any material facts nor make exaggerated and
misleading statement or claims or forecasts or future events; and
(e) when making comparisons with other Scheme and funds,
make clear the different characteristics and risk profile of each scheme.
(viii) Prompt efficient and continuous service
The PRS Distributor and Consultant should try to provide the member
with prompt, efficient and continuous service. In particular, the PRS
Distributor and Consultant should always be ready to answer any
queries the member may have on the performance and management
of PRS and funds under the Scheme.
(c) Standards of professional conduct
(i) Compliance with laws
The PRS Distributor and Consultant should maintain knowledge of and
comply with the CMSA, the PRS Regulations and PRS Guidelines and
all laws and rules governing the PRS industry. The PRS Distributor and
Consultant should co-operate openly with the relevant authorities and
disclose all reasonable and appropriate information.
(ii) Marketing and distribution with the disclosure document
The PRS Distributor and Consultant must provide the potential member
of the PRS with the product highlight sheet on any introductory
marketing meeting. The product highlight sheet is a summary of the
disclosure document and would provide the potential member with
important information about the PRS and funds within the Scheme.
On further exploratory discussions with the member, the disclosure
document with the application form must be provided to the member
before the potential member contributes and attention drawn to the
importance of the document. The potential member is advised to read
and understand the disclosure document before applying to invest in
the funds of the PRS.
(iii) Adequate explanation of the nature and characteristics of the
PRS funds The PRS Distributor and Consultant should adequately explain the nature and characteristics of the PRS and the funds within the PRS. To achieve this end, the PRS Distributor and Consultant must—
(a) make clear the essential attributes of investing in the PRS,
including the investment objectives of the funds, the risks of
investing in these funds, the charges and fees of the funds,
forward pricing, the minimum allowable amount per fund and
the tax implications of the PRS;
(b) draw attention to the unique restrictions of investing in the
PRS including the long-term nature of the scheme and the
tax penalty for pre-retirement withdrawal of funds from sub-
account B; and ensure that the member understands what he is committing
himself to.
(iv) Advertisement and promotional materials
The PRS Distributor and Consultant must only use advertisement and
promotional material that have been approved by the PRS Provider in
and other relevant guidelines issued by the SC.
(d) Disciplinary proceedings
In order to maintain the high standards of professional conduct, any PRS Distributor and Consultant who have breached the provisions of the Code shall be subject to appropriate disciplinary proceedings. Actions that may be taken include a private reprimand, a public reprimand, a fine, a suspension or revocation of registration to the FIMM.
7.5 Servicing the PRS member
In the unit trust industry, most new business comes from repeat business with satisfied existing clients or through their network of recommended contacts. It can be inferred from that experience, that a client’s satisfaction is paramount and should be the basis of any service rendered. The PRS industry is no different as it also involves contact between potential members and the PRS Distributor and Consultant who will be the point person for any PRS funds. Thus service should be focused on satisfying the needs of the member so that it becomes the basis of ongoing contributions by members. The PRS Distributor and Consultant should note that contributions are voluntary and can stop any time if the member is not satisfied with the performance of the PRS Distributor and consultant or the funds within the PRS.
One important part of servicing the member is to know your products well.
The PRS Distributor and Consultant should be well versed with how the
Scheme functions as well as the characteristics of the funds within the Scheme.
Knowledgeable PRS Distributor and Consultant will be able to assess the needs of the members and will be able to advise the members adequately by matching the appropriate funds to the member’s requirements and resources.
Knowledgeable PRS Distributors and Consultants will also be able to manage the expectations of the members. Studies have shown that delivering what the clients thought they were investing in i.e. the funds as described in the disclosure document with no unexpected investment return surprises will enhance client satisfaction. Thus it is essential that there is no exaggeration during the marketing pitch and the PRS Distributor and Consultant explain the risks of the various funds of the PRS as well as why certain funds are recommended to the member. If the potential member or existing PRS member can internalise the reasons for investing in the Scheme then retention rate would be high and the
PRS member has a high chance of being satisfied with the PRS products.
Unlike the unit trust, the PRS can be offered to employers who make contributions on behalf of its employees. In this regard, employers may choose one or more PRS by entering into agreement with the relevant PRS Providers to give access to such schemes to its employees. It is important that PRS Distributors are able to advise such employers and that the PRS Consultants should be able to advise and service the employees and help them choose the appropriate fund. Where employees do not make a fund selection, contributions can be channelled to the default option of that PRS Provider.
7.6 Rendering investment advice
The following are general guidelines for the PRS Consultants to consider when they are rendering investment advice in relation to PRS funds:
(i) Client’s investment goals
The PRS Consultant should understand his client’s investment goal i.e.
does the PRS member seek to preserve capital or want to earn relatively
high investment returns.
(ii) Client’s investment horizon
The PRS Consultant should identify the client’s investment horizon as it
will influence portfolio construction.
(a) If retirement is imminent, then the client may opt for some
relatively stable and conservative investments like bonds and
money market funds.
(b) If retirement is far off and there is an opportunity to develop
an income stream, then the client may consider investing in
higher-risk instruments like emerging market equities that can
potentially yield higher returns.
(c) If retirement is some years away, the client may consider investing
in a balance investment portfolio of bonds and equities.
(iii) Client’s investment portfolio
The PRS Consultant should find out the composition of the investment
portfolio currently held by the PRS member so that the PRS Consultant
can recommend funds that are appropriate and complementary to the
existing portfolio. For example, a member may have his entire portfolio
in unit trusts that invest in Malaysian equities. The PRS Consultant
may advise the PRS member to consider investing in a PRS fund that
is predominantly fixed income or in international equities for portfolio
diversification.
(iv) Age and personal circumstance
The age of the PRS member plays a huge role in portfolio construction
and advice. The younger the member, the more volatility of investment
returns can be tolerated in the short term in the search for long-term
capital appreciation. A younger member should consider more equity
exposure in his portfolio while an older member may want to consider
more fixed income instruments as his investment horizon is markedly
shorter and he cannot afford so much short-term volatility in returns.
Personal circumstances may render the age issue moot. A person may
be young but have high income needs (e.g. dependent parents, etc.)
or an older member may have little need for current income. The PRS
Consultant must take note of personal circumstances in advising the
member.
(v) Risk tolerance
An important aspect of portfolio construction is taking into
consideration the risk tolerance of the PRS member. A young PRS
member may have very little tolerance for short-term volatility of
returns while an older PRS member may be just the opposite. For
example, someone who has just started work may need to accumulate
assets quickly with a specific aim in mind (e.g. buy a house to live in
with his family or start a new business) and therefore, this individual
will not be able to tolerate volatile equity returns given that his
particular investment horizon is relatively short. On the other hand,
someone in their 50s may have surplus cash for multi-generational
investing (i.e. he will leave the results of his investing to his children). The investment horizon is long and the risk tolerance will be considerable.
It is therefore imperative that the PRS Consultant understands the needs
and risk preference of the member as not all members are opting for
maximum long-term return and may have some shorter-term investment
goals.
(vi) Highlighting the key risks
The PRS Consultant must highlight key risks of each fund under the
Scheme. The key risks can be found in the product highlight sheet as
well as the disclosure document. The PRS Consultant must make the
member realise that risk of capital loss in any investment is a commonly
occurring event and there is always a chance of significant capital loss
in their investment.
(vii) Retirement planning
The PRS Consultant should do a retirement assessment for the PRS
member. A simple example of retirement needs assessment can be

found under Chapter 1, section 1.1 (a) of this study guide. The PRS
Consultant must take into account the specific needs of the member
such as financial commitments, current savings in the EPF and banks, as
well as other investments. With a personalised retirement assessment,
the PRS Consultant would be able to help the member with retirement
planning with respect to the type of funds that are suitable as well as the quantum of contribution needed each year to achieve the retirement
goal.
The PRS Consultant must also be able to explain the tax advantages
and other advantages of the PRS (e.g. lower commissions) compared to
other retirement products.
The PRS Consultant should also provide an explanation of the risk
parameters of the different funds and the various categories of risk
profiles that the member may fall under i.e. a risk-adverse investor,
a risk-neutral investor or a risk-seeker investor. By matching the risk
profile of the member against the risk profile of the various funds, the
PRS Consultant would be able to recommend funds that are suitable
for the member.
7.7 Marketing of PRS
(a) Adhere to the code of ethics and standards of professional
conduct
The PRS Distributor and Consultant must adhere to the code of ethics and standards of professional conduct mentioned under section 7.4 of this study guide.
Specifically the PRS Distributor and Consultant must—
(i) behave in a professional manner;
(ii) act with honesty, dignity and integrity;
(iii) maintain confidentiality;
(iv) deal fairly with the PRS member;
(v) act in good faith;
(vi) be competent in their advisory capacity;
(vii) act with due care, skill and diligence;
(viii) provide prompt, efficient and continuous service to the member;
(ix) be compliant to all laws that govern the PRS industry;
(x) use appropriate designation or titles;
(xi) market the PRS using the disclosure document; and
(xii) explain fully the nature and characteristics of the PRS funds.
(b) Adhere to the advertising and promotional material guidelines
The PRS Distributor must also adhere to the advertising and promotional
materials guidelines that are set out in Guidelines on Unit Trust Advertisement and Promotional Materials and any other guidelines issued by the Sc.

Assessment
Question 1
Private Retirement Scheme Consultants who breach the provisions of the code of ethics and standards of professional conduct will face actions, including ________________.
I. imprisonment
II. a private reprimand
III. a revocation of registration with the Securities Commission Malaysia
IV. a suspension of registration to the Federation of Investment Managers Malaysia
A. I and III only
B. II and IV only
C. I, II and IV only
D. II, III and IV only
[Answer: B]

Question 2
What are the factors that a PRS Consultant must consider when rendering investment advice to a Private Retirement Scheme member?
I. The personal circumstances of the member
II. The risk tolerance of the member
III. The near-term market outlook
IV. The investment recommendations of the PRS Provider
A. I and II only
B. I, II and III only
C. I, II and IV only
D. III and IV only
[Answer: A]

Question 3
With regard to the code of ethics, the omission of a material fact when dealing with a Private Retirement Scheme member is covered under the code of _______________.
A. confidentiality
B. fair dealing
C. honesty, integrity and dignity
D. prompt, efficient and continuous service
[Answer: C]