The terms an SFC client agreement must cover

A client agreement is the written record of what a regulated intermediary and its client have agreed to do. For licensing examinations, focus on whether the agreement clearly defines the relationship: who the parties are, what services are offered, how instructions and assets will be handled, what risks and costs apply, and what duties or authority each side has. A document called an agreement is not enough if its actual terms leave those matters unclear.

Identify the client and the service

The agreement should identify the client using the intermediary's verified records and state the regulated services or account arrangement it covers. A client should be able to tell whether the relationship concerns dealing, advising, asset management, or another regulated activity, and whether the arrangement applies to one account or multiple accounts. Changes to the relationship should be documented rather than left to an informal assumption.

Explain product nature and risk

The agreement should describe the nature of the services and the general risks associated with the products or transactions that may be involved. Risk language should be intelligible and relevant; a generic sentence that the client may lose money does not substitute for disclosures required for a specific product or service. Product-specific documents may add detail, but the core agreement should not misstate or conceal how the relationship works.

Set out authority and handling of instructions

A non-discretionary client normally decides whether to transact, and the intermediary acts on properly received instructions. A discretionary mandate is different: it gives the intermediary authority to make specified investment decisions without obtaining prior approval for every trade. Any such authority should be explicit, bounded by the agreed mandate, and supported by the controls and suitability obligations that apply. Do not infer discretion from a broad permission to execute orders.

Make fees, conflicts and responsibilities visible

The client should be told how remuneration and charges arise, what obligations the client must meet, and what conflicts may affect the service. Where an intermediary acts in more than one capacity, the agreement and related disclosures should make the capacity clear. A conflict disclosure does not automatically make every conflicted arrangement acceptable; the firm must still manage conflicts and comply with conduct requirements.

Tailor the document to the relationship

SFC Code of Conduct schedules contain additional or modified requirements for particular activities and client categories. A standard form therefore needs review before use for a discretionary account, margin facility, asset management service or other specialized relationship. If a client is professional, the firm should apply the relevant classification and any permitted modifications carefully; status should not be assumed just because the account is large.

Exam checks

• Can the client identify the regulated service and the party responsible for providing it?
• Is authority to trade discretionary or instruction-based, and is that distinction explicit?
• Are material risks, fees, duties and conflicts understandable and appropriately disclosed?
• Does a specialized activity trigger extra Code schedules or account controls?
• Are amendments and client acknowledgements retained under the firm's recordkeeping procedures?

Common mistake

Do not memorize one universal checklist as if every client agreement were identical. The Code's baseline conduct duties apply alongside activity-specific requirements. On a question, identify the service and client type first, then apply the relevant agreement provisions and disclosures.

Key takeaway

A sound client agreement makes the relationship understandable and enforceable: it defines services and authority, communicates risk and cost, and reflects the rules for the particular activity. A broad disclaimer cannot repair unclear authority or missing activity-specific terms.

Make the terms match the actual service

An SFC client agreement should clearly identify the contracting intermediary and client, describe the services and regulated activities, set out how instructions are received and executed, and explain fees, charges and relevant risks. The agreement should reflect the real operating model: discretionary management, execution-only dealing, advisory services and custody create different authorities and expectations. Standard terms cannot obscure who makes investment decisions or where client assets are held. The firm should explain material terms before the customer enters the relationship and provide a copy in the required manner.

Avoid unfair or misleading drafting

Terms should not exclude duties that cannot lawfully be excluded, misdescribe the client’s rights or imply guaranteed investment results. Risk disclosure should be specific enough to be useful and consistent with product documents and sales conversations. If the intermediary can act in multiple capacities or has conflicts, the agreement and related disclosure should explain them clearly. A clause allowing amendment should also describe how the firm will notify the client and what happens if the client objects. Contractual language should be understandable, not merely comprehensive.

Review and evidence

Before onboarding, use a checklist that compares the client category, service, products, authority and custody arrangement with the agreement. Confirm signature or other valid acceptance, the version used, date of delivery and any later amendment. If business processes change, review whether the terms still describe the service. Keep the agreement with the suitability, instruction, transaction and complaint records so a reviewer can reconstruct the relationship. In Paper 1, distinguish prescribed core terms from optional commercial provisions and from a client’s separate authority over assets.

Practical control and exam application

Use a version-controlled approval process when drafting or changing terms. Legal and compliance should check that fee schedules, product disclosures, order channels and custody arrangements match the current service. Front-line staff should not promise a term that conflicts with the signed agreement, and the firm should not rely on hidden or contradictory clauses. If the client’s acceptance is electronic, preserve the accepted version and evidence that the customer could access it. Clear agreements reduce disputes about authority but do not excuse a firm from following regulatory duties in practice.

Records and exception handling

Test the document against the client journey, not only the template checklist. Can the customer tell who owes each duty, what the firm may do without fresh instructions, what fees may be charged and how to end the relationship? A term that is technically present but unreadable or inconsistent with the sales process may not provide effective disclosure. For institutional or professional clients, do not assume all terms can be omitted; determine which requirements are modified and preserve a clear record of any valid treatment.