My Feedback to the Financial Advisory Industry Review (FAIR)
Ever since MAS announced that they would be doing a major revamp of the financial advisory services sector, the industry has responded with many views.
Most of the current incumbents are against moving towards a fee-only model, while some consumers supported the move. I have added the links to some of these views at the end of this post.
And below is the feedback that I sent to MAS for FAIR.
It’s not as lengthy (and entertaining) as the one wrote by my colleague Wilfred Ling, but it carries some of my thoughts on the current remuneration scheme and transparency.
If you like to send your own feedback, you can still do so by the end of today via email to [email protected].
Raise the competence of FA representatives
If the move is towards a fee-based regime, the current qualifications is far from adequate. Lawyers and doctors who charge fees all have to go through years of training before being able to practice.
FA representatives being involved in non-FA work
I think it is fine as long as there is no conflict of interest and they can maintain their standards. You have other professionals who take on many secondary roles too, eg, board of directors, etc.
FA activities in insurance brokers
It is a complementary service and should be allowed.
The commission-based remuneration and distribution structure
To have a fee-based model in Singapore, we will need to have qualified professionals. People in other country are willing to pay a fee for advice because some of the issues might be complex (eg tax laws in US, half a dozen pension schemes in UK) and you really need a professional to resolve them.
In Singapore, while we have increasingly complex CPF and HDB rules, most people prefer contacting the organisations directly to get “free” advice.
It will take years before we can evolve to a fully fee-only model. In the meantime, the following changes should be made to the present commission scheme:
1) Impose a heavy cap on the commissions paid out in the first year and spread the commissions over many years as evenly as possible. If an agent is paid the same commission (yearly) whether a consumer stays on a current plan or buy a new plan, he will not have a financial incentive to advice the client to switch. This will eliminate problems like twisting and churning.
2) If a new adviser takes over the servicing of an existing policy, he should be entitled to the commissions that was paid to the previous agent. This gives him an incentive to provide service and also eliminates the need to “push” a new product to get paid.
3) Reduce the multi-tier commission system.
The transparency of distribution and other related costs
The effects of deductions table in its current form is not very useful. The tables provided should show the internal rate of return (IRR) instead to make it easy for consumers to compare one plan versus another.
For ILP, there should be 3 more columns in the benefit illustration, one showing a projection at 0% return, one at -5% and another at -9%. After all, returns from the underlying unit trusts are non-guaranteed and can be negative as well as positive. Current projections showing just the upside can be misleading and many people might not be aware they could be investing into high risk funds.
Fee-based advisory service the way to go Business Times
Mystery shopping survey: One-third of proposals ‘unsuitable’ Business Times
Veteran insurance agents reeling from proposed changes Straits Times
Financial advisers seek gradual changes Straits Times
Advisers worry customers will resist fee-only model Business Times
Merits of a fee-only advisory practice Christopher Tan, CEO Providend
Fee-based insurance system ’has risks’ Straits Times
Fee-based insurance model has no pitfalls Straits Times Forum
The lesson about putting a car on the moon Straits Times
Why ex-Million Dollar Round Table agent backs MAS move Straits Times Forum