Friday, 18 January 2013

Singapore 'not ripe' for fee-based finance advice

But review panel suggests direct channel for basic insurance products
By Magdalen Ng And Yasmine Yahya, The Straits Times, 17 Jan 2013

SINGAPORE is not ready to move to a system where financial advisers get a fee for advice instead of the current commission for selling a product, a panel says.

But life insurers should set up a direct channel for customers to buy basic insurance products so that those not wanting advice need not pay the same commissions.

These key recommendations were among 28 from the Financial Advisory Industry Review panel, following eight months of deliberations by the 13-member panel.

Mr Lee Chuan Teck, chairman of the panel set up last April, said an online survey found that 80 per cent of those polled were not ready to pay an upfront fee for advice. Some 450 Singaporeans responded to the poll.

The idea of moving to a fee-based system was raised in March last year by Monetary Authority of Singapore (MAS) managing director Ravi Menon after similar moves in Australia and Britain.

Advocates say a fee-based system overcomes the problem of unethical sales tactics by advisers aiming to maximise commissions.

But the panel was not persuaded. "If you look at industry practice, customers who pay fees tend to be higher-income, larger customers, who tend to find that paying a fixed fee for advice is cheaper than paying commission. Those who make smaller investments tend not to benefit as much," added Mr Lee, who is also assistant managing director of the capital markets group at the MAS.

Panel member Piyush Gupta, chairman of the Association of Banks in Singapore, said the panel spent a lot of time discussing the issue. "It was quite clear that there is very mixed feedback from practitioners (in Britain and Australia) we spoke to."

Instead, the panel proposed the direct channel for buying insurance, with a nominal fee on top.

Mr Lee said: "The direct channel is kind of like a fee-based approach. It is a good way for us to experiment to see how receptive the public is to such a model and over time, get people more familiar to a fee-based type structure."

Another proposal was a cap on the total commissions payable to the financial advisory firm and its representative in the first year for life insurance products. The rest of the commissions would be paid evenly over later years.

The panel also suggested developing a web aggregator so consumers could compare the pricing, main benefits and features of similar products offered by insurers.

To raise the competence of financial advisory representatives, new representatives will need at least a full certificate in GCE A levels, an International Baccalaureate, or a diploma, up from the current four GCE O-level passes.

The panel also said advisers should be banned from being moneylenders, casino junket promoters or property agents on the side.

Adviser Jaculin Yew, who has been in the business for 23 years, agreed. "There is no way you can be a good adviser and a good property agent at the same time. I know advisers who tried dabbling in real estate but realised they had to choose to be one or the other."

Other proposals to raise the quality of financial advisory firms included better rules to ensure a financial buffer, continuing financial resources and professional indemnity insurance cover according to the size of the operations.

Also, financial advisers' pay should be based on a balanced scorecard, rather than based solely on sales, the panel said.

Life Insurance Association president Tan Hak Leh said it supported the recommendations, which can "enhance the quality of advice to consumers and contribute to a healthy growth of the financial services industry in the long run".

The Association of Financial Advisers (Singapore) said a balanced scorecard would result in greater professionalism. "But, on the flattening of the commission pay-out period, the association believes that this may deter the industry's recruitment of young, talented and entrepreneurial people, which may stymie the growth of the industry in the long run."

The MAS will seek consultations and decide if the recommendations should be adopted.

Direct channel may benefit three groups
By Yasmine Yahya, The Straits Times, 17 Jan 2013

THE Financial Advisory Industry Review panel said insurers should set up a direct channel to enable customers to buy basic insurance products.

A customer who buys products such as a term life, whole life or standalone critical illness plan, via this direct channel would not have to pay distribution costs or commissions to an adviser.

He could instead approach the insurer at a customer service centre to sign up, and pay a nominal fee on top of the cost of the plan.

As a safeguard, a representative of the insurance firm would provide information on the policy, tell him about the disclaimers and check he has done the calculations to see if the policy is affordable.

Mr Lee Chuan Teck, assistant managing director of the capital markets group at the Monetary Authority of Singapore, said a direct channel would benefit three groups of consumers:

First, those who already know what policy they need and do not want advice.

Second, people who want to buy a policy that is not available through their existing independent financial adviser. They would not have to engage a second adviser and pay him commission just to sign up for that particular policy.

Third, the low-income group, who are generally under-served by financial advisers.

Some customers are looking forward to the day when they can buy an insurance product directly from an insurer without having to go through a financial adviser, but others said they still prefer that human touch.

"Having an adviser gives you recourse and there's always the follow-up and review should you want to increase coverage, make a claim or if there are updates on changes in the law," said 32-year-old freelance travel writer Dahlia Mohammad.

'Sales not only basis for pay plan'
Consider performance indicators like quality of advice too: Review panel
By Magdalen Ng, The Straits Times, 18 Jan 2013

THE remuneration financial advisers earn will no longer be tied just to the amount of sales they rack up if a recommendation from the Financial Advisory Industry Review panel is adopted.

The panel suggested that financial advisory firms move away from paying only sales commissions to a balanced scorecard remuneration framework for advisers.

This would factor in sales but other performance indicators as well, such as the quality of advice and the suitability of recommendations.

The suggestion has been received positively, but some financial advisers had reservations on how it could be implemented.

Ms Jeanette Lee, 32, who has been an insurance agent since 2008, likens the new scheme to staying in a hotel room.

"You pay for the room, but if you get bad service, you won't go back again," she said. "How I see it personally is that if you do a good job, you eventually get the same level of remuneration and you will also get referrals from your existing customers, which is another form of compensation."

Mr Tommy Wee, president of the Insurance and Financial Practitioners Association of Singapore (Ifpas), noted that having non-sales benchmarks would ensure a consistent level of service and discourage unethical practices.

"The implementation, however, is something that we need to examine carefully to ensure that the advisers will not be unfairly penalised," he added.

Similar sentiments were echoed by insurers such as NTUC Income and Manulife, which believe that the new proposal will improve the quality of advice by agents.

Mr Ken Ng, senior vice-president and general manager of distribution at NTUC Income, said: "How we assess key performance indicators and ensure level standards is something the industry will need to work through together to ensure that they are effective and fair."

Unlike the insurance industry, many banks, including DBS, OCBC and United Overseas Bank, already employ the balanced scorecard framework in deciding remuneration packages for sales staff.

OCBC, for example, factors in the quality of service and compliance, and accuracy in its framework, which was implemented in 2009.

Mr Dennis Tan, OCBC's head of consumer financial services and group premier banking, said: "You can do solid sales, but if you fail to pass the minimum in terms of compliance and service, you can potentially still get nothing."

The bank tracks customer satisfaction through post-sales phone surveys and has auditors to ensure that any advice given to customers is suitable and the documents accurate. Mr Tan said the initiative has been reflected in increasing customer satisfaction levels, which the bank tracks internally.

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