Wednesday, March 28, 2012

Customers come first in Financial Advisory Industry Reviewfi

To protect and benefit customers of life insurance and financial advisory services, the Monetary Authority of Singapore (MAS) will be launching the Financial Advisory Industry Review, or FAIR. This was announced by MAS Managing Director Mr Ravi Menon at the Life Insurance Association’s 50th Anniversary dinner.

The five key thrusts of the review include:
  1. Raising the Competence of Financial Advisory Representatives
    The current minimum entry requirement of four GCE “O” level passes for Financial Advisers (FAs) will be reviewed to  keep pace with Singapore’s rising educational levels,  the increasing complexity of products and higher public expectations.
  2. Raising the Quality of Financial Advisory Firms
    MAS will review the management expertise and financial resources of financial advisory firms to ensure that they are well managed and financially sound.  The review will also be taken into consideration when admitting new firms.
  3. Making Financial Advice a Dedicated Service
    Noticing a worrying trend of FA representatives branching out to conduct other activities, some of which are in conflict with their advisory role, FAIR will  review the activities that FA representatives can conduct outside their advisory role to ensure that representatives continue to put their customers first and will not be distracted from their professional focus.

    It will also review the practice by FA firms and representatives who tap on “introducers” to reach out to customers, as well as the scope of financial advisory activities conducted by insurance brokers.
  4. Lowering Distribution Costs of Insurance Products
    To make insurance more affordable for consumers, MAS will also review the commission-based, multi-tier distribution structure, where representatives in upper tiers have a share of commissions earned by lower-tier representatives.   The review will examine if such a structure aligns the interest of representatives with customers’ long-term interests, or adversely incentivises representatives to sell products that pay them higher commissions.
  5. Promoting a Culture of Fair Dealing
    FAIR will also promote a culture of fair dealing by financial institutions, to instil customer trust in life insurance and financial advisory services.  
Read Mr Ravi Menon’s full speech “Financial Advisory Services: Putting the Customer First”.

Financial advisory sector here faces shake-up

Financial advisory sector here faces shake-up

by REACHSingapore on Tuesday, March 27, 2012 at 3:13pm ·
MAS to review industry in move to lower costs, raise professionalism
 By Robin Chan

The financial industry is in for another dramatic shake-up, this time involving tens of thousands of insurance agents and financial advisers that make their living through commissions.

The Monetary Authority of Singapore (MAS) said on Monday that it will launch a Financial Advisory Industry Review (Fair) aimed at lowering the costs of these products and raising the quality of advice given by those who sell them.

Chief among the sweeping proposals is a move to relook the cost of buying life insurance policies. This is currently a tiered structure which sees the customer paying commissions not only to his agent, but also his supervisors.

Financial advisers, who can sell a variety of investments, will have to be better-educated to serve a more literate and sophisticated public, as well as keep up with more complex products on the market.

'The overriding aim of Fair is to protect and benefit the consumer. Putting the customer first - that must be at the heart of all our efforts,' Mr Ravi Menon, managing director of MAS, said on Monday.

He announced the launch of the review at the 50th anniversary dinner of the Life Insurance Association on Monday, taking many in the room by surprise.

Among those left most worried by the impending changes are senior agents and managers who have benefited for decades by what Mr Menon described as a 'commission-based, multi-tier distribution structure'.
'Take for example a whole life insurance policy,' he said.

'Together, the total commissions and overrides earned by the representative and his supervisors would be equivalent to about 160 per cent of the insurance policy's annual premium.'

He added that these commissions, together with other costs, can account for as much as 8 per cent of the total premiums paid by a customer.

The panel will examine whether this commission structure aligns the interest of representatives with the long-term interest of consumers or adversely induces representatives to sell products that pay them higher commissions.
Mr Menon noted that Britain and Australia have already banned commission payments and are moving to a fee-based model.

Another key aim of the review is to increase the current entry requirement of four GCE O-level passes for financial advisers. This is too low and does not reflect Singapore's rising education levels or the increasing complexity of products, said Mr Menon.

In this area, Singapore is again behind Britain and Australia. Australia's current requirement is a diploma, and Britain will match that by the end of this year.

'I am heartened to note that some insurers are already consciously recruiting better qualified individuals... but we must level the playing field and make this the industry norm,' Mr Menon said.

MAS has noticed a worrying trend of representatives going into other activities, including moneylending and selling real estate.

It will look at banning them from these other activities deemed 'in clear conflict' with financial advisory activities.
'Some financial advisory representatives have even applied to the Casino Regulatory Authority for a junket promoter licence,' said Mr Menon.

Mr Seah Seng Choon, executive director of the Consumers Association of Singapore, said the changes were long overdue for an industry that needs 'a dose of enhanced professionalism'.

'Consumers can look forward to having advisers who are better qualified, and to a higher degree of professionalism in the industry.'

Mr Tan Kin Lian, former chief executive of NTUC Income and a long-time proponent of lower costs for financial products, also cheered the changes.

'MAS has re-affirmed quite strongly that the interests of the consumer is very important. Commissions should be capped, or even removed entirely, as consumers are paying far too much and are not aware of this,' he said.
Major industry players seemed to take the news in stride.

But Mr Tan Hak Leh, president of the Life Insurance Association, cautioned that there must be in-depth consultation with practitioners and sufficient time to 'assess the effectiveness and viability of the recommendations made'.
Source: The Straits Times © Singapore Press Holdings Limited. Reprinted with permission