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December 2013

Life is Fair

 

On 26 March 2012, MAS announced the launch of the Financial Advisory Industry Review (FAIR), aimed at raising the standards of practice in the financial advisory (FA) industry and improving the efficiency in the distribution of life insurance and investment products inSingapore. A panel, chaired by MAS and comprising representatives from industry associations, consumer and investor bodies, academia, media, and other stakeholders (FAIR Panel), was formed on 2 April 2012 to conduct the review.

 

After a year plus of intense discussion and consultation with consumers and practitioners, MAS finally released its response to the public consultation on the recommendations of the Financial Advisory Industry Review (FAIR).

 

In this issue, we aim to share with you 3 of the key points of the FAIR recommendations and it’s impact on you.

 

1) Making financial advising a dedicated service

 

Making financial advising a dedicated service means that a Financial Advisor has to be dedicated to his profession of providing quality financial advise to his clients and not to be engaged in any alternate business that is deemed to be in conflict with his financial advisory service. For example, there are Financial Advisors who also operate a full time money lending business, multi level marketing of health products, land banking, etc.

 

Thus a very real situation can happen that a Financial Advisor, during the process of meeting up the client, can end up "selling" a land-banking product for "better returns" or lend clients money to meet some emergency needs at a high interest rate of 360% per annum.

 

MAS's response is that FA firms can exercise discretion to allow their representatives to conduct non-FA activities, so long as the FA firms are satisfied that these non-FA activities:

 

A) Do not conflict with the FA firm's business;

B) Do not tarnish the image of the FA industry;

C) Do not lead to a neglect of the representative's FA role

 

2) Lowering distribution costs by enhancing market efficiency

 

Distribution cost would imply that costs of insurance products that are incurred when taking up a policy. This generally includes commissions paid to agents, company overheads and costs paid to the distribution channels.

 

MAS's response to this is the setting up of a 'web aggregator' would best serve as an informational tool that would lead to more widespread awareness of life insurance among Singaporeans. This web aggregator, it said, will allow consumers to compare the benefits and pricing structure of basic products, however, it does not work for situations in which consumer needs specialized advice, tailored solutions or personalised ongoing service.

 

The outcome of this web aggregator is that ultimately most companies would align their products to remain competitive with other insurance companies. This would mean better benefits and premiums for you.

 

3) Promoting a culture of fair dealing.

 

From January 2015, a balanced scorecard remuneration framework will be set up to assess Financial Advisors, using non-sales key performance indicators such as:

 

A) Quality of Advisory and Sales Process;

B) Suitability of Product Recommendations;

C) Adequacy of Information Disclosure; and

D) Customer Complaints

 

Grading will be based on the number violations uncovered in quarterly sampling checks of an advisor's transactions, to be conducted by the agent's firm and reported to MAS. An advisor with one or more major violation, or minor violations in one-third of his or her cases, may risk losing all variable remuneration in that quarter. This would mean Financial Advisors would be more advisory driven rather than sales quota driven.

 

In summary, our industry is evolving to be more advisory based and less ales quota based. This FAIR dealing act would ultimately result in much more value creation for consumers like yourself.