High cost financial products

Dear Mr Tan

I understand that life insurance products in many other countries also involve high commission rates. This is not the case for Singapore alone. Why is this practice so common, in so many countries?

REPLY:

In many countries, the Government give tax incentives to encourage people to save for their future needs. As these incentives are quite complicated, the financial adviser has to guide the consumer on how to benefit from these incentives.

After paying the cost of the advice (ie commission or fee), the consumer will still benefit, as the cost is lower than the tax savings. The adviser is able to add value and benefit the consumer.

This situation does not apply in Singapore, as our tax rate is low and there is virtually no tax incentive for the savings. The high charges payable to the adviser become a burden to the consumer. The products are designed to hide this fact, by making it confusing to the consumer.

Lesson: When there is no tax savings, it is better to buy low cost financial products.