The FSA of UK (equivalent to MAS) is introducing this new measure in 2012. It will have great impact on how financial products are sold. Our approach in Singapore is modelled on the UK - so I expect that similar measures will be introduced here. It will prevent the sale of financial products that are bad for customers.
From the Telegraph in UK, 25 Nov 2008
The days of consumers getting "free" financial advice look numbered under new regulatory guidelines which are aimed at improving the way financial products are sold.
The Financial Services Authority (FSA) has outlined new guidelines that effectively outlaw commission payments, which have been seen by many consumers as a way of getting "free" advice.
The FSA has made it clear that it is concerned that these payments are used to disguise the cost of financial products, and may create bias in an adviser's recommendations.
A spokesman for the FSA said it hoped its proposals would restore consumers' trust in the financial services industry at a time when many "need real help and advice with their retirement and savings planning". The changes are due to come into force in 2012.
The regulator's review contains three key proposals. Probably the biggest change is to the way advisers are remunerated.
For the first time all advisers, whether they are independent financial advisers or sales agents, will have to declare and agree with the customer in advance exactly what the advice costs. Consumers will then have the option of paying for it in advance or opting for the cost to be taken from their savings over a period of time.
A spokesman for the FSA said: "Commission as we know it will disappear for ever. We want to sever the providers' involvement with the advisers' fees." The FSA has not ruled out banning commission completely at a later date.
Another major change is that all advisers will now have to take advanced qualifications, equivalent to the first year of a degree course, if they are offering full advice to consumers. At present 80pc of advisers do not have these qualifications.
Andrew Fisher, the chief executive of Towry Law, a firm of financial advisers, said: "This is brilliant news for consumers. The smoke and mirrors, lies and obfuscation that have been used to disguise consumer fees will be stopped.
"Individuals thought that commission meant 'free' advice but it was always paid for, either by raising product charges or by reducing the value of a consumer's investment. For the first time, any commission charge will now explicitly be linked to consumers' savings and will have to be agreed upfront."
The FSA said its framework would provide a mix of services, so "less sophisticated" investors who could not afford to pay for full advice were not excluded. Many companies are expected to offer "guided sales", where consumers are given basic financial information.
If this led to a recommendation to buy a certain product, however, the sales person would still be required to have the appropriate professional qualifications and be upfront about any product charges. The FSA said: "It must always be made clear at the outset whether consumers are paying for independent advice or a sales service."
Trevor Matthews, the president of the Chartered Insurance Institute said these proposals should "kick-start" the process "of moving to higher levels of competence and and professionalism". He added: "The biggest challenge for the long term future of this industry is to restore trust in financial services, which has been dented for too long." He said today's proposals go some way to addressing this issue.
David Elms, the chief executive of IFA Promotion, said he welcomed the proposals but was awaiting details on how they would be implemented.
He added: "We want to see the same standards applied to all advisers, whether they are recommending products from across the spectrum of providers or selling just one company's products.
"This should enable consumers to understand the choices available to them."
i wager these wont get implemented here in Asia
ReplyDeleteif they do, they are just another form of a technicality that is but a technicality but not fervently practised
becos by observing these strictly, the markets are almost squeezed out for the sellers
Just like the property market, they will find a way around 'Transparency'
AS ALWAYS
It should also be made clear to customer if the FI is with a bank that he is speaking on behalf of the bank when giving advice and assessments of risks. At the momenet the FI says one thing, the bank collects money and then denies that it has anything to do with the advice when things go wrong. It is strange that banks spend so much on IT when a simple web camera, a microphone and a lap top will record all that goes on at a financial investment sale.
ReplyDeleteThis comment has been removed by a blog administrator.
ReplyDeleteThis is a fantastic news for the industry and for consumers. Cheating by insurance agents will soon be eliminated.This is to get rid of product pushers who have been pushing toxic products to consumers.
ReplyDeleteMAS should take cue from FSA to realign its regulations towards this end.
Commission has shown its ugly side. Conflict of interest should be prevented.Gee based advisory should be the way to go.
It is time that the unqaulfied insurance agents be weeded out.
Standard of advice must be raised to at least a diploma if not a degree. Australia will soon require a degree in financial planning to be financial advisers. This should send strong message that the industry is not a get rich quick industry meant for dropped outs, retrenched workers and for people who want only to make quick money at the expense of the consumers.
There is light at the end of the tunnel after all for geniuine advisers.
Qualified advisers will welcome this move but not the unethical insurance agents who have been product pushers to get rich quick without providing good advice to customers.
ReplyDeleteMAS must seriously look into the way advisers are remunerated. Remuneration should commensurate with the scope of service provided and certainly not for filling up forms and bullshitting.
Product selling and commission must be outlawed as quickly as possible before more consumers are conned and suffer financially.
MDRT, COT, TOT awards have been perpetrators of malpractices and must not be used as 'benchmarks' for quality services to consumers. These awards only encourage and promote conman and women to fleece their clients. In fact these awards are awards for agents who have been the most unethical, greedy and unscrupulous salespeople, the top 1% of the thieves of thieves in the industry.
( MDRT stands for 'million dollar rogue thieves')
FSA should be commended for this bold move to get rid of product pushers and commission. This will encourage serious people with passion to help people with their financial needs .
The qualification for this job should be at least a CFP, global financial planning highest standard. In Australia and US admission to this certification is at least a degree in finance.
MAS should go into the act and do something for the industry and NOT protecting the sloppy and unethical standards of the FIs and their sales representatives.
For a start, MAS must implement and enforce the FAA especailly section 27 by making need based compulsory and ban product selling
and tweak the remuneration system in the process. This is the BEST time to do all this and to 'retrench' the non qualified and rogue insurance agents and haul up some for punishment.
MAS, the ball is on your court.
Since there is still no action from the FIs, i.e. no compensation, we will all boycott all future sale of structured products. FIs whether as orginators or distributors will not even get to earn even one cents from sale of any products. Whether they are going to reform or no reform on the sale of products, is no more an issue anymore, (if there is no compensation) as they have to close shop for sale of any products. Zero Sales meh!!!!!
ReplyDeleteThere is something wrong with MAS. I notice that financial regulators in many countries are pro consumers and protecting their rights but not MAS.
ReplyDeleteUk, US, Australia, Hong Kong , malaysia etc they protect the consumers from insurance agents, the RMs and the FIs.
Maybe MAS wants to promote Singapore as gambling hub under the guise of financial hub. Caveat Emptor,.buy at your risk...Infact it is already a big casino.
Buying insurance products, or structured or unit trust is a gamble. You may not know what you are getting until it explodes.It is either the insurance agents or the RMs or the FIs, you can be cheated by one of them.
"Since there is still no action from the FIs, i.e. no compensation, we will all boycott all future sale of structured products."
ReplyDelete"There is something wrong with MAS."
TRUTH HURTS.
The financial turmoil has its positive side effect. It has awaken the public, the regulators to their senses that financial products are not that simple and easy to understand. Many investors or the consumers think that seemingly simple product like insurance can be bought without the need for advice. They are wrong for they are far more complicated that they look and sound.
ReplyDeleteResponsible regulators owe the duty of care and the protection to the consumers.
FSA must be congratulated for recognising and concluding that commission has been a major cause of mis-selling, misrepresentation and conflict of interest and other malpractices.
This is also another bold step to elevate the profession to that of the lawyers and doctors.
We hope that MAS has realised from the evidences in last many months that commission has caused so much havoc to the sales of financial products.
The industry and MAS must distance themselves to the dubious insurance sale awards like the MDRT. COT, and TOTs.They are not awards that attest to the contribution to improvement of human values and lives. On the contrary they are awards that attest to how much the insurance agents had robbed their cleints of the financial needs and future.They encourage malpractices because the awards are based on commission earned.These encourage insurance agents to ignore the needs of their customers by pushing high commission products.In fact, the qualifiers for these awards can safely be said , all of them, to have committed mis-selling and malpractices consciously and baltantly. Why? The products pushed by these unethical and greedy agents usually carry high commission and the products don't meet the needs of their cleints,suit their circumstances and at the best only meet the WHIMS and FANCIES of the clients.
MAS should first enforce the existing laws and police the industry more frequently and stringently by carry out audits of individual agents.
Product pushing to be removed as preventive measures to stop the unethical agents from circumventing.Need based advisory is a must for every adviser.Advisers to be responsible for recommendations and also the supervisors upwards.
Products should be priced low, stripped off at least 90% all the current commission. Diehard product pushers are "rewarded" with just 10% commission for filling the form and for 'selling'.
Fees to be charged are negotiable between the consumers and the advisers depending on the scope and complexity of the case.
This model will save the consumers much money and improve the sum assured and the cashvalue.It will achieve win-win-win for the parties involved. This will level the playing field and professionalize the advisers. This will eliminate the rogue agents , men and women and redeploy labour to right industries.
Lastly, MAS must ban gifts and promotions . Do lawyers and doctors conduct special promotion of their service and offer gifts to entice customers? Gifts are bribery to induce undue influence and this affects informed decision making. MAS must banish this unfair and unethical practice.
"I want all of us to start thinking a little bit more, not just about what's good for me, but let's start thinking about what's good for our children(our customers), what's good for our country(industry). The more we do that, the better off we're going to be," he said.
ReplyDeleteHope insurance agents and RMs share this vision of OBama.
It is in seeing your customers benefit from your advice that you benefit. It should not be a zero sum game
this will surely change the financial landscape, free of unethical greedy agents, tied agents,.
ReplyDeleteno more money to rip off, wat.
how do u know if that is a good advisor?
ReplyDelete1) more media exposure?
2) fee on advise?
3) fee on product sales?
good? bad? is subjective, how do u know? no 2 advise can be 100% the same. how do u know which is better?
fee on advise is making the poor even poorer, the rich even richer.
imagine the poor can only afford a $50k or $100k term insurance plan (he/she probably needs much more). The fee is easily a few fold(at least) of his/her yearly premium.
"It should not be a zero sum game"
ReplyDeleteIt IS a Zero Sum Game. I am sorry.
Adego,
ReplyDeleteok, no one said fee would make an adviser better or good.But certainly Fee will drive out the bad and incompetent insurance agents and the salesmen and women. Consumers should be glad that they don't have them hanging around to screw up their finance.
Fee means the advisers are responsible for the advice. Don't you think it is good?. No more taichi game.The proof is in the fact find form, documented. Cannot run...
Adego, Obviously, you are not reading or you don't understand what you are reading.
Fee based is even better for the poor.He pays less but gets more. The product is cheaper(steep discount of least 1.5 years of premium he would have paid to an insurance agent), higher protection and better return, no more a large chunk going into the pocket of the insurance agents for bullshitting.
Aunties and uncles and the old folks are safe because the advisers have to tread with caution.The ice is so thin.
It is a more equitable model. The consumers get proper advice. If advice not on reasonable basis the adviser will be in hot soup.
In product pushing the agent can shift the blame to the poor ignorant consumers and also can point to heaven.
The advisers are expected to have a tertiary knowledge of financial planning and investment and NOT that tikam tikam exams the insurance agents and RMs currently take. MOnkeys can pass these exams too.Pigs can score distinction
The adviser gets paid according to the work/advice given, negotiable too.The insurance agent gets paid for filling up the forms and reading the brochure or for showing some rubbish graphics on his laptop.
Lastly, the adviser will make sure the consumer is not short changed. It is HIS RESPONSIBILITY and his interest that the consumer's interest is put first.Remember ,his supervisor's head is also on the chopping board if there is trouble. Is it safe?
maybe better if some part of the remuneration for the advisor is based on results? So advisor interest will be aligned to the investor whom they are advising? I am sure this is not a new idea.
ReplyDeleteBut a lot of FI Managers may not be happy with this scheme. Requiring that their agents be degree qualified may mean that they lose a lot of agents (maybe even all the MDRT, COT, etc agents). This means FI Managers may lose a lot of over-riding commissions. Worse, the Insurance Mgr himself may not even be degree qualified. He may find these degree qualified FAs too troublesome if they ask him too much difficult questions (Such as whether the featured financial/ insurance products are truly good for consumers? Or whether the sales techniques taught by the FI is morally ethical?) How?
ReplyDeleteThe objective is to have an advisory regime and to eliminate selling, product pushing and other unethical practices. In this respect there must be some sacrifices. MDRT, COT, TOT may have brought in the money for themselves and the companies but the earning is questionable and likelihood it is ill gotten. It is well known among agents how these people earn and got the awards. Because these awards are commission based they lead to questionable practices and which the new FSA guidelines are addressing. Sacrificing them is good riddance.The industry is cleansed. Somehow the companies have to come up with a new cost structure. Their profit is still there. The cut is in the agents' 'commission' which is to be restructured into small commission and fee. Those diehards agents can continue to sell but have to settle for a small commission.They can still earn good money provided they give advice.
ReplyDeleteConsumers deserve good advice and the standard currently is too low. That is why agents are selling and not advising resulting in a lot of rubbish being sold to consumers. The minibond is a good example.
It is not for the managers to decide whether they are happy or not. They can leave and so the agents.It is a new game where only the qualified can play. You cannot relax and allow the layers and the doctors to use free gifts to entice the consumers or allow them to set up roadshows to solicit and harass customers at mrt or malls, right?
The sales training focuses on how to outwit and corner the consumers into signing the contract.Dubious and unethical means are used to do that, from half truth, lies , non disclosure and manipulation etc.
They say insurance is sold and not bought. So you see tremendous effort is required. Again the minibond saga. The investors were pulled to one side and beguiled into buying or sold.
It is time for the change and change for the good of the consuming public. It is also time to professionlize and lift it up to the level of the lawyers and doctors where ethics play a central role.
The UK govt is taking the right steps. Otherwise, the unqualified, lying, unscrupulous, unethical FAs will force out all the qualified, honest, diligent, ethical FAs.
ReplyDeletezm, for a poor folk insuring $250k decreasing term, age 35 non smoker, will cost about $35 to $50 per month or about $400 to $600/yr for 20yr term
ReplyDeleteThe advisory fee, how much would be the fee? easily $1000 to $1500 or more
if u are charging $25 to $50 per consultation like the GP, I suggest u to open a shop. I will come to u
even the TC has problem managing the money, u think the ordinary ignorant folks is 'advanced' enough to go for 'fee on advise'? come on, don't be naive
the consumers DOES NOT deserve good advise.
Why?
1) Many are fools
2) Many are gullible
3) Many are greedy
4) Many are ignorant
5) Many are cheapoh
6) Many cannot discern what is good advise
7) and many more...
Assuming now the model is only 'Fee on Advise', we have another set of problems. and there will be another zm yelling, 'scap the fee on advise, it's lousy advise, and not fair'
Singapore's approach is based on the UK practice. This practice was based on the concept of "disclosure based". The commisssion was disclosed. But it was not effective, as the consumer is not able to understand the impact of this information.
ReplyDeleteIf the UK change its practice, it is likely that Singapore will follow.
The fee based system already works for doctors and lawyers. It will also work for financial advisers.
A fee based approach is likely to solve the problem of mis-selling of financial products, such as the credit linked notes.
There seems to be some misconception about fee based advice.They think that the fee is additional to the commission. No...Eg. Take the current fee based practice. Cleint can choose a full fee based advisory service without the implementation or implementation included as a package In this case the fee is waived completely or partially depending on the cost of the product and the complexity of the case..The client is better off. He receives both advice and the product at the same cost as it would cost him if he has bought the product from an insurance agent.On top of it there is some "warranty" for the recommendation. In other words the adviser is fully responsible for the 'reasonable basis' of the product.
ReplyDeleteThis is the current practice.
In the future, it is even more advantageous to the consumers for they will pay lesser because the fee is negotiable and the product cost restructured, ie a minimal commission or no commission.
If the client has a number of needs to be addressed it will definitely cost even lesser.This is assuming the products will be priced at a steep discount from the exisiting prices. Currently 150% of the cost goes as commission to agents.
Eg, for a 20 year $250K decreasing term it might cost $15 a month and the advisory another $10 a month for a year or one off . This adds up to $25 charged to the product and is disbursed by the insurer.
Now , who will be disadvantaged if this is the arrangement? The product pushing insurance agents will be driven out of business because it makes no sense to buy from them when consumers can get advice based on need analysis and assured of product recommendation of reasonable basis and at lower cost.This is as good as having a warranty on the product. Section 27 of the FAA is the "certification" standard.
zm, based on the example u given: $15 premium and $10 fee
ReplyDeleteI think I will engage u as advisor. this is cheap. (I am assuming zm is a good and qualified advisor)
before u suggest that and implement it, pls do a survey with the advisors, who will take up this biz deal?
maybe some desparate advisor will take up, becos they hungry for biz, now back to the customer, u want a lower quality advisor?
the 'lower end' market will feed on its own's vicious cycle.
a good and qualified advisor will kiss it goodbye, it's not worth the time spent on this cheapo deal. the earnings simply cannot cover the basic expenses, and there is 'warranty' and liability to meet.
what a silly deal for the advisor.
for heaven's sake, pls wake up! it's almost impossible to get such a good deal. that's why I suggested u to open a shop and I will come to u for advise (assuming u are good enough), if u are running a financial advisory biz
Adego,
ReplyDeleteIn the future if you have a problem like this please come. You can pay me a one time $120 or an installment of $10 for next 12 months.
This is a simple case and can be dealt with in 10 minutes + form filling another 10 minutes.It is good earning , better than the doctor.
Bring your friends with similar problem.
It is win-win, right?
Whatever system or improvements to be made will only be effective if the sellers have good morality and high enthical standards. Many buyers of insurance are not aware of the existing or any improved regulations and product sellers may just try to get around it. Any improved regulations should incorporate good ethical practice and morality and to remind product sellers to make a honest living without getting others into trouble.
ReplyDeleteSuch irresponsible behaviour of our regulator as well as local FIs, no single Singaporean should ever believe anything from these hippos anymore.
ReplyDeleteIt is the defining moment for the industry. No more screwed up by product pushers and insurance salesmen. The ice is thin and any slip or negligence will land the advisers in hot soup. Shoddy work and bullshitting will be history.Consumers' confidence will be bolstered .
ReplyDeleteHope that MAS will enforce the need based process and remove the product selling as it has shown and reared its ugly heads. Product selling and pushing have been abused by insurance agents and RMs for personal gain and at the expense of the consumers. MAS must come out to protect them. Consumers are vulnerable to the trickery and mis-selling of the conman agents and RMs. The errant agents and RMs must be punished hard to send a strong message to the others Mis-selling and conflict of interest must be eradicated in the interest of the consumers.
Jay
MAS should follow FSA and move into the need based to elevate to level of advisory.. Removing commission as rewards will force many insurance agents to upgrade. Currently 95% of the insurance agents are salesmen and women and unqualified. There is no incentives to upgrade. In fact it is more lucrative for them to be product pushers than to be advisers.Selling takes 20 minutes; advising takes 2 hours or 2 days. Why advising is so long because all precautions are taken to ensure the consumers get the best advice and the most appropriate products.
ReplyDeleteSelling disregards the interest of the clients. The salesmen's interest is central. Selling's objective is to make the customers buy and at all cost, using mis-selling and misrepresentation.
For agents who make it to MDRT, COT TOT are product sellers and pushers. They don't have the interest of the customers at heart.In fact all cheated their way to the top.Unlikely, if they have given proper advice unless their clients are high networth.
Changing the remuneration is the most progressive step to remove conflict of interest especailly in financial industry where malpractices are rampant with the insurance agents and the RMs.
MAS must ensure fair play and fair outcome for the consumers and stop the crap caveat emptor.
Hi Mr Tan,
ReplyDeleteEd here. I have the same views as you. I personally believe that the advisers should be compensated not by the commissions from the products that they sell, but by the advises that they give to the consumers. Commission based remuneration system would only bring the question of objectivity into question. I rather pay a lump sum on a yearly or bi-yearly basis to an adviser to advise me on the plan and products to buy, with no vested interests in the commissions paid out. Practitioners of the industry would say that "Oh, Singaporeans are not willing to pay". Please la, they are still paying you indirectly through the commissions rite? You're just saying it coz it's more lucrative to earn from commissions rather than from fixed fees. From the above scenario, the adviser can stand to earn up to 50% of the premiums per month, lasting a few years, with the commissions reducing after each year. So tell me, more lucrative for commissions or fixed charges? Practitioners will argue that sometimes the small amount of money / premium involved, it's not justifiable to pay a fixed fee to advisers. Come on again la, you can vary the charges if the case is a small one / non-complicated rite? Don't come up with so many execuses just to maintain the status quo. By charging clients for the setup or review of their financial plan, it not only brings more objectivity, it also makes the clients more committed to the plan set forward, as they perceived that they have to pay for it. I reckon that the financial advisory industry would be reformed in the next few years as more and more people are aware and educated about such matters. Once again, I need to clarify that I'm not an insurance agent or affiliated with one.
Cheers
Ed