Tan Kin Lian's Blog: Useful role for financial advisers

Sunday, November 23, 2008

Useful role for financial advisers

I believe that financial advisers (i.e. insurance agents and sales representatives) have the responsibility to give appropriate advice to the consumers and they should be fairly paid for their time and effort.

The commission system and sales targets are the source of the malpractice. If a distributor or adviser can earn $6,000 (3% of $200,000) to sell a credit linked note within 30 minutes, something must be wrong. Of course, the adviser will say that the product is good, safe, approved by MAS, etc.

I encourage financial advisers to give independent and good advice for a fee of $100 or $150 an hour and to keep the advice within 1 or 2 hours. A doctor is also paid for the time that is spent to treat a patient, and does not receive a commission for the medicine that is prescribed.

10 comments:

Anonymous said...: Hi Mr Tan,

Ed 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; November 23, 2008 12:18 PM
Anonymous said...: i feel the 'ideal system' wont take place

historically, Transparency doesnt help Sales

I know that

Investors know that

Most of all, BOSSES know that; November 23, 2008 1:43 PM
zhummmeng said...: Would you want to pay an insurance agent 50% of your premium in the first year and another 100% in the next 6 years for filling up forms, sending you birthday cards, promising to help you to make claim(touch wood,eh), buy you things for your children when visiting you,and when they call they expect you to buy more insurance and all the rubbishes services except proper financial advice?.
EG: Annual Premium of $3000 is very common and the agent gets $1500 for first year for filling up the forms for you and another $3000 spread over next 6 years for all those non financial servcies.
Isn't it better business and paid better than the lawyer who has to crack his head and on top of it to be responsible for the advice he gives or the doctor who has to examine you properly and prescribe the correct products and yet stand to be sued. The lawyer has spent 4 years passing rigorous exams; the doctor 6 years.Both are licensed to practise.License fees range from yearly renewable $5000 to $20000 including professional indemnity insurance.
The lawyer and the doctor CANNOT set up a booth or stall to do roadshows to solicit for business or at the Waterloo and Albert Street to sell koyok. The lawyer and doctor Cannot offer gifts or diaries to entice and induce you for your business; they cannot solicit at the roadside or mrt stopping or chasing after you.
They can only wait for you to walk into their shop or office like a minimart shop. They cannot prospect or cold call you at your home , office and in odd hours.
You buy their services and they cannot make a presentaion or convince by persuasion of a particular product.They cannot suka suka sell or prescribe you a very expensive product or service wihtout reasonable basis.
The insurance agents only have to pass a few tikam tikam exams all probably done in a month. The monkeys too can pass if given more time.The plumbers take a longer time and may have to serve apprenticeship before he is licensed. Insurance agents , however, within a month already he or she is licensed to rob and cheat.
MAS must change the way these greedy agents are remunerated .
To be fair to the product peddlers
they should be rewarded .
Product commission should range from 10% for whole life for 3 years and 5% for term for 3 years and single premium of one time commission of 0.5%.
The bulk of agents' earning should come from fees which are to be negotiated between the consumers and the agents like the property agents. The fees can be hourly or piecemeal rate depending on the complexity and scope of the advisory service.
The insurance companies will still retain the same profit but less by what goes to the agents so clients can choose to bypass the agents to buy directly. Cleints who buy directly must have a prescription chit from a registered agent or financial planner. Cleint will get a further discount of 5%.
This will surely reduce if not eliminate conflict of interest. The agents who come into the business to get rich quick will be deterred. Regulation must be enforced strictly to ensure the agents comply with section 27 of the FAA. The agents are to be responsible for the advice on the reasonable basis.Any breach will incur them fine and jail or both.
What if all I have proposed are accepted?
Agents population will drop by half. They can be deployed to other service industries , including public toilet cleaning, fastfood, bus drivers, traffic warrants, coffee shop cleaners and many places where foreigners and old folks are used. This can eradicate social ills caused by foreign talents. Talents from displaced insurance agents can fill up these places.
I see a more conducive safe environment for the consumers.'
Remember the words of the CEO of Hong Kong Monetary Authority.He said something to this effect," The financial industry exists NOT to serve the interest of insurance agents to qualify for Mdrt, Cot or Tot or the RMs to drive posh cars or to live in posh condos but to serve the interest of consumers to meet their financial needs.; November 23, 2008 2:24 PM
Anonymous said...: To play an appropriate role the advisers must have and do the following.
1. stop product selling and start advising.
2. get the right qualification in financial planning.
3.put the clients' interest first
4. be honest
5.use the need analysis approach
6.don't be greedy
7.evaluate the products before recommending to cleints

For MAS.
1. enforce the above
2. conduct regular audits
3. check the products
For the consumers.
1. know your right
2. don't be cheap skate
3. cooperate with your advisers
4. make sure your advisers carry out the above
5. report your advisers for misconduct
6. don't abet in mis-selling and misrepresenting
7. don't try to be smart aleks

jaty; November 23, 2008 2:48 PM
Anonymous said...: fyi, doctors also earn a commission from the medicine they sell. That explains the different pricing for the exact same type of medicine at different clinics. No, rms dont pocket $6000 just for selling $200k. It is the bank that does. The $6000 pays also the fixed salary of the product managers, the backroom folks, the IT folks, the Op folks. Take away the commission and expect to see more retrenchment.; November 23, 2008 8:08 PM
adego said...: zm, to some extent, the remuneration structure is the product of capitalism.

funny thing is, pple can accept some multi billionaire to do crooked things, such that, they invested money into some company that manufacture products that are harmful to pple (e.g. kids), and they make big money and still set up a philantrophy...

there are many crooked pple in this world that make big money, ill-gotten money, and they are spared from your banishing...

I am not ins agent nor rm, but I know the banks are like the 'slave drivers' to push their rm, yet the rm get to front all these attacks and blames in this episode.

yes, there are black sheep, that happens in any industry, even the doctors, lawyers, engineers, accoutants, etc...

looking at yr post, I think u probably have problem accepting the world of capitalism. maybe the old russia, old china and maybe north korea is a good place for u. I believe north korea do not have any ins agents or rms giving us these problems.; November 24, 2008 12:05 AM
zhummmeng said...: Adego,
forever you are making childish comments.You have too much width and dept that you got lost in the deep manhole.Don't wander off.
Look here, the RMs can quit, right or not? There are many testimonies of former RMs in this blog. They told us the uncensored X-rated version of on goings in the bank.
Do You have someone in the business that you are defending?
Is corruption part of the capitalist system? Without it, it will stall?
Why don't you go around and rape old women and tell them if you don't rape them other will.This is the line that RMs and insurance agents have been using as an excuse for raping their victims.
In North Korea, KIM is in charge and he will welcome you drinking champagne with him in his own private capitalist make believe world.; November 24, 2008 1:37 PM
adego said...: zm, the width & depth will bring u to ocean, not manhole.

sure, rotten rm can quit.

raping someone? never in my thoughts.

this is a difficult topic, capitalism corrupts our moral value? I can't answer that, I'm no philosopher, but I would say, I want to sleep well & live well honestly, and will not exchange monetary reward for any dishonest act. That gives u better quality of life, clear conscience.

money is neutral
greed is the root of all evil

some good examples actually shows that, high moral standard has no conflict with capitalism. Mr. Tan is one good example.

I'm not defending any rm. I have friends who are rm, but doing corporate account, not affected by this episode.

the issue with u is, u are not objective enough to face this issue of CLN. u have not done enough fact finds, when u put yr point across.

u have yet to present yr investment strategy. if investment is that simple, anyone can be a fundmanager, and Warrant Buffett won't be that famous, since anyone can be as good as him. Then it is a very crappy and weird world, that there are only winners and no loosers! something goes very wrong with yr thinking process. That's why I suggested NKorea to u. Give it a good thought, pls; November 24, 2008 2:26 PM
Anonymous said...: Adego,
you mean you did tell us your best investment strategy? Where got? What I got from you were craps and loads of craps.
Anyway, you want to know mine.
Here it is.
Buy the whole world and diversify with Mars and Venus , the moons and and the stars and hold them to eternity. Only slightly more than Warrant Buffet.

Zhummmeng; November 24, 2008 7:47 PM
adego said...: zm, is that u?

interesting idea to diversify beyond the planet earth! maybe should start the 'plot of land' biz, and sell the pieces of moon to earth residents. oh yeah! let's make $$$. wanna start a company?

yr smart investment strategy???

Specific? yes, buy moon, mars, jupitar

Measurable? maybe, leave it to the scienctist/astronauts for the pricing, astro-realtor will advise u on property in other planets. moon-walking-financial-advisor can help u do moon/jupitar/mars/mercury financial plannings.

Achievable? maybe, if zm can live for another 1 century, by then there should have some buyers, and the price might increase 100,000,000,000%

Reasonable? maybe, if zm can network with nasa, they should be able to help

within a Time frame - Yes, zm will be a centurion and sell these plots of land for retirement funding.

good job zm!; November 24, 2008 11:52 PM