Monday, March 15, 2010

Commission paid to financial advisers


Dear Mr. Tan,
First UK, then Australia is next to cut commission. When will Singapore follow?

By Elizabeth Fry

Published: June 28 2009 17:32 | Last updated: June 28 2009 17:32

The large funds running Australia’s $A1,000bn (£490bn, €573bn, $800bn) superannuation industry have finally bowed to public and political pressure and moved to scrap commissions charged by financial advisers in favour of transparent upfront fees.

The charter has been developed by the Investment and Financial Services Association and has to some extent pre-empted new government regulations that are likely to be introduced following the federal government’s first ever review of the world’s fourth largest pension market.

As of early next year, the commission system will cease altogether. This is likely to be well received by investors who are deeply distrustful of the way “super” funds bundle their fees and administration charges together to hide the cost of each service. They are equally distrustful of financial planners who demand upfront or trail (annual) commissions for selling particular financial products.

Once the charter is approved by regulators, super funds and advisers will be forced to differentiate between real advice and general plan service. For the first time superannuation investors will have the choice to opt in or opt out of advice payments depending on their circumstances.

Investors will be charged with instructing financial planners on how much advice they want and are prepared to pay for. Thus, they will be able to see what they are paying for and can match that payment with the value they get for advice.

Richard Gilbert, chief executive of the IFSA, says: “The charter makes a major statement to the industry. The commissions were the focus of a debate that raged for seven years. We were distressed by the tenor of the debate and the only way to fix it was to deliver a result.”

In his view this puts Australia firmly in the lead in terms of disclosure and investor friendliness.

 “Commissions aren’t often disclosed in Asia, there is not a lot of transparency around commissions and brokerage for the US 401k plans and in the UK the commission figures are high,” says Mr Gilbert.

The charter, which applies only to the IFSA’s members, who make up the lion’s share of Australia’s retail and wholesale superannuation, fund management and life insurance industries, has not stopped at restructuring fees and abolishing commissions.

Under the new code, funds will be accountable for misleading advertising and it is specific about what can and cannot be said.

All promotional and advertising material must provide actual past performance figures so that super members can be confident that the information they see relates to an actual investment option.

And while it is currently common practice for some in the industry to use performance data based on averages to promote or advertise products, the use of average or aggregated performance and fee data has been banned following funds’ poor performance in the wake of the global financial crisis.

“Advertising is a very big deal,” says Mr Gilbert. “We were forecasting future returns for 40 years based on past performance when 16 of those years saw a bull market,” he says.

“Using past performance and fee information as the basis of projecting future investment outcome is misleading. The returns over the last 18 months have especially highlighted the risks of making long-term projections.”

Other significant measures contained in the charter include making performance reporting an industry-wide standard so consumers can compare “apples with apples”.

In addition to better disclosure, better reporting and stringent marketing rules Mr Gilbert expects the charter to foster competition. He wants to see the rules around default super funds changed.

“The retail funds in Australia have been locked out of the mandatory super scheme for default funds and there are monopolies and oligopolies developing and for which rent is being charged. We want to be in that competitive race,” he says.

He is referring to last year’s decision by the Australian Industrial Relations Commission, which returned many key industry funds to default fund status.

This decision effectively resulted in a return to the “closed” system of 1992, designed to benefit industry funds that the AIRC was historically linked to at the expense of competitors that could offer more features.

Industry funds, which account for about half the workforce, claim competition for default funds will only become a reality when the retail funds perform as well as the industry funds do. The new code may go some way to help achieve that.

8 comments:

  1. According to MAS's response report it is watching the development in these jurisdictions before removing commission from all financial products including life insurance.
    We urge MAS to remove all commission from all products as it is well known that insurance agents peddle products for commission disregard the customers' interest.
    A fact released by LIA shows perenially the sum assured sold and claim amount has been always about $50K which is only 1/10 of the required needs for average family of 2 children and a spouse.The explanation is that insurance agents and commission are the major causes becuase agents only push par life products for their high commission.This evil must be nipped in the bud. We welcome MAS to quickly follow other jurisdictions to level the playing field and to restore confidence to consumers.

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  2. Why should consumers pay commission to insurance agents for product advice, for form filling?
    For example why pay 1st year 40%, 25% and 12% for next 5 years for buying vivolife or revosave from ntuc for filling up the forms and explanation of the product BI? This service is only worth at the most 5% of the annual premium and it is a lot already.
    We welcome MAS to implement it asap after UK and Australia.

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  3. Hip, hip , Hooray, we look forward to more ethical selling of insurance products in the future. Let's see whether insurance agents still sing the same wholelife and endowment tune.
    Let's see how many agents are left.
    It is good that these agents will fill the gap left by foreign workers.
    We will see some of them in our estates sweeping, cleaning and maintaining the flats. Some will be in public toilets, and some in fast food kitchen.
    The freeup will relieve sinapore from depending on foreign workers.

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  4. It is long overdue. It has been the cause of all the evils, cheating and unethetical practices. Removing the commission and replaced by fees is defintely good for the consumers.
    It is transparent and the consumers know how much they are paying and for waht they are receiving. No more in dark, there is certainty. Consumers can also decline engagement if they find the fees too high and the service is only to fill up the forms and explanation of the benefit illustration. This fee is NOT on top of the commission as MAS has us thinks so. At the end of the day the consumers get more for paying lesser unlike the commission which is not told to the customers and the service customers get is the insurance agents only fill up the forms. How can agents be paid for so much for NON Financial work?
    This is also to stop cheating by insurance agents and also to weed out the incompetent agents who disguise themselves as financial consultants.There are many of these salesmen and women in ntuc who are disguised as consultants. They are likely the kind of CONsultants we often hear fleecing passersby at roadshows and who provide 5 minute quicky sales pitch and expect to earn 150% of premium for pushing a vivolife or revosave.These are the only products they know and specialised to make quick sales.Sounds like koyok salesmen at Waterloo Street, right? My manager has great admiration for the top saleswomen also expects us to behave like them.I heard stories of them which not nice to reveal here. He is always stressing shortcuts to sales so that we meet out quota. He says don't say too much to customers, if you can don't disclose, tell them waht they like to hear. Eg. Tell them pay for 10 years and get covered for life or revosave is better than the bank.(fullstop). Out quota is measured by API which the commission for the FCs is based. It is stressful not to do the right thing. It is difficult to put customers' interest first. it is the company's and the manager's interest first.Of course then my interest and last is the customers' or else I get the sack.
    The people before profit slogan is load of bull. Our DNA is commission or API before mission top down. So don't be fooled by what you see and read in the ads. These ads are to fool the public that we are caring so that when we squeeze and drain off their blood the consumers won't feel the pain and yet they still we are social enterprise . The public don't realise we also socialise at siloso beach . Commission before mission makes them different. What else can make them different?

    The Insider

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  5. To The Insider,

    Ha ha! Welcome to the real world of financial industry. It is a crap industry whether in fund mgmt, RM in big 3 local bank, independent financial advisor, agent for any of the insurance companies, or financial consultant in ntuc business centres. The name of the game is to screw as much money out of customers as possible (and some of the ladies literally do screw). Once the $$$ is transferred into the company's bank account, ok, job done. Now on to the next target to sweet talk and bullshit.
    Insider, you are caught in the churning model of the biz centre. You know what is churning right? Well, the company is just mass recruiting impressionable & desperate consultants, get them to sell as much to their own families, friends, relatives, ex-colleagues, ex-classmates. Most consultants use up their contacts after 6 months to 1 year. That's why you see mostly leave after this time period. The company then churn the next batch of consultants.
    Do you know that sales managers get monthly performance bonuses on top of their salaries? It is based on the monthly team API targets which is negotiated with head of dept and GM. That's why these managers get so worked up if team API not high enough and why they keep telling you to sell high-premium products, using whatever means. Of course if you really get into trouble with customers, do you think these managers and higher mgmt will cover & support you? They will be interested to cover their own ass and preserve their own jobs.
    My advice is that you get out of financial sales, because everywhere in Singapore is the same conmanship tactics. Take a paycut if necessary but build your competence in your chosen field and rise up the old fashioned way. Do you know that ntuc customer service officers earn almost the same pay as you? If you're diploma holder, basic pay for CSO is at least $1.8K to $2K. And they have bonuses. Try to build contacts with the customer service managers (although they're also mostly BS fellers). At least you will have higher chance to get in, if that's your cup of tea, or just need a job.
    For me, I joined to see first-hand the insurance industry, and I thought ntuc will be different from the others. I was wrong. At least I don't really need this job, and can do what I think is right. Everyday "cheong" with sales manager. Good thing he is a guy, so I can use vulgarity like him also -- wanna fight in the back alley like LKY also can, but he decline. Just spend time talk cock sing song, and drink free coffee and milo. Go shopping, leave early and once a while go see movies. They screw me, I screw them back. Anyway at most only 1 month before they finally sack me. Enjoy first. Shiok!

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  6. The business centres were set up to provide hassle free financial service to customers based on the principle of "people before profit" and cooperative values. But today it has become a rob the customers centre and make a "mockery of the people before profit " based on social enterprise value. The charter is for show to con the customers.

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  7. It will not happen in Singapore for at least the next 30 years. Think of the consequence to the banks and other financial institutions.

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  8. Let's wait to see them fall one by one.. put pressure on them until they relent, until they punish the RMs who cheated in the minibond saga, until insurance agents are hauled up for malpractice, until consumers know their rights, until the consumers sue the salesmen, conmen and women disguised as financial consultants, until they pay back, then there will be PEACE.
    These conmen must be wiped out.

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