I spoke to a professor in a UK university who was previously an actuary working in the insurance industry. He told me about the background of the regulatory environment and the mis-selling over the past decades.
For many years, the authority in the UK regulated the sales process, disclosure of information and expected financial advisers to observe ethics and professionalism. It did not work. Many agents sold bad products to their customers to earn high commisison. The regulator imposed heavy fines on the financial institutions but it still did not solve the problem.
The regulator has finally decided to ban the payment of commission to agents. This will take place in the near future.
Singapore followed the UK approach in regulation. But the authority in Singapore did not impose the heavy fines on the institutions for mis-selling. The situation is quite bad in Singapore and many consumers are offered bad products that gave them a poor return on their savings. What will Singapore do, now that they role model (UK) has found their approach to be a failure?
Tan Kin Lian
The UK FSA had no teeth. Basically they were operating after the fact and by that time the money had already been taken. The FSA has been through a big shake up but it is election year and if the gain power they have promised to get rid of the FSA. Ultimately every country sees its future in financial services and seems to be moving towards deregulation which means there is less protection for the consumer.
ReplyDeleteIf you read MAS's 2nd response regarding commission MAS seems to be finding an excuse for the FIs by claiming consumers are still not ready and not comfortable with fees.
ReplyDeleteWhat does that mean? Is it MAS's reason or the feedbacks are from the industry players and public? Understandably, the insurers and the banks don't like commission to be removed becuase it will affect their business. But has MAS considered from the consumers' point of view and is that really the consumers' feedback? Come on, fees are not on top of commission and probably consumers thought that fees are in addition to the commission. MAS should know and not made that stupid remark.Fee gives certainty to consumers and is transparent that makes easier for consumers to make decision.
The current practice of fee based advsiory firm works like this.
At the inception or first meeting client and adviser discuss and identify the goals and decide the scope of service to be done and all the terms and conditions.. A fee is named and it is up to the client to accept or decline or to negotiate. If agreed a letter of engagement is signed with the fee paid. The terms can be the fees will be completely or partially waived from the product commission if eventually implementation is also executed by the adviser. You can see that this model the consumers get more for the commission paid.
In a fee only practice the adviser charges fee only and implementation is done by someone else or all commission will be returned to customers.
The whole deal takes a few meetings and NOT one meeting or 30 minutes or any quick fix product pushing appraoch.
This approach will eliminate unethical practice and ensure the client gets the advice is objective and free of conflict of interest.
You can see the insurers cannot make quick sales at the expense of the customers.That is why insurers are not happy with fee based practice. At the end of the day they will be reduced to manufacturing of products and their products have to be the best in term of protection and return.The insurers will compete to give the best products and this will benefit the consumers.
Consumers will benefit more from fee based practice in term of cost and more importantly the advice is solid and objective.
What will the Singapore regulator do? They will not do anything unless the chairman tell them what to do. The deputy chairman is also waiting for his instruction.
ReplyDeleteTax payers paid millions for talent with brains. Instead, we got people with civil service talent of waiting for further instructions from their bosses. MAS is non existence in protecting us against bogus products like land banking, structure products etc. Their easy way out is "please do not sign what you do not understand"
I don't get it. I just don't buy any of the insurance products. Frankly Mr Tan, wasn't there some suggestion about low cost insurance. I even felt that visiting the agent in return for the low charge is fair.
ReplyDeleteI am tired of blaming the government. The best way to move forward is to support the fair, low cost option you talked about Mr Tan.
The UK model failed because the UK government did not blame the UK consumer.
ReplyDeleteI find the UK government very unproductive. So much work and so little progress.
The UK government should just say "buyer beware" and "markets work best when markets are not heavily regulated." (Never mind if these statements are just opinions with little by way of proof.)
Then there will not be so much work to do. And then the UK regulator can trim its workforce and save taxpayers' money.
So easy and still don't know how to do.
I'm surprised other governments in other countries have not yet implemented such a simple solution.
MAS is scared of the FIs becuase its existence is funded by them.
ReplyDeleteThe current fee base practice will not work perfectly in Singapore. I already said before (but was shot down by fellow forummers), that without a set of govt regulation and strict enforcement, what is there to stop unethical agents from charging a huge fee and also pocketing a big commission.
ReplyDeleteOkay I am not saying that all current fee base advisers are unethical, but it remains a grey area where they can stray to the wrong side of the enthic. No matter what they proclaim about themselves being "god's gift to peoples' financial planning".
End of the day, it becomes something the client agree with the adviser i.e. a commerical agreement and you can bet that unethical practice will still be there. Only by totally abolishing commission and adhering to a fee base practice will it allow the system to work. Otherwise, the client will always have to be careful of what the agent/adviser recommend, CAVEAT EMPTOR. That is why until today, I am somewhat unconvince that all fee base IFA are indeed better than any koyok peddler out there on the street.
Vincent,
ReplyDeleteIn the future it will be fee only when commission is removed..
Currently, there maybe some abuse but i know it is rare becuase if fee is charged it will be waived if the implementation is also done by the same adviser. Fee charged upfront is to prevent abuse by consumers. Some consumers want free lunch.
Yes, it will be fairer when commission is banned and it will be soon watching UK and Australia introducing it this year.