Financial Adivsory Industry Review (FAIR)

Sent to the Straits Times Forum Page on 27 March 2012 

I welcome the announcement by the Monetary Authority of Singapore to 

set up a committee called Financial Advisory Industry Review (FAIR), to 

review the financial advisory industry.

I am particularly heartened by the focus of FAIR to put consumers first and 

to reduce the distribution cost by addressing the underlying inefficiencies 

in the remuneration and distribution structure.

Singapore had been following the practice adopted previously in the UK and 

Australia, i.e. to rely on disclosure to allow consumers to make the 

best informed choice.

However, these two countries had decided some time ago, that 

the disclosure approach did not work and that consumers had been misled into 

paying too much for unsuitable products. The regulators decided to ban the 

payment of commission for the sale of investment products.

It is likely that Singapore will follow this new practice, or at least mandate a 

cap on the amount of commission that can be paid to the financial advisers.

I wish to point out that the industry review panel now has the opportunity to use the 

trained financial advisers in a productive way to advice Singaporeans 

on how to carry out a proper financial plan for their future needs and how to invest 

the savings in suitable products that gives them a better long term yield.

In many countries in the developed world, the tax regime is skewed to 

encourage the people to make additional savings for retirement, such as the 

401k in the USA or the superannuation schemes in Australia. They usually

take the form of deferral of tax to a future date.

The potential savings in tax to the consumer can more than offset the 

remuneration paid to the financial adviser. It achieves an 

outcome that is good for consumers and allows the advisers to earn a 

living by performing a useful role for which they have been trained.

The government benefits when more people make adequate 

personal savings for retirement and rely less on state welfare. 

I hope that the FAIR committee can find a new productive role for financial 

advisers and reduce their fear of loss of earnings arising from the likely changes 

in the remuneration structure.

Tan Kin Lian