Tan Kin Lian's Blog: MAS consultation paper: Unlisted investment products

Saturday, March 28, 2009

MAS consultation paper: Unlisted investment products

Read the proposals contained in this consultation paper.

Here is an explanation by a law firm.

I conveyed the views contained in this paper to the CASE forum on 28 March 2009.Publish Post

4 comments:

Anonymous said...: Mr Tan, the link to the econsultation paper is incorrect.; March 14, 2009 12:57 PM
Anonymous said...: Will it cover "investments" like Land Banking. If the word investment is used in an advert or presentation then the products should be regulated.; March 15, 2009 1:58 AM
zhummmeng said...: 1.product must be simple. Any risk must be disclosed in language easy to understand.Inusrance agents normally don't disclose for wholelife and endwoment products and some even claim that the return is guaranteed.For these people severe punishment must meted out to them.
2.All cases and not just for those consumers over 62 years of age and big regular premium cases, must be subject to fact finding first before recommendation of the products to comply with section 27 of the FAA unless the clients initiate the buying.Reason is the main bulk of agents' clientele are from the middle or lower income group and these groups need financial planning even more urgently to ensure their limited resources are efficiently and effectively deployed.
It will defeat the purpose if MAS allows insurance companies freedom to select groups especailly only consumers over 62 and high regular premium cases for financial planning or fact finding.The main bulk of insurance companies' business come from the middle and lower income groups.If this is the case it is as good as allowing the insurers to circumvent the rule and it is back to square one as these over 62 and high prmeium groups make up the minority.If fact finding is not implemented for all income groups and age, MAS is seen as lacking sincerity to level the playing field.
3.All recommendation must be on reasonable basis. Failure to meet this puts the agents in disciplinary action and in dire consequence
4. All inusrance agents must be responsible for the recommendation and liable for the outcome.This is to ensure that agents take seriously the clients' interest.
5. Caveat Emptor only for those who choose no advice or product advice but warning must be written and verbally emphasized to the consumers that their action has waived their right of recourse in the future if anything goes wrong.
For these groups it is unfair to charge the same commission as those group who need advice. They should be given a huge discount, at least one year of the premium waived or rebated.
6. To prevent dodging fact finding a system in place to detect manipulation by agents, eg, follow up on the client;
7.MAS should start telling the insurance companies to find a better way of remunerating the agents and ban commission which is unfair and gives rise to mis-selling, conflictt of interest and misrepresentation and all the unethical practices.A deadline to be given just like the FSA of UK which has set 2011 as the date to ban commission.
8.MAS must actively enforce the rules and send out auditors to audit and police the insurance companies.This will increase the confidence of consumers.
9. MAS must encourage the formation of private watchdog societies to help in the indirect oversight of these sellers like providing review for consumers on their existing policies and investment to check for mis-selling and other malpractices..Also education on the right advisory processes and review the products in the market.
10. Licensing of all the advisers, insurance agents and RMs with a public register for public access and information of what the sellers can and cannot do and complaints and misconduct by them.
11. Raise the standard of advisory work to tertiary all round with greater emphasis on investemnt.Current standard is too low especailly the investment advisory skills and knowledge. All existing advsiers and insurance agents who do not meet are to be given time to upgrade and failure to meet will result in the termination of their license.This is for the safety of the consumers . The consumers deserve responsible , honest and competent advice.; March 23, 2009 12:47 PM
zhummmeng said...: I will be proposing to MAS the tightening up of the advisory process and remuneration as these 2 areas are the main causes of mis-selling and misrepresentation and unethical practices.
1. I will propose that product selling or pushing to be examined closely. The circumstances that are justifiable for product selling must be laid down. Companies and thier supervisors must be impressed that product selling must be discouraged as it is not beneficial to consumers and that the agents who products sell must be stringently vetted. Supervisors must be held equally liable as the insurance agents.
This is necessary as most if not all consumers are prospected and they are not the savvy customers who know their needs and are looking for product advice. Therefore it is crucial that these consumers are to be given a need analysis before the product. Currently, most insurance agents dodge options 1 and 2 and document the fact find forms as product advice without informing the clients as clients too are clueless about their rights and what is best for them.It is mandatory for the agents to warn the customers that by choosing the product advice option they have forfeited their rights of redress if in the future the products are discovered as inappropriate or not on reasonable basis.
Why insurance agents dodge fact finding?
Agent dodge options 1 and 2 because they are unable to justify the 'recommendation' of the products which earn them high commission.For these agents the clients' financial circumstances and needs are best ignored and not examined because it is required that the product recommended must meet these needs and circumstances. Very often the products don't meet or meet inadequately and not on reasonable basis.Make the insurance agents or the advisers responsible and liable for the outcome of the recommendations.
This brings us to the question of commission. Is commission a boon or bane to the consumers? Certainly a boon to the agents who don't have to do anything except for convincing presentation which very often borders on lies, misrepresentation, mis-selling and unethical means.An incompetent agent can still sell by using this unethical appraoch.It is glib tongue selling.
A bane to consumers because they are short changed. Their needs are compromised despite paying so much commission to the agents.The consumers are unaware that they pay as much as 21/2 years of premium as commission to the agents. Of course, the cost is even more if the profits and cost of administration are included. Do the consumers get value for money if the agents merely fill up the forms and some non financial related service?
Commission is the cause of conflict of interest, mis-selling , misrepresentation and all other malpractices. Agents only want to sell product with high commission and are NOT interested in the needs of the consumers, like adequate protection or meeting the needs of retirement and other goals.
Commission MUST be replaced by a more equitable model like negotiable fees for works and scope of the advisory service.With fees as cost consumers will have an idea of the cost before engaging the advisers.It is more transparent.
Lastly, many products in the market today should come under the complex product group.Products like the 'hybrid' products which have so many frills wrapped up with some traditional product like whole life and endowment. EG: The anticipated endowment with exotic names and options of reinvestment can be confusing to the consumers.Often these product have dubious benefits and risks.
I hope MAS will see the benefits of these changes in these areas if they are truly sincere and serious to see the consumers protected from predators like the dishonest and incompetent insurance agents.; March 28, 2009 2:33 PM