The Financial Advisory Industry Review (FAIR) seeks your feedback

I am writing to MAS to feedback for FAIR. There are several areas to be reviewed and as a client or advisor, you may not have suggestion for all areas. You may want to send me your feedback by 27/04/2012 so I can complied it and send it to MAS.

The aim of FAIR is to

  1. raise the competence of FA representatives;
  2. raise the quality of FA firms;
  3. make FA a dedicated service;
  4. lower distribution costs; and
  5. promote a culture of fair dealing.

and you can contribute your ideas on any of the following.

Raise the competence of FA representatives

1. A basic level of education is required to understand the increasing diversity and complexity of financial products.

a. Currently, any person who possesses 4 GCE “O” Level credit passes can become an FA representative. Is this sufficient? If not, what do you think is an appropriate educational requirement for representatives, and should exceptions be made for existing and/ or older representatives?

b. How else can we improve the quality and professional standards of FA representatives?

Raise the quality of FA firms

2. FA firms (institutions other than banks and insurers which offer FA services) vary in size. Some are large, with up to several hundred representatives, while others have only two representatives. The CEOs and Executive Directors of FA firms are currently required to have a minimum of 5 years of relevant working experience and 3 years of managerial experience. The minimum paid-up capital requirement for most FA firms is S$150,000 and all FA firms are required to maintain a professional indemnity insurance of S$500,000 to buffer against possible claims from customers for wrongful advice or misrepresentation.

a. What is your experience in dealing with or purchasing insurance and investment products from banks and insurers versus FA firms? Do you have a preference as to which type of financial institution you deal with?

b. Should FA firms be of a certain minimum size, say, in terms of the number of representatives or financial resources?

FA representatives being involved in non-FA work
3. Giving proper financial advice is an important job. MAS is of the view that money lending, promoting junkets for casinos, selling real estate and marketing investment products which are not regulated by MAS, are in clear conflict with financial advisory.

a. What other activities, if any, should FA representatives not be permitted to engage in?

b. Should FA representatives pursue other paid activities that may not be in conflict with their FA role, but which may distract them from their professional focus? Should these activities be subject to guidelines in terms of earned income, or absolute or percentage time spent?

Use of introducers
4. Introducers are typically paid a fee to refer customers to financial institutions, or they may receive a cut of the sales commissions generated. Introducers may be individuals whose fit and proper credentials have not been vouched for by any financial institution. Customers may face undue pressure and inducement from introducers to buy products when introducers go beyond merely introducing. This could result in customers not receiving proper advice, or purchasing unsuitable products.

a. Should financial institutions be allowed to use “introducers” to reach out to customers? Would you hold the introducer accountable if your relationship with the financial institution or representative turns sour?

b. Do you have views on or experience in being “introduced” to financial institutions and their products and services, by individuals who are paid a commission for the referral? Please share your experience.

FA activities in insurance brokers
5. Insurance brokers help customers source for and purchase general insurance (eg. motor, property insurance). Some insurance brokers provide FA services to their customers, including marketing life insurance policies and unit trusts.

a. Do you have any views on insurance brokers providing financial advisory service?

b. Do you look to your insurance broker for financial advice or to purchase life insurance or other investment products? Why or why not?

The commission-based remuneration and distribution structure
6. The FA industry today is largely commission-based. A multi-tier distribution structure is common in insurance companies and large FA firms. Representatives in the upper tiers share in the commissions earned by lower-tier representatives who provide insurance and financial advice to the customers.

a. Do you think FA representatives should be paid solely or largely in commissions? Should Singapore move towards a fee-based model for remunerating FA representatives?

b. Would you be prepared to pay an upfront fee for financial planning and advisory service (even if this does not result in purchase of life policy or investment products), instead of commissions based on sales concluded?

c. What do you think is a reasonable amount to pay for financial advice?

d. Do you think having different commissions for different products affects an FA representative’s ability to recommend suitable products to the customer?

The transparency of distribution and other related costs
7. Presently, benefit illustrations in insurance policies show the total distribution costs but do not show the direct payout to an FA representative. Benefit illustrations also do not include a detailed breakdown of the proportions of premiums that are channelled towards protection and investment on bundled insurance products.

a. Do you find the current benefit illustrations easy to understand? Are you aware of, and does it matter to you, how much your premiums go to direct commissions?

b. Are you aware of how much your premiums for life or investment-linked policies are allocated between protection and investment/savings?

Promote a culture of fair dealing 

8. Dealing fairly with customers should be embedded in financial institutions’ ethos and values.

a. What do you look for in the financial institutions or representatives you deal with, that will demonstrate most convincingly they are dealing fairly with customers?

b. How do you think we can promote a culture of fair dealing in the industry?