But review panel suggests direct channel for basic insurance products
By Magdalen Ng And Yasmine Yahya, The Straits Times, 17 Jan 2013
SINGAPORE is not ready to move to a system where financial advisers get a fee for advice instead of the current commission for selling a product, a panel says.
But life insurers should set up a direct channel for customers to buy basic insurance products so that those not wanting advice need not pay the same commissions.
These key recommendations were among 28 from the Financial Advisory Industry Review panel, following eight months of deliberations by the 13-member panel.
Mr Lee Chuan Teck, chairman of the panel set up last April, said an online survey found that 80 per cent of those polled were not ready to pay an upfront fee for advice. Some 450 Singaporeans responded to the poll.
The idea of moving to a fee-based system was raised in March last year by Monetary Authority of Singapore (MAS) managing director Ravi Menon after similar moves in Australia and Britain.
Advocates say a fee-based system overcomes the problem of unethical sales tactics by advisers aiming to maximise commissions.
But the panel was not persuaded. "If you look at industry practice, customers who pay fees tend to be higher-income, larger customers, who tend to find that paying a fixed fee for advice is cheaper than paying commission. Those who make smaller investments tend not to benefit as much," added Mr Lee, who is also assistant managing director of the capital markets group at the MAS.
Panel member Piyush Gupta, chairman of the Association of Banks in Singapore, said the panel spent a lot of time discussing the issue. "It was quite clear that there is very mixed feedback from practitioners (in Britain and Australia) we spoke to."
Instead, the panel proposed the direct channel for buying insurance, with a nominal fee on top.
Mr Lee said: "The direct channel is kind of like a fee-based approach. It is a good way for us to experiment to see how receptive the public is to such a model and over time, get people more familiar to a fee-based type structure."
Another proposal was a cap on the total commissions payable to the financial advisory firm and its representative in the first year for life insurance products. The rest of the commissions would be paid evenly over later years.
The panel also suggested developing a web aggregator so consumers could compare the pricing, main benefits and features of similar products offered by insurers.
To raise the competence of financial advisory representatives, new representatives will need at least a full certificate in GCE A levels, an International Baccalaureate, or a diploma, up from the current four GCE O-level passes.
The panel also said advisers should be banned from being moneylenders, casino junket promoters or property agents on the side.
Adviser Jaculin Yew, who has been in the business for 23 years, agreed. "There is no way you can be a good adviser and a good property agent at the same time. I know advisers who tried dabbling in real estate but realised they had to choose to be one or the other."
Other proposals to raise the quality of financial advisory firms included better rules to ensure a financial buffer, continuing financial resources and professional indemnity insurance cover according to the size of the operations.
Also, financial advisers' pay should be based on a balanced scorecard, rather than based solely on sales, the panel said.
Life Insurance Association president Tan Hak Leh said it supported the recommendations, which can "enhance the quality of advice to consumers and contribute to a healthy growth of the financial services industry in the long run".
The Association of Financial Advisers (Singapore) said a balanced scorecard would result in greater professionalism. "But, on the flattening of the commission pay-out period, the association believes that this may deter the industry's recruitment of young, talented and entrepreneurial people, which may stymie the growth of the industry in the long run."
The MAS will seek consultations and decide if the recommendations should be adopted.
Direct channel may benefit three groups
By Yasmine Yahya, The Straits Times, 17 Jan 2013
THE Financial Advisory Industry Review panel said insurers should set up a direct channel to enable customers to buy basic insurance products.
A customer who buys products such as a term life, whole life or standalone critical illness plan, via this direct channel would not have to pay distribution costs or commissions to an adviser.
He could instead approach the insurer at a customer service centre to sign up, and pay a nominal fee on top of the cost of the plan.
As a safeguard, a representative of the insurance firm would provide information on the policy, tell him about the disclaimers and check he has done the calculations to see if the policy is affordable.
Mr Lee Chuan Teck, assistant managing director of the capital markets group at the Monetary Authority of Singapore, said a direct channel would benefit three groups of consumers:
First, those who already know what policy they need and do not want advice.
Second, people who want to buy a policy that is not available through their existing independent financial adviser. They would not have to engage a second adviser and pay him commission just to sign up for that particular policy.
Third, the low-income group, who are generally under-served by financial advisers.
Some customers are looking forward to the day when they can buy an insurance product directly from an insurer without having to go through a financial adviser, but others said they still prefer that human touch.
"Having an adviser gives you recourse and there's always the follow-up and review should you want to increase coverage, make a claim or if there are updates on changes in the law," said 32-year-old freelance travel writer Dahlia Mohammad.