In the latest news, MAS has announced several changes to the financial advisory industry under Financial Advisory Industry Review (FAIR). The aim was to reduce the cost of insurance as well as raise the quality of financial advice. How effective will they be? Firstly, we will look at the announced changes. Among them are
1. Launch of free website to compare life insurance and endowment products between insurance providers
2. Insurance companies have to make basic life insurance products available directly to consumers instead of only through agents
3. Balanced scorecard remuneration framework with KPIs for financial advisers
4. FA firms will have to set up independent sales audit departments to sample 5 per cent of the transactions of each sales representative every quarter with reports given to MAS.
5. Educational requirements to be raised
6. Increased capital requirements for financial advisory firms
Changes that were dropped include capping the first year commissions to 40% of total commission payable, so it remains at 55%. So commissions will still be the core motivator for insurance agents, which is not really in line with the government’s idea to push for more fee based advice. The conflict of interest continues to remain.
On the other hand, MAS introduces a balanced scorecard remuneration framework with KPIs to try to increase the quality of advise. It’s commendable, but really it is simply more paperwork for the advisers/agents which means lower productivity. It doesn’t tackle the core problem which is the way the advisers/agents are incentivised. Extra independent sale audit departments and increased capital requirements just makes it even tougher on financial advisory firms which are already struggling.
The regulations will further increase the cost structure and actually make it even more difficult for independent FA firms which want to provide sound unbiased fee based advice. So none of the changes are moving the industry towards fee based advice, which means very little change to the current situation.
On the positive side, increased educational requirements is definitely a must to make it a more professional industry especially now that financial products are getting more and more sophisticated. The idea of allowing consumers to buy basic insurance products directly from companies is also a very good move as it allows the insurance policies to be sold at lower premiums since a sales force is not required.
Finally the web aggregator sounds like a nice idea, but there are several problems. Without proper incentives, many government initiatives simply do not do well and do not last long. Also without proper financial education, would the consumer know which policy is the most suitable? However, this website if done properly could serve as a tool for independent financial advisers to use.
Article By Calvin Yeo, CFP
Calvin Yeo is a Certified Financial Planner (CFP) holder and completed all the 3 levels of Chartered Financial Analyst (CFA). He is also the Managing Director of Calvary Wealth Consultants Pte Ltd where he currently practices wealth consulting and wealth education. For further information on services provided, please go to Wealth Consulting.
For more information, you may be interested in: