Among the changes that are said to be under consideration is the ending of the use of commissions to pay those who supply such investment products as insurance, which is seen as emulating a major element of Britain’s Retail Distribution Review, taking effect in January.
News of the pending Financial Advisory Industry Review (FAIR) came on Monday night at a 50th anniversary dinner given by the Life Insurance Association, in an address by MAS managing director Ravi Menon.
A story in the Straits Times this morning noted that the news had left “some of the most senior and well-established insurance agents” in Singapore “reeling”.
“This is because these established agents, who are at the managerial and director levels, derive a substantial part of their income from the commission-based structure currently in place,” the article noted.
Another article, also in the Straits Times, noted that "chief among the sweeping proposals is a move to relook [at] the cost of buying life insurance policies, currently a tiered structure which sees the customer paying commissions not only to his agent, but also his supervisors".
The time frame for the review was not given, but those who attended the dinner said it was expected to take some time.
In his speech, Menon said a review panel would be formed that will be comprised of representatives "from industry associations, the investment community, academia, media and consumer bodies".
"MAS will shortly announce the members of the panel," he added.
The five areas to be considered by the Financial Advisers Industry Review, according to Menon, are:
- Raising the competence of financial advisory representatives
- Lowering the distribution costs of insurance products
- Promoting a "culture of fair dealing"
- Making the delivery of financial advice a "dedicated and professional vocation"
- Raising the quality of financial advisory firms
Average Singaporean ‘still grossly underinsured’
In his speech, Menon distinguished between basic financial products such as protection insurance – for which he noted there was a keen unmet demand in Singapore – and more sophisticated investment products that he argued should only be sold by financial advisers with "sufficient knowledge of the wide and complex range" currently available in the market.
Referring to a 2009 Nanyang Technological University study that found the existing life cover of the average Singaporean is only about a third of what his dependents will need in the event of his early death, Menon called on the insurance industry to "reflect on these findings and take up the challenge to narrow the shortfall in protection coverage".
But while he referred to the online channel as being "one of the ways in which we can lower distribution costs" of "simple term life insurance" to consumers, he went on to say that "customised financial advice is still required for the more complicated insurance plans, tailored to suit individual and family needs and circumstances, and for those who want to supplement their term life insurance".
The way such customised financial advice is to be paid for going forward will be examined by the FAIR, however, to determine, in Menon’s words, whether its current commission structure "aligns the interest of representatives with the long term interset of consumers, whether these representatives have the adverse incentive to sell products that pay them higher commissions, and whether the tier structure provides value for the customer, or merely adds cost".
Towards the end of his speech, Menon added: "I appreciate that some of the proposals will impact businesses and representatives. I urge the industry to take a long term view from the customer’s perspective. The aim of FAIR is to bring about a higher quality of financial advisory services and better outcomes for customers, and by enhancing customer trust, promote sustained growth of the financial advisory industry."
Menon’s speech may be viewed on the MAS website by clicking here.
On Tuesday, many of Singapore’s financial services executives were still absorbing the implications of the review. While comparisons with the UK’s RDR were unavoidable, some noted that Singapore’s dominant distribution channel for insurance products remains the tied agents of the various insurance companies rather than – as in the UK – via independent financial advisers, which, they say, could make the playing-field-evening process different at the very least.
Some pointed to the example of Hong Kong, where independent financial advisers are protesting that a new requirement to disclose their commissions to their clients is putting them at a competitive disadvantage to the tied agents of insurers, whose "commissions", such as they are, are hidden in their corporate structure.
Chris Gill, principal officer and general manager of Friends Provident International’s South East Asia office, said that although it was still "probably too early to comment in detail on what impact [FAIR] will have" on the industry, "the intent of the changes must be applauded".
"It focuses on the right areas in terms of aligning the client and adviser interests, raising standards across the industry and focusing on transparency," Gill added.
