The Monetary Authority of Singapore (MAS), capital market watchdog has
announced the composition of the Review Panel for the Financial Advisory
Industry Review (FAIR).
The Review Panel will be chaired by MAS’
Assistant Managing Director for Capital Markets, Mr Lee Chuan Teck, and
comprise representatives from industry associations, consumer bodies,
the investment community, academia, media, and other stakeholders. The
panel composition is in Annex A.
The Review Panel will review and propose
recommendations on the five key thrusts of FAIR, as outlined by MAS
Managing Director, Mr Ravi Menon on 26 March 2012:
(i) raise the competence of financial advisory (FA) representatives;
(ii) raise the quality of FA firms;
(iii) make FA a dedicated service;
(iv) lower distribution costs; and
(v) promote a culture of fair dealing.
FAIR will build on the foundations laid by the
industry-led Committee on Efficient Distribution of Life Insurance
(CEDLI) which, in 2000, made far-reaching recommendations for the
insurance industry on areas such as needs-based advisory process,
disclosure practices, and training and competency requirements. FAIR
will cover all firms engaged in the financial advisory business –
including banks, insurers, stockbrokers, financial advisory firms – and
their representatives, and all investment products regulated by MAS
under the Financial Advisers Act (CAP. 110).
Said Mr Lee Chuan Teck, Assistant Managing
Director for Capital Markets, MAS “Our vision is for financial
institutions to put customers first, and for customers to have access to
affordable life insurance and investments to meet their financial
planning and retirement needs. We are not there yet. Preliminary
findings in a recent Mystery Shopping exercise that we commissioned show
that up to one-third of recommendations by FA representatives were
“clearly unsuitable” and representatives were not upfront in disclosing
fees and charges. FAIR is an opportunity for financial institutions and
consumers to build mutual trust, towards sustainable growth in the FA
industry, and a more secure financial future for Singaporeans.”
MAS invites consumers and industry practitioners
to work with us to achieve our objectives of financial institutions that
consistently deliver fair dealing outcomes and competent
representatives who provide quality advice. Please refer to Annex B for
the questionnaire and feedback channels. The completed questionnaire
should reach MAS by 1 May 2012.
ANNEX A
Panel for the Financial Advisory Industry Review (FAIR)
Chairman
• Mr Lee Chuan Teck, Assistant Managing Director, Monetary Authority of Singapore
Members
• Mr Esmond Choo, President, Securities Association of Singapore
• Ms Genevieve Cua, Wealth Editor, The Business Times
• Mr David Gerald, President, Securities Investors Association (Singapore)
• Mr Lester Gray, Chairman, Investment Management Association of Singapore
• Mr Piyush Gupta, Chairman, The Association of Banks in Singapore
• Ms Aurill Kam, Partner, Rajah & Tann LLP
• Professor Francis Koh, Deputy Dean, Lee Kong Chian School of Business, Singapore Management University
• Mr Kuo How Nam, President, Credit Counselling Singapore
• Mr Augustine Lee, President, Association of Financial Advisers
• Mr Ong Ye Kung, Deputy Secretary-General, National Trades Union Congress
• Mr Seah Seng Choon, Executive Director, Consumers Association of Singapore
• Mr Tan Hak Leh, President, Life Insurance Association Singapore
• Mr Yee Ping Yi, Chief Executive Officer, Central Provident Fund Board
ANNEX B
Financial Advisory Industry Review (FAIR) – Questionnaire
The Monetary Authority of Singapore invites
suggestions from the public on how the financial advisory (FA) industry
in Singapore may be improved.
The Financial Advisory Industry Review (FAIR) aims to:
(i) raise the competence of FA representatives;
(ii) raise the quality of FA firms;
(iii) make FA a dedicated service;
(iv) lower distribution costs; and
(v) promote a culture of fair dealing.
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Based on the key thrusts of FAIR outlined above, what changes would you like to see in the FA industry?
1. Raise the competence of FA representatives
A basic level of education is required to understand the increasing diversity and complexity of financial products.
Questions:
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?
2. Raise the quality of FA firms
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.
Questions:
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?
3. Make FA a dedicated service
FA representatives being involved in non-FA work
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.
Questions:
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
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.
Questions:
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
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.
Questions:
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?
4. Lower distribution costs
The commission-based remuneration and distribution structure
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.
Questions:
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
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.
Questions:
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?
5. Promote a culture of fair dealing
Dealing fairly with customers should be embedded in financial institutions’ ethos and values.
Questions:
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?