Cerulli takes the view that “[MAS] intends to move intermediaries…away from commission-based sales”, even though Lee Chuan Teck, chairman of the panel that is conducting the Financial Advisory Industry Review (FAIR) and a senior figure at the Monetary Authority of Singapore (MAS), said in May that it was both “premature and inaccurate to suggest" that his panel would recommend a fee-based model.
“But unlike Australians, Singapore’s retail investors – and those in other parts of Asia – are not prepared to pay for advice,” Cerulli, the Boston-based research firm, notes, in the leading article in its regular quarterly Cerulli Edge Asia-Pacific newsletter.
“Singapore’s largest IFAs have experimented with fee-based models but have made little progress growing that business.”
That said, the MAS, “being one of the most pragmatic regulators in the region, will likely implement measures over several years”, Cerulli points out.
“But it won’t be as leisurely as Australia’s path, where financial advisers have voluntarily chosen fee-for-advice models over the last 10 years.”
As reported, MAS managing director Ravi Menon stunned the country’s advisory and insurance industries by announcing the FAIR review in March, in an address given during a 50th anniversary dinner of the Singapore Life Insurance Association. The review is due to be completed by the end of 2012, at which time recommendations aimed at boosting advisory advice standards are expected to be unveiled.
‘Tea cup in a storm’
The Cerulli article, which is headed ‘Tea Cup in a Storm’, notes that Singapore’s FAIR review is taking place as regulators “throughout Asia Pacific are attempting to protect retail investors from buying unsuitable investment products, un-necessary churning, high costs of investing, and unscrupulous sales processes” – which, it continues, is clearly leading in the direction of “fee-based advice”.
“Singapore is the lastest Asia-Pacific market, after Australia and India, to take steps in that direction, and it wouldn’t be surprising if Hong Kong follows in due course.”
Cerulli’s analysis of the likely outcome of Singapore’s FAIR review finds other likely results than just a move towards a fee-based advice model. For example, it notes that as in other markets, the "big distributors" of mutual funds "will get bigger and gain greater bargaining power with asset managers", while the smaller distributors, notably IFAs, "will consolidate, be absorbed into large financial services groups, exit the marketplace or, for a very few, succeed at serving niche clienteles".
It quotes the head of an unnamed Singapore IFA firm as saying that if the regulations proposed by the FAIR review were implemented now, his company’s costs would immediately rise by S$150,000 ($117,034) annually, as three additional staff would be needed.
Cerulli also cites the example of Australia – which is seen as being further down the regulatory road – where financial advisers are said to have trimmed their use of platforms in a cost-saving exercise, as having potential implications for Singapore, where "most large IFAs use platforms such as iFast and Navigator".
The Cerulli report’s findings come days after the release by MAS of the results of a "mystery shopper" survey of bank and insurance company representatives’ advice-giving standards, which found as many as half were failing to meet established guidelines for fact-finding about the would-be investor’s investment experience, financial objectives and risk preferences.
Other countries that have also looked to boost advice standards in the last couple of years, typically beginning with a review of the current situation in these markets, , have included the UK, US, New Zealand, Norway, and the European Union.
The financial advisory industry tends to be the focus of such effort not because it is seen as particularly problematic, but because it is the point at which financial products are put together with the consumer, financial services industry experts told International Adviser in a story on the global move towards greater regulation in May.
Copies of the Cerulli Edge issue are $2,500 (£1,615), and may be obtained by contacting Cerulli at +1 617-437-0084, or by emailing camarketing@cerulli.com.
