Chaired, by online editor, Simon Danaher, and held at the IA Expert Investor Forum in Singapore, the event’s participants included: Matthews Dabbs, CEO of AAM Advisory, Chris Ivinson, director of International Financial Services, Singapore; Nigel Preston, head of business at The Henley Group; Tim Searle, chairman of Globaleye; Craig Ellis, head of region and Singapore CEO, Royal Skandia; Chris Gill, general manager, SE Asia Friends Provident international and deputy president of the Life Insurance Association; David Pugh, general manager of The Fry Group and Thomas Vonrueti, head of proposition for Zurich.
The event was supported by Creechurch Capital, Group First, Investec Asset Management, Matthews Asia and Mirae Asset, which each gave presentations through the course of the day.
A wide range of topics were discussed during the panel debate, including the planned “commission deferral”, the balance scorecard and the ways the Monetary Authority of Singapore intends to rid the industry of short-term incentives, which can work against the best interests of clients.
While all agreed the direction of change was positive, there were clear differences of opinion on whether all of the initiatives would work and whether they may in fact hamper the industry through the increased pressure on costs.
Perhaps one of the most vocal in his concerns was Globaleye’s Tim Searle who, taking an analogy offered by The Fry Group’s David Pugh, pointed out that at each point of the distribution chain people needed to get paid, and the focus should be on ensuring the client is sold a suitable product.
Beginning the discussion, Pugh said: “FAIR represents change, and for me this industry needs to change. I don’t know of any other industry like our own. Can you imagine on Saturday going with your family up to Dempsey Hill to buy a sofa? You buy a sofa for $5,000, only to realise five years later they actually charged you $10,000. By that stage, you’re stuck with a sofa, what can you do? Our industry has suffered because sales people take high commissions and don’t tell the clients.”
Nigel Preston, a relative newcomer to Singapore, having come across from St James’s Place in the UK following its purchase of The Henley Group, was in agreement that the changes likely to be brought by the FAIR regulations from next year were positive.
However, he also pointed out FAIR is an opportunity for advisers and providers to work with the MAS.
“There’s huge emphasis upon honesty, integrity, professionalism, in terms of qualification, and suitability to advise,” said Preston.
“At the same time, there’s a big part for the providers to play, I think, in the design and the innovation of product. Coupled with that, we shouldn’t lose sight of the three principles that sit beneath what the MAS is trying to achieve – client outcome, building longevity and increasing transparency.”
A long journey ahead
There was palpable relief from panel members that the regulations which have resulted from FAIR have been watered down from those first feared following MAS managing director Ravi Menon’s shock speech at a Life Insurance Association (LIA) dinner in March 2012, when the initiative was first announced.
Chris Gill, who is deputy president of the LIA said: “My impression of the UK is its ‘draconian approach’, has left a large swathe of clients without advice.
“There was a real risk with MAS, at the very beginning when Ravi Menon made the speech, and talked about the UK, and Australia and following a similar path that there could have been a similar issue.
“That is the challenge of balancing the needs of all the various stakeholders in the relationships. The client, of course, is a key consideration, but at the same time, in a room full of financial advisers, and product providers and business owners, we have a number of other key stakeholders as well. There has to be longevity of that relationship with the client, the ability to service clients in the future.
“For me it’s the first step on a journey. It’s going to be an evolution, not a revolution. I think we will see change in years to come.”
Similarly, Skandia’s Craig Ellis felt once the regulator took a deeper look at what had happened in Australia and in the UK, it decided it would be in the best interest of clients to keep commission, but to address how it motivates the adviser.
“The MAS thought it was better to help the industry by leaving commission in place at this point in time, but requiring additional transparency and disclosure to ensure there was sufficient information for the client to make an informed decision about it.”
Ellis did however warn this was not a “full stop” and was likely to be the beginning of a much longer process.
Agreement on deferral
A specific point explored by the panel related to the MAS’s planned introduction of a commission-deferral process under which the commission earned by an adviser for the sale of an investment-linked insurance product would be deferred over a period of six years.
By deferring the commission, the MAS intends to ensure advisers are motivated to look after their clients over the longer term.
AAM Advisory’s Matthew Dabbs, as with the majority of advisers on the panel, agreed it would fulfil this objective.
“Anything that’s going to extend the commission pay-out over a period of years is surely going to lead to better advice and better suitability of product.” said Dabbs.
“So I’d definitely agree, I think that’s an excellent idea. I also think it’s going to lead to the stronger companies, the companies that are well positioned in the market, that are ready for FAIR going forward, to take advantage of this as well.”
A technical point here, which was addressed by Gill, is what happens to that deferred commission when an adviser moves on to another firm. While this specific point hasn’t yet been addressed by the MAS, Gill said his expectation would be that it would continue to be paid to the advisory company, not the individual adviser.
Another specific aspect of FAIR, this time addressed by IFS director Chris Ivinson, was the balance scorecard. Under the balance scorecard, advisers which have failed to look after their clients properly and to meet certain targets, will see their commissions reduced. Repeated failure to look after clients would also result in an adviser’s dismissal and ban from the advice industry.
“It comes down to putting FAIR into practice,” said Ivinson. “Are we aligned to the customer? Can we eradicate that conflict of interest? Are we there for the long-term?
Are we there for that relationship? It moves us from where we’ve been, which is a wholescale sales model, to an advice model. “That’s where we’re going, that’s where regulators want us to go. That’s where we have to go.
“There is a lot in the recently published draft regulations, certainly a lot more than I anticipated on, and I can’t claim to have read them all but I think we’ve all got a lot of work to do, but it will be good for us as businesses.”
One of the perhaps less headline-grabbing initiatives from FAIR, is the so-called web aggregator tool. Under this proposal, companies will be required to provide the MAS with data on a regular basis on all of its products, enabling consumers to compare the costs of schemes quickly and easily.
According to Zurich’s Thomas Vonrueti it is likely to drive down costs for consumers and could present an opportunity for independent financial advisers.
“As it is for all products, unlike the direct channel insurance initiative which is for non-investment linked products, it will create much more transparency.
“People will realise there is a choice, which I think is a big advantage for the independent financial advisers, compared to the tied agencies who have just one choice.”