Some of the finer details of the Financial Advisory Industry Review (FAIR) regulations in Singapore are still to be finalised, including some sort of cap on first-year commissions and the introduction and implementation of the Balanced Score Card, which will take effect in 2015.
These are a way of monitoring quality of advice, and subsequently having remuneration levels of individual consultants determined by numerous key performance indicators, not just on new business volumes.
It’s all in line with creating an advisory- focused industry, rather than a sales-focused one, which is to the benefit of the end-client.
The winds of change
Our compliance department has been very busy preparing processes, guidelines and ideas on how we can effectively and efficiently implement the Balanced Score Card next year, while I’ve been trying to cultivate the business towards preparing for the first-year commission cap.
It is not 100% clear to me how this will specifically impact our segment of the market, which predominantly covers international life company unit-linked plans, but we have a pretty good idea.
The way of doing business offshore, including in Singapore, has for years revolved around indemnified commission. This provides high cash-flow levels, but very little embedded value, and it has to change.
Some firms in Singapore have been grooming their business to be less reliant on upfront commissions since last year when the intentions of FAIR were first known, most of them have at least started this year, but a few firms have not done anything yet.
Fortunately for us, we fall into the first category, as we were looking closely at creating and encouraging long-term revenue streams before all this came into the limelight.
The right foot forward
Our contracts and remuneration structures have been, since day one, transparent and including all forms of future revenues such as trail and renewals on insurance products; advisory fees, fund-based trail commission on investment accounts; and even trailer fees on hedge funds and unit trusts.
So from the beginning we set a culture to look at growing, servicing and keeping a client base, not just purely focused on upfront commissions.
Our emphasis of late has been on sacrificing commission for increased trail or advisory fees. Such a model again takes a while to fully implement, but now many of our advisers are already enjoying regular income from this, and feedback from clients is very positive, with most seeming happy for us to be remunerated in such a way, as long as the service is always good.
That is exactly why I believe this is a ‘win-win’ model. Advisers are incentivised to keep a client happy and maintain high long-term service standards, whereas that same motivation is not necessarily there for someone taking full commission upfront, and worse still for those not receiving their share of the trail and renewals.
This year has seen further initiatives of a similar ilk. We are even exploring different payment structures for contractual regular savings plans and working closely with more than one insurer on this. That would add another option to the dual agencies we have already with most insurers, offering our consultants a choice of both indemnified and non-indemnified commission.
In focusing on the assets under advisory model, we also now have a number of consultants who look at corporate business, an area in the past we have been weak on.
Lastly, we are also internally driving more term assurance and medical cover policies. These form an important part of our holistic financial planning model as well as diversify the book of business better. In a financial crisis, people sell their investments long before they stop their life insurance premiums.
Click here to watch a video interview of Ian Pryor where he discusses the alternatives to commission
Ian Pryor is managing partner of IPP Expat Advisory Group in Singapore