On April 22, the HKFI distributed a memorandum to its members detailing a new regime aimed at enhancing consumer protection, including a new stipulation that advisers selling Investment Linked Assurance Products (ILAS) will have to disclose remuneration to all clients by 30 June.
Natalie Hall, director of marketing at Royal London 360°, said conforming to the new requirements within the time frame will be a “huge deal for life companies”, particularly given that investment top-ups have been now been included.
Hall also confirmed that commission disclosure is a new requirement.
“Life companies now have to obtain confirmation from clients that they are aware commission will be paid to the adviser, but it doesn’t go as far as the UK in terms of full illustration disclosure. The advisory process now has to incorporate an entirely new prescribed needs analysis and risk profile questionnaire, then an Important Facts Statement (IFS), which will then have to be forwarded to the life company with any ILAS applications.
“The life companies then have to do a post sales call to the client to confirm that the product is suitable for their financial objectives, they have read the literature and that they understand the risks and charges.”
In the memorandum, the HKFI stipulates that the newly introduced IFS includes a “statement that explains that remuneration will be payable” and that “insurers and their agents should disclose at least the basic commission rates”
‘Drastic impact on sales’
Hong Kong based financial adviser Harpreet Sajjan said the impact of introducing such a large regulatory change within the short time frame could be problematic.
“This is sudden and could potentially have a drastic impact on insurance sales for Q3 this year as not a great deal of notice has been awarded to advisers to shift their pricing/remuneration models,” said Sajjan.
“Whether it is a good thing is not necessarily clear-cut. From a client disclosure point of view it may well be.
However most costs/commissions are amortised over the term of a plan and so this may work against the industry and reduce business as clients would need to be fully educated in costs before they can gauge or judge pricing/ commission payments.”
Mike Leeson, head of the Hong Kong region for Skandia agreed that the impact could be “significant” for the industry.
“It is clear that the intention here is to ensure that clients are better informed in relation to the features and risks of ILAS products, that these are suitable for their identified needs and that they understand how and where their advice is being paid for, allowing them to better understand the impartiality of that advice, said Leeson.
“If we consider the impact of advancements of regulations in other markets, we can see that over the longer term, the independent segment of the market tends to prosper as clients seek advice from financial advisers that are able to act with impartiality.”
IFAs based in Singapore are also facing a move to fee-based advice, although advisers there seem to have been given more warning.
Click here to read some industry reaction to the new rules
Or click here to read why Rosetta Fong, CEO of Convoy Financial Services, believes the new rules may not be entirely fair on advisers
Click here to read a recent profile of Hong Kong