Several – including Life Insurance Association of Singapore president Hak-Leh Tan, and Friends Provident International South East Asia general manager Chris Gill – praised the Financial Advisory Industry Review (FAIR) panel’s willingness to listen to input from the industry over the eight months that it deliberated.
“They recognised that the industry in Singapore is in a very different place from its counterparts in the UK and Australia, and made their recommendations accordingly,” added Gill.
“Some of the things are aimed more at different parts of the industry than others, but there is something here for everyone.”
Tan stressed that a “pragmatic approach” designed to “harness market forces” to ensure the panel’s 28 recommendations’ “effective implementation” was now called for on the part of the Monetary Authority of Singapore, which will be in charge of carrying them out, once a consultation period has taken place.
“We look forward to working closely with the MAS in the implementation phases,” Tan added.
Commissions survive chop
As reported, the panel stopped short of calling for a complete ban on advisers receiving commissions in exchange for recommending investment and insurance products. This was in spite of the fact that this had been the outcome following similar reviews in such other markets as the United Kingdom and Australia.
Instead, the FAIR panel found other ways to limit commissions – such as by capping the total amount of commission payable to advisers and their firms in the first year of an insurance product’s life, and requiring the remaining commissions to be distributed evenly over the product’s remaining years.
A shift towards ensuring that remuneration is based at least in part on such performance indicators as the quality of advice given and the suitability of recommendations for individuals, rather than, for example, on the number of products sold, was also recommended.
Antony Michell, chairman of the Henley Group advisory firm, which specialises in looking after expatriates, said the FAIR review panel’s recommendations were “pragmatic, well thought-out, and will benefit both clients and advisory practices that are committed to creating long-term value by genuinely serving the best interests of their clients”.
However, he noted, echoing the comments of other advisory executives, the recommendations are likely to result in some consolidation in the industry over the next few years, as some firms opt to close rather than adapt.
Mark Paine, managing director of Meyado, another expat-focussed advisory firm, said the recommendations might have been “much more rigorous” than they were, but that the panel “seems to have taken heed” of the industry’s concerns that it not attempt too much change too soon.
The changes likely to be brought about by the recommendations, he added, “can only be seen as being good for all concerned”.
Less demanding than RDR
Another way the FAIR Review panel’s recommendations differ from those of the UK’s Financial Services Authority’s Retail Distribution Review (RDR), is that they call for the minimum entry requirement for new advisers in Singapore to be raised only “from the current four GCE ‘O’ level passes to a full GCE ‘A’ level certificate, an International Baccalaureate, or a diploma”.
In the UK, by comparison, under RDR, all advisers were obliged to have attained a QCF level four qualification – equivalent to a first year of university education – by the beginning of this year if they wished to continue to practice.
What is more, under FAIR, those already working as advisers in Singapore would be allowed to continue to do so without having to meet the new higher standards – unlike in the UK, where practicing advisers were forced to get the new qualifications.
Explained review panel chairman Lee Chuan Teck, in a speech last week in which he outlined the FAIR Panel’s recommendations: “An experienced, financially-savvy representative with ‘O’ levels may well be a better adviser than a greenhorn with a degree.”
And anyway, no one can practice as an adviser in Singapore without passing Capital Markets & Financial Advisory Services exams, a requirement that will remain unchanged, added Lee, who is also assistant managing director of Singapore’s advisory industry regulator, the Monetary Authority of Singapore.
Singaporeans ‘not prepared to pay for advice’
Addressing the matter of commission in his speech, Lee noted that a "hard cap" had been considered, but not adopted, because past experiences in Singapore and elsewhere "were not compelling", and because an online survey on "Singaporeans’ receptivity towards a fee-based model" revealed that 80% "were not prepared to pay an up-front fee for advice".
"Commissions tend to gravitate towards the cap and stay there," he noted.
"This means we will need to ensure that the cap is set at the right level all the time. If it is too high, consumers will end up paying too much. If it is too low, consumers may end up being under-served.
"The second idea was to ban commissions altogether, and switch to fees, as the United Kingdom and Australia have done. However, it was not clear that fees would necessarily be cheaper than commissions. In fact, it was more likely that customers with smaller investments ended paying more."
Key points in FAIR Panel Report
- To raise the competence of financial advisory representatives, those new to the industry must have a minimum of a full certificate in GCE “A” level, an International Baccalaureate qualification, or a diploma awarded by polytechnics in Singapore, or its equivalent; existing advisers need not meet the new standard
- Raise the minimum working and managerial experience of chief executive officers of licenced advisory firms to 10 years and five years, respectively
- Restrict licensed financial advisers (LFAs) in the types and scale of non-FA activities they may undertake
- Ban remuneration structures for introducers that are tied to volume of sales or transactions
- MAS should work with the industry to "develop a web aggregator" of companies and their product and pricing data, in order to lower distribution costs and make it easier for consumers to compare prices, benefits and other features of products offered by different insurers
- Life insurers should be required to make “certain basic insurance products” available to "self-directed" individuals through a new, direct-to-consumer channel
- A cap should be imposed on the total commissions payable to advisory firms and their representatives in the first year for life insurance products, and require the remaining commissions to be distributed evenly over the subsequent years
To see Lee’s speech in its entirety, containing the recommendations, on the MAS website, click here.
To read and download a summary of the recommendations, click here; to read and download a more comprehensive list, click here.