I want to address the subject of transparency in the financial advisory industry in Singapore, what it means to me and why it is important.
Financial advisers who practice transparency will always provide accurate information to clients when they make recommendations and give advice. This is vital to enable the client to make an informed decision and vital to building an open and honest working relationship.
It should be mandatory to confirm a product’s and investment’s cost, how much commission is paid to the adviser, lock-in periods etc.
The adviser’s experience and qualifications are also important and should be disclosed. In an era of transparency and unbundled charges, opaque charging structures for advice and investment products should not be accepted. Clients are slowly starting to realise this, even if many advisers and product providers are not.
Transparency means full disclosure. Advisers who practice transparency do not withhold any information that could impact a client’s decision. This of course includes the amount of commission received by the adviser.
A lawyer or accountant does not give his client the impression he is working for free and nor should financial advisers. If you are taking a commission, disclose it and then justify it. Good advisers will voluntarily offer full disclosure allowing clients to make fully informed decisions. This is how it should be.
Only high-quality advisers practice full transparency. Lower quality advisers will practice partial transparency or non-transparency.
Those advisers who practice partial transparency tend to only provide information that helps them sell financial products. For example, they highlight past investment returns, extra allocation rates but neglect to disclose charges, commissions, exit penalties etc. As a result of this partial disclosure, clients have no idea what information is being deliberately withheld.
Even worse are those advisers who provide no transparency at all. Instead, they use slick sales techniques to deceptively sell financial products. Unfortunately with such massive commissions continuing to be paid to ‘advisers’, these sales techniques are not likely to abate anytime soon.
Of course adviser is just a word, not a profession backed by a universal set of standards for training, transparency and ethics. Pretty much anyone can call themselves an adviser after passing a few simple exams.
In this job, I’ve met lots of smart, diligent and highly effective people who use financial planning processes to assess an individual’s or family’s needs and then develop an effective investing approach. Most of them I encountered while I was working in the UK for 10 years.
Since moving to Asia, I’ve sadly seen lots of unscrupulous and commission-hungry salesmen motivated by their own greed, their employers greed or both. Transparency is certainly not on most of their agendas. All of this unfortunately reminds me of the UK industry in the early 1990’s, before regulation changed the advisory landscape.
It’s a sad state of affairs when regulation has to be introduced into an industry to improve professionalism.
This is exactly what has been happening to the financial adviser sector in Singapore, as it did in the UK. The Monetary Authority of Singapore first developed the Financial Advisory Industry Review (FAIR) in 2012, aimed at raising professional standards as well as increasing competitiveness for investment and insurance products.
I welcome FAIR and the changes it brings. However, legislation can only take us so far. What we also need is a major culture shift where advisers put the needs of their clients first. Transparency is key to this happening. It makes good business sense to have loyal and happy customers, to be proud of the advice you give and the transparent basis on which you provide it.
David Pugh CFP is general manager of The Fry Group Singapore.