Consultation on recommendations of the Financial Advisory Industry Review
As a financial advisory (FA) professional, staying up-to-date with the latest industry news is essential for success. While maintaining awareness of the current economic environment is important, financial advisors must also stay aware of government regulation efforts as well. Recently, the Monetary Authority of Singapore’s (MAS) Financial Advisory Industry Review (FAIR) consultation paper was released after eight months of panel deliberations.
This consultation paper was created by a panel of industry associations, consumer and investor organisations, and the media among others to deliberate on ways to improve the FA industry. The full consultation paper can be found here.
Five thrusts to guide Singapore’s FA industry
This consultation paper revealed several key recommendations that will likely affect current and future financial advisors in Singapore. This consultation paper grouped recommendations into five thrusts:
1) Raising the competence of financial advisory representatives The panel believed that as financial products and client needs become more complicated, an improved level of education is necessary to keep up with change. Additionally, the panel recommended that financial advisors undergo at least 30 hours annual training through Continued Professional Development (CPD) courses, with 12 of those hours being dedicated to rules and regulations (8 hours), and ethics (4 hours).
2) Raising the quality of financial advisory firms The panel recommended that independent FA firms maintain satisfactory management structures, proficiency and the capital to run efficiently. Due to the different levels of volume and services each firm exhibits, sufficient time will be given to meet any new requirements.
3) Making financial advising a dedicated service About one in five financial advisors do non-FA work. However, there is no consensus over whether this is a benefit or a conflict of interest. In recognition of the fact that the effectiveness of individual financial advisors varies, the panel chose to develop a set of principles to direct FA firms on maintaining their service focus. Activities that should not be conducted by financial advisors include money lending and selling real estate and marketing investment products not regulated by the Financial Advisors Act (FAA).
4) Lowering distribution costs In light of the fact that an overwhelming number of Singaporeans are unwilling to pay an up-front fee for advice, the panel believed that greater market competition is the key to lowering distribution costs. The panel developed three ways for this to be done:
• Make comparison of services easier through a web aggregator that enables customers to evaluate costs and features offered by FA providers.
• Recommend for insurance companies to provide a direct channel that gives customers a cost-effective alternative to expensive commissions.
• Transparency of distributions costs for specific products by FA providers.
5) Promoting a culture of fair dealing To create a culture of fairness within the FA industry, the panel focussed on improving three key areas:
- Even distribution of life insurance products with no more than 40% of commissions to be paid in the initial year.
- FA firms adopt a score-card framework that incorporates non-sales KPIs like customer service.
- Banning of product-specific incentives that will bias financial advice.
• Management responsibilities
- Senior management should build a culture of fairness within their firms. This requirement will be included in MAS’ risk and regulatory assessment.
- Strengthening customer service processes such as conflict resolution.
• Industry association involvement
- The panel recommended greater involvement by Industry associations such as the Association of Banks in Singapore (ABS) to create a culture of fairness in members. This can be done through the establishment of KPIs, after-sales surveys and mystery shopping.
MAS is very receptive of any observations relating to this consultation paper. If you have any questions or concerns in relation to the full report, comments can be emailed email@example.com by 4 June 2013.