However, a number of new restrictions on the way Singapore advisers are remunerated are proposed, including a cap on the total commissions payable to an advisory firm and its representatives in the first year for life insurance products, and a requirement that the products’ remaining commissions "be distributed evenly over the subsequent years".
The review panel, which has spent the last eight months considering the best ways of improving advisory industry standards in the city-state, also recommends a ban on "remuneration structures" for "introducers" that are tied to sales volumes or transactions, and prohibiting introducers from providing customers with product information.
The recommendations closely follow the so-called “five key thrusts” that the Financial Advisory Industry Review (FAIR) was tasked with addressing by Ravi Menon, the managing director of the Monetary Authority of Singapore (MAS), when he unveiled the review last March.
The FAIR Panel’s recommendations were presented in a speech by MAS assistant managing director Lee Chuan Teck, who has served as the review panel’s chairman.
A consultation of the financial services industry and the public would take place before any of the recommendations can be are adopted.
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."
Lee took the unusual step last May, just weeks after the FAIR panel had been created, of playing down speculation that commissions would be banned outright, noting that it was both “premature and inaccurate to suggest the panel will recommend a fee-based model”.
Other key recommendations proposed by the panel:
- To lower distribution costs and make it easier for consumers to compare the prices, benefits and other features of products offered by different insurers, the panel urges MAS to work with theindustry industry to "develop a web aggregator" of companies and their product and pricing data
- Life insuance companies are urged to create a new, direct-to-consumer channel whereby "self-directed" individuals could obtain the kinds of basic insurance products that require minimal advice, and for which,in Lee’s words,such individuals "should not be required to pay the same commission" they would for more specialist products involving professional advice. Such products, Lee said, might include term insurance, whole life insurance and stand-alone critical illness protection
- The minimum qualification of new financial advisory representatives should be raised "to a full certificate in GCE "A" level, an International Baccalaureate qualification, or a diploma awarded by polytechnics in Singapore (or its equivalent)". Existing FA representatives, however, would be "grandfathered", meaning they would not be required to meet the new higher standards
- Impose minimum annual continuing professional development traning hours, including mandatory training on ethics and rules and regulations
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.
