SINGAPORE — A balanced scorecard remuneration framework that incorporates non-sales key performance indicators. A web portal to help consumers compare prices and features of products. Direct sales channels where consumers can buy basic insurance products without having to pay a commission.
These are among some of the recommendations the Monetary Authority of Singapore is adopting to change the way insurance products are sold in Singapore, following a review of the financial advisory industry.
These new initiatives will ultimately benefit consumers, MAS’ assistant managing director for capital markets Mr Lee Chuan Teck said yesterday.
“They will transform the financial advisory industry by creating an environment where firms compete on the quality and values of their products and services, rather than on the aggressiveness of their sales force,” Mr Lee said.
There are about 30,000 financial advisers (FA) in Singapore, according to MAS.
MAS’ announcement yesterday concludes a lengthy review that began in April last year when a Financial Advisory Industry Review (FAIR) panel was formed to enhance the industry’s service standards and professionalism. Their recommendations were submitted in January, followed by months of public consultation.
Of the panel’s 28 recommendations, 19 were fully accepted, eight modified and one dropped.
From January 2015, a balanced scorecard remuneration framework will be set up to assess financial advisers, using non-sales key performance indicators such as their understanding of customers’ needs, suitability of recommendations and ethical conduct.
Grading will be based on the number of violations uncovered in quarterly sampling checks of an adviser’s transactions, to be conducted by the agent’s firm and reported to MAS. An adviser with one or more major infractions, or minor infractions in one-third of his or her cases, may risk losing all variable remuneration in that quarter, MAS said.
Another key modification is the revision upward on a proposed cap on first-year commissions received by agents to 55 per cent from 40 per cent, with the remaining 45 per cent spread over at least five years or the remaining duration of the policy, whichever is shorter.
“A 55 per cent cap is more in line with the current commission structure companies are observing, so we are glad that the status quo is maintained. The average annual income of an FA rep is only about S$33,000 – not exactly high. And since errant practitioners are only a minority in the industry, the compliant majority should not be penalised,” said Mr Leong Sow Hoe, chairman of the Insurance and Financial Practitioners Association of Singapore and a member of the FAIR panel.
OCBC’s head of consumer financial services and group premier banking Mr Dennis Tan also welcomed the new initiatives, saying: “They will enhance our existing framework and strengthen our belief that financial advisory is and should be a professional service expected of us by consumers.”
Other initiatives to be implemented include setting up a web aggregator by end-2014 to help consumers compare the prices and features of products, and launching direct channels by mid-2014 to allow consumers to buy basic insurance products directly from firms at a nominal administration fee and without advice.
MAS is hoping that these initiatives will minimise distribution cost and provide more information for consumers.
But despite the new digital platforms that will be available, Mr Leong believes financial advisers still have a major role to play in the industry.
“These new initiatives address only the simple needs of consumers. When it comes to comprehensive financial planning, many still prefer sitting down with trained FA reps,” he said. “There is also a market segment that is still not very tech-savvy, and they will also need the FA reps’ services.”