I read the recent article in the Straits Times "Findings of MAS financial advice survey 'disturbing'" and this came right after several articles by top executives in financial institutions giving their opinions about fee based models failing.
The key findings were:
- Fact find on customer was inadequate
- Product disclosures were insufficient
- Products recommended were unsuitable
I do not wish to take sides and would like to give my objective views
of the situation based on first hand experience as an agent and as a
consumer. Issues why this is happening.
Firstly, the criteria to be a financial planner is 4 'O' levels, followed by passing of CMFAS exams about regulatory rules and product features, then "Bam" instant financial planner. May I simply query, where was proper financial planning taught in this formula. How was customers financial needs information supposed to be analyzed to develop a comprehensive financial plan? Naturally, if it was not taught or tested, agents are not expected to perform accurate fact finds on customers.
Secondly, for products. With the regulatory requirements to meet, products are evolving to be more and more complicated to work around the regulations. Product sellers objectives are pretty straight forward, sell sell sell. So, whatever it takes to sell, including confusing the sellers and the public. With products becoming increasingly sophisticated, agents themselves seldom fully comprehend them, let alone to explain it to a layman like their customers. Regulations also require a whole dictionary to be disclosed with no focus on what exactly is important, that switches off the attention every normal consumer. In fact, layers upon layers of disclosure is required by regulation, there is even additional documents explaining how to read the original complex documents, soon there is going to be another document illustrating how to understand the explanation document and it becomes an endless cycle. Don't believe me? First there is the Benefit Illustration(BI) to illustrate the policy documents. Then comes a Product Summary(PS) to highlight the Benefit Illustration. Then comes the Your Guide To Life Insurance to explain how to read the PS/BI. And if that isn't enough, next comes the Product Highlight Sheet to provide a dictionary on all the documents you will be receiving. I believe the next step will be a Your Guide To The Product Highlight Sheet. After a few more rounds of review, agents will be driving vans to deliver the documents and we will probably require a library to keep the amount of documents received just to purchase a simple term life insurance. End of the day, what defines disclosure to be sufficient?
Finally, agents nowadays are more focused on the regulatory rules and requirements than in the interest of their clients to make a good recommendation simply because the entry criteria is focused on the wrong things. In addition, products have evolved to a level that there is no clear cut unsuitability, it is an art, not a direct science to a suitable recommendation. With so much time spend doing paperwork and making sure all the appropriate documents are completed, where is there any quality time left on actual fact-finding, analysis and explanation.
The exchanges between the regulators and financial institutions have been heating up. However, my humble opinion, is that they are both taking care of their own concerns and neglecting the true focus, the consumer. Regulators objective is to ensure they have covered all possible area to regulate and address Parliament as well as the public that they have taken action (appropriate action or not, is not the concern, what matters is at least something is done), up to the provision of useless guides like Your Guide To Life Insurance for every sale and the requirement to assess investment competence as a result of the Lehman Brother Minibond issue during the financial crisis. For financial institutions, objective is to ensure they have a sustainable, profitable business. No surprise here, all business operate that way.
Please bring back the focus to the consumer. What do we want?
In the shoes of the consumer, I want a competent planner that I can trust. Hence, my opinion on what to focus:
- Competence in managing comprehensive financial planning which must be divided into 2 board groups at least, risk management in insurance or savings in investments. Of course, ideally it should include areas of estate, tax, legal, loan, trust management as well.
- Reliability of the planner when he/she is needed the most, during claims.
Instead of fighting what is the best compensation model or raising the entry requirement. I do not care if the agent is free or fee or commission based, so long as he/she is around to support during claims or to provide sound investment advice regularly. So, what ever model selected, it must achieve this objective. Next, I do not care if he/she is PSLE, O, A, diploma, degree, masters or even a PhD, so long as he/she is competent to plan and manage my financial risk and grow my wealth through investments consistently. Not everyone may be an expert in all fields, even doctors have GPs and specialist. Perhaps the industry requires the same differentiation.
So, how about simply focusing on regulating a compensation structure and a proper entry assessment to support the consumers needs. Instead of conducting the survey from a perspective of catching the agents not meeting the regulations (This reflects that the regulations are a perfect benchmark, which may not be the case), carry out a survey on what regulations the consumers like best (do not be surprised if the response to this perfect benchmark is nothing) and what the consumer expects from their agents.
Read more...
