Towards Better Transparency In Financial Services

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Everyone – regulators, consumer bodies, clients and even product providers and distribution channels – agrees that better transparency in business process and products is good.

Yet, the reality is that there is still a lack of transparency in many areas.

The letter in The Straits Times headed “Onus on insurers to boost transparency” by Larry Haverkamp was a follow up on the article by Lorna Tan “Excuse me, are you an independent adviser?”  The writer draws attention to advisers who do not qualify to be independent advisers posing as independent, and insurance products which pay high commissions but, in the writer’s opinion, are not favourable for clients.

To be exact, there is lack of transparency in many other areas and there are more complex products than endowment and whole life insurance products.  Let me share my views and suggestions and what clients can do to bring about better transparency.

Firstly, let me say that it is going to be a challenge to achieve greater transparency because, while everyone pays lip service to it, not everyone thinks it is good business to have simpler processes and products.  The reality is that there are more choices of product providers, channels of distribution and products today than 30 years ago.  And the products are getting more complex – just think about the structured products which failed and ruined millions of people’s lives.

Just imagine also the challenge for a typical customer, Joe Tan, who likes to know whether he has any protection need and if so, what products he should purchase.

Who does Joe call?

  • His tied agency friend?
  • His bank relationship manager?  And which one, since they change so often?
  • The financial adviser representative from his stockbroker?
  • The financial adviser representative from his general insurance broker?
  • The financial adviser representative from his wife’s licensed financial adviser who claims to be independent?
  • The financial adviser representative from his friend’s licensed financial adviser who remains silent about whether he is independent or not?
  • His moneylender friend who says he can connect him to someone who will show him how he can use his CPF investment to work better for him?
  • His real estate broker who says he also doubles as a financial adviser representative?
  • His union supervisor who says that he is also licensed to sell insurance?
  • His accountant who also says he has a licence to sell insurance?

Now Joe is confused.  Since he has some time, he decides to call each of them to find out a few things.  And after making all the calls, he slumps on his chair, even more confused.

The tied agent tells him all the products of the different insurance and premiums are about the same, but he ensures that he will give Joe the best personal service.

A few others tell him that there are significant differences in the insurance products and premiums of different companies.  One even illustrated it by showing him a commission table of term insurance and the big difference in premiums, although the product is plain vanilla protection only without cash value.

Only one said that he is independent and claimed to give “fair and objective” advice.  What about the others?  They did not mention what kind of advice they give.  But he remembers everyone claimed to “take care of his interests”.

And one said he is “licensed”.  Are the others unlicensed?  But why are they still selling?

And one said he is able to offer choices, unlike the agent.  But he does not hear anyone say he is an agent, but all used terms like “consultant”, “planner”, private wealth manager, wealth planner, investment planner, associate director.  So he scratched his head.  Who is the agent and who is the broker – terms his father mentioned over dinner.

One said he is willing to give a rebate.  One or two others said rebating is illegal and said it is unethical.  Will he be a criminal if it is illegal?

One said to be honest, “we are an exempt FA and not a licensed FA”.  What did he mean by “exempt”?  And why did he say “to be honest”?  Does it mean that the others are not honest?

And why does this guy keep on telling him “just buy term insurance”, and the other insisted that it is better to buy whole life because it is “pow chiah” – sure to win.  And another adviser insisted ILP is best.  And he wonders, what is ILP?

So trying to sort out his confusion, Joe decided he must find out more before deciding.  Good decision.  But how will Joe find out more – from friends, banks, magazines, Money Sense, newspapers?  Every one of his so called friends warns him to be careful as if he is facing sharks.  His remembrance of all the articles he has read also advised him to be alert and diligent as if he is treading a field rigged with mines.

What can be done to make things simpler and less foreboding for people like Joe Tan?

Firstly, I would like to suggest that, while we should not go backwards to the days when we had clear demarcation of business between banks, stockbrokers, investment, life insurance and general insurance, we should still return to the use of the legal terms “agent” and “broker” to describe the legal relationship between the representative and the company he represents (i.e. agent) and the legal relationship between the representative and the client (i.e. broker).  One way is to mandate that either of this term be used in brackets after the title of the representative.  Whether this broker is independent or not should also be stated.  For example:

  • ABC Financial Consultant (agent)
  • XYZ Associate Director (independent broker)
  • MNO Relationship Manager (non-independent broker)

Secondly, whether the representative is licensed or not should be stated, since the representative who is licensed has to clear the MAS’ strict “fit and proper” criteria.  For example:

  • ABC Financial Consultant (agent, non-licensed)
  • XYZ Financial Consultant (independent broker, licensed)
  • MNO Relationship Manager (non-independent, non-licensed)

These descriptive differences should be in the business cards and disclosure forms.

A standard disclosure letter can be prepared by the regulator or the relevant association to explain the meaning of the different terms used – agent, broker, licensed, non-licensed, independent, non-independent, licensed FA, exempt FA, etc.

The above practices will go a long way to inform clients about the status or identity of the representative he is talking to and the company the representative represents or is promoting.

As for products, since the descriptive terms – whole life, endowment, term, annuity – are well-known – all products should have a basic description mentioning whether it is one of these or a combination.  From my experience, better transparency can be achieved if we adopt the following additional practices:

  1. Removing the 9% returns illustration from ILP illustration and adding one with minus 5% to show clients about the possibilities of losses.
  2. Requiring insurers to state the last five years actual bonus rate declared compared to their projection for cash value policies.
  3. Requiring insurers to split the premiums between the protection risk and the cash value benefit.  This will allow whole life polices to be used for keyman protection while the company only claims the premium for the protection as tax deductible expense.
  4. Requiring insurers to inform clients they should seek independent financial adviser advice if they desire to have product choices.

In conclusion, let me say that the best long-term solution to bring about better transparency is to separate product providers totally from distributors (i.e. insurance companies do not have their tied agents) and to require all distributors to be licensed (both the firm and all their representatives) and all distributors are independent (to meet the higher standards for the benefit of clients).

Differentiating product providers from distribution would eliminate most of the biases and inefficiencies now present in tied agencies which are expensive to support and limit clients’ choices.  Given clients’ general ignorance and inertia, tied agents perpetuate the situation of companies utilizing excessive marketing, advertising, promotion and incentives to sell their products instead of focusing on real value to clients.  The direct impact is that the bigger companies’ products have higher premiums.  Tied agents who are serious about the business would become independent advisers and representatives.

Requiring all distribution channels to be licensed financial advisers and independent also, and all their representatives to be licensed as well, would raise standards immediately and significantly.  The total business production should not be affected but there would be a great saving of time of both the consumers and the representatives, and product providers would concentrate on improving their value to customers and not glitz and glitter.

Given the rather open system inSingapore, it would b left to market forces to bring about any changes.

Consumers need to press for better transparency and vote with their dollars.

Reply To “Excuse Me, Are You An Independent Adviser”

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Excuse me, are you an independent adviser?  This was the heading in Straits Times on 26 June 2010 for the article written by Lorna Tan.

The article drew attention to the term “independent” and how it is often misunderstood and misused.

Since there is a guideline issued by the MAS on the use of this term, it is best to go back to it and understand clearly what is meant by this term and what “circumstances” would constitute whether an adviser (the firm) or a representative (the individual) can be said to have complied with it, or breach it.

The MAS guidelines referred to are “Guidelines on the Use of the Term ‘Independent’ by Financial Advisers” (Guideline No. FAA-G05) issued on 1 October 2002 and last updated on 1 July 2005.

The guidelines list the “circumstances” financial advisers may use the term “independent” but adopt a principle-based approach in determining whether a financial adviser can use the term “independent”.

The guidelines state that “the term ‘independent’ suggests to the investor that the financial adviser operates with objectivity and impartiality and does not have any potential conflict of interest when recommending an investment product as a result of commercial or financial links with a product provider.

The guidelines take the approach of first stating the three conditions to be met by the adviser:

  1. It does not receive any commission or other benefit from a product provider which may create product bias and does not pay any commission to or confer other benefit upon its representatives which may create product bias;
  2. It operates free from any direct or indirect restriction relating to any investment product which is recommended; and
  3. It operates without any conflict of interest created by any connection to or association with any product provider.

The guidelines state that “the basic test for independence is whether a reasonable investor knowing all the relevant facts and circumstances would perceive the financial adviser as having conflicting interests with the investor and for the advice or recommendation not to be objective and impartial”.

The “circumstance” or condition which is most prone to misinterpretation is the matter of commissions.  The guidelines do make a presumption that a financial adviser which does not receive any commission or, if it does, rebates it in full to clients is presumed “independent”.  But the guidelines also state that a financial adviser which does not meet this test is not necessarily precluded from using the term “independent”.  The guidelines provide guidance on other circumstances where a financial adviser may not be restricted from using the term “independent”.

The key issue is whether such commission or other benefits is likely to create a bias in favour of a particular investment product, class of investment product or product provider.  For example, if the commission or other benefit that the adviser receives is insignificant relative to its total revenue, they may not tend to create a product bias, or capable of influencing the recommendations of the adviser, e.g. business lunch or free seminar.  As a general rule of thumb, the commission or benefit should not be more than 20 per cent of the financial adviser’s total revenue.  If the financial adviser receives a broadly similar level of commission for similar products or classes of product it recommends, such compensation may not create a bias in favour of a class of products

The guidelines spelt out certain specific examples or tests of independence.

  1. Commissions and Other Benefits

    a)      Should not create product bias or product provider bias.

    b)      If they are insignificant relative to the financial adviser’s total revenue, they may not tend to create a product bias or influence the financial adviser’s recommendation.

    c)      The level of commissions in cash or in kind for similar products or classes of products, if broadly similar, may not tend to create product bias.

    d)      The percentage of commission to be shared with representatives for the different product providers and products should be broadly similar.

    For differences to be “significant”, the 20 per cent rule of thumb is used.

  2. Product Restriction

    a)      Contractual agreement whereby the financial adviser is confined to selling that product provider’s investment products selected by the product provider, and not other product providers’ products, would render the adviser not “independent”.

    b)      If there are special sales targets for any contract, it would create a product or product provider bias.  As a rule of thumb, a financial adviser must represent not less than four product providers for each class of investment product, to be independent.

    c)      If there is any direct or indirect product restriction in relation to which advice or recommendation is provided, the financial adviser is not independent.

  3. Relationship With a Product Provider

    a)      If the financial adviser is a product provider itself, such as a bank, fund management company or life insurance company, the financial adviser is not independent.

    b)      If the financial adviser is related to a product provider, it is not independent, e.g. subsidiary, advisory arm, sister company.  The test is ownership structure, relationship and any product restriction.

The article by Lorna Tan mentioned that some FA firms inSingaporegive the impression that they are “independent” by saying so verbally to customers through their advisers perhaps solely based on the fact that they are not tied to any product provider.

This is clearly not a sufficient basis for independence.

The article quoted the payment of volume commission or bonus given to FA firms for hitting a certain quota of sales and renewals of specific products which I agree will clearly lead to product and provider bias.  Whether this volume commission is paid upfront (with the feature of possible claw back) or paid when the targets are met, they are precisely intended to influence the objectivity of the FA.  Firms which enter into such deals with the product providers have clearly catered more to their interest than clients’ interest and should not claim to be independent or convey any impression to be independent.  Being tied down by volume commissions is also clearly against the spirit of fair dealing and should be disclosed to clients.

What will be in clients’ interest?

Clients must be aware that whether a financial adviser decides to operate as an independent adviser or not, and whether to be on a commission system or fees, depends on many factors.  Clients’ interest is best served by financial advisers who are able to provide the following:

  • Competent, fair and objective advice
  • Wide range of choices by product providers to obtain “best of class” products
  • Best value for money
  • Continuous and reliable service

The quality of advice depends more on the integrity and competence of the financial adviser, and less on the system of remuneration.  The wide range of choices depends on the number of product providers the financial adviser is able to distribute for.  Obviously, there is no point in getting good advice only.  You want good solutions as well.

The best value for money comes from both the quality of advice and effective solutions.  There are situations when commission exceeds fees and vice versa.  Where fees are concerned, do not just look at upfront fees, but recurrent annual fees.  Where full rebates of commissions are offered contractually, ensure you get full rebate of all commissions and other remuneration connected with the sales for the first year and subsequent years.

It is Promiseland’s avowed policy not to enter into any contracts or agreements with any product provider other than the standard agreement which is available to all FA firms.

We do not tie ourselves down to so called additional commissions based on higher volume of production.  Although we are compensated by commission, it is because the market is not ready for fee only and we implement certain measures to look after clients’ interest, such as product comparisons, product recommendation based on client’s needs, disclosure of important facts and compliance checks.

We agree that clients should ask questions of their representatives to ensure that they are truly independent.

My Vision – Integrated Adviser

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An integrated person in an integrated company providing valued advice, valued solutions and valued products to successful individuals and companies inSingaporeand our neighbours.

An integrated person is a person of integrity who builds and integrates personal, family, business and community life successfully on values which he holds dear and gives meaning and fulfilment in his life.  He applies success principles and strategies.

  • Structure
  • Systems
  • Specialisation
  • Skills
  • Simplification


Just as a body has form and structure, a successful person lives a structured and well-ordered life in his personal, family, business and community affairs.

He has clearly defined goals, direction, strategies and time-tables.

He knows what he wants to do everyday, every week, every month, every year.

He has a plan and a schedule for everything.

There is a time and place for every important thing in his life which he continually reviews and improves upon.

He is never caught off guard, never lost for purpose, or direction, or time, or ideas.

He is on top of every situation and exudes calm and assurance and confidence and gets positive response from others.

With a good integrated structure, he is highly effective and achieves his goals year in, year out.

Make sure you have a strong structure for your personal and business life.


A successful person has a tried and true system for doing every important thing.  He is way past experimentation and keeps to what he does best just like top athletes keep their regimen.

Yet he seeks how to improve the way he does things – his communication, his presentation, his follow-up, his service.

He utilises technology to be more effective without sacrificing his personal touch.

With efficient systems, he improves his productivity and makes a higher income year in, year out.

Make sure you have and follow a system, and do not have to figure out what to do when faced with an opportunity or challenge.


A successful person knows that he does not have the ability and time to know and to do everything.

He knows that he is best qualified by education, training and ability to do one or two things really well.

He knows that he must spend time and resources to become better at the area he enjoys best and is most effective and competitive.

He shuts off any other distractions or temptations, and guards his mind, his heart and his time to do better and better in his specialisation.

Soon, he is known to be an expert and makes a good name for himself and people buy him and his advice because he is the best.

Make sure you specialise and become better and better in your area of specialisation.


A successful person knows that success is not an accident or by luck.

Success is a reward for a person who works hard at honing his skills until he is almost perfect and is famous for excellence and craftsmanship and genius.

Skills are developed through:

  • Observing what the experts do
  • Doing what the experts do
  • Improving what the experts do
  • Doing until it is “muscle memory”

Apply skills to solve problems and benefit people.

Seek out opportunities to apply your skills.

Do not look for all prospects and have to be a general duty man to solve their problems.

Look for prospects who will value your skills.

Co-broke or introduce the others to your colleagues who are specialists in their respective areas.

Bible:  If the axe is dull and its edge unsharpened, more strength is needed, but skill will bring success.


A successful person knows the beauty of simplicity.

All successful structures and systems are simple.

Specialists seek to break down things to their basic and simplest forms.

Simplify, simplify, simplify

The greatest danger is information overload or indigestion leading to verbal diarrhoea.

The more the words, the less the meaning.

Always ask yourself – Can I make this simpler?

All women hope for a simple pregnancy and delivery, not complications.

In medical language, complex is a disease.

In mathematics, the approach is to simplify.

Make sure you keep it simple


Structure + Systems + Specialisation + Skills + Simplification = SUCCESS