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Call for guidelines on insurance commission rebates
EVEN as the Financial Advisory Industry Review (FAIR) seeks to better align the interests of financial advisers with that of consumers, the Association of Financial Advisers (Singapore) or AFA(S) has urged regulators to lay down guidelines on the way in which commission rebates for life insurance policies are implemented.
Speaking at the 14th annual conference on Thursday, Vincent Ee, the association's president, stressed the importance of having such guidelines so that these rebates are implemented in an ethical and proper manner.
While commission rebates ultimately lower policy premiums to the benefit of consumers, he noted that such incentives if implemented improperly, could turn into inducement and lead to overbuying of insurance policies.
It is not good enough to say that it is not prohibited and that the financial advisory firms just have to do it without creating an inducement for consumers, said Mr Ee.
"Perhaps life insurance companies can create a model where commission rebate is done all at company level so that it is reflected truly in the pricing and in the premiums," he added.
In response, the Monetary Authority of Singapore (MAS) said it "will work with the industry and other relevant stakeholders to provide greater guidance on the use of commission rebates, where necessary".
Under the FAIR panel's recommendations to improve the remuneration structure of the financial advisory (FA) firms, three key changes are to be implemented, said MAS executive director Merlyn Ee who was present at the event.
The first is the introduction of a balanced score card (BSC) remuneration framework where a significant portion of an FA representative's remuneration is based on whether he has taken steps to understand the customer's needs, recommend suitable products and make adequate disclosures. This is aimed at raising the quality of advice dispensed and to mitigate risks of product pushing and aggressive selling.
The second is to cap first-year commissions and spread of commissions.
The third is to ban product-related incentives which create bias towards the sale of products that pay out higher remunerations.
While each of the FA firms has its own business strategies, the key to having a sustainable business boils down to trust, said Ms Ee, who added that financial advisers "should strive to move up the value chain to a role that provides greater value to consumers".
"They should focus on building a corporate culture of fair dealing, raising the competency of their representatives, and investing in technology to improve efficiency. Putting customers first will be key to helping licensed FAs secure the trust of their customers that is so critical to taking their business forward."
This, as the industry faces rising headwinds. There have been greater technological innovation, higher financial literacy among the Internet-savvy generation, and a growing retail investor appetite for simple and low-cost investment products that the government has moved to provide access to such products as the Singapore Savings Bonds and exchange traded funds.
Having said that, Ms Ee pointed out that there will be new business opportunities and growth areas for the industry, assured by Singapore's ageing population and growing affluence.
For now, the industry is still growing, albeit slower. Citing data by the Life Insurance Association Singapore, Mr Ee said business from the FA channel rose 2 per cent from the previous year to 18 per cent in 2014. And from May 2014 to this May, in terms of unit trust investments, the assets under management for the FA channel have also grown by about 15 per cent.