Talent war, consumer confusion worry smaller financial advisory firms

Singapore

A GROWING financial advisory (FA) sector with more insurers setting up their own FA firms is putting pressure on smaller players to compete more aggressively for talent in a market where there are at least five different business models.

This, on top of other ongoing concerns such as higher operating and compliance costs, and the constant struggle to keep up with digital advancements.

FA firms The Business Times spoke to said it may be more difficult to recruit advisers as they have to match the compensation packages offered by insurer-affiliated ones.

Alfred Chia, chief executive of SingCapital, said poaching is common in all industries, but he warned that the trend of having to match attractive packages to draw the best candidates "may spiral out of control".

"All stakeholders will be too busily engaged in such exercise with little focus to value add to customers and existing advisers," added Mr Chia.

Christopher Tan, chief executive of fee-based firm Providend, noted that insurers are now setting up their FA channels to fulfil the aspirations of their agents who want to offer more products to consumers and also "be seen as more independent".

His main concern is the quality of advice given by the agents-turned-advisers. "You can't give good comprehensive advice overnight. It takes years of training and experience. But with this new development, many will be out there doing this for consumers and this might not be good for consumers," said Mr Tan.

Christopher Teo, chief executive of PIAS, in which insurer Aviva has a stake, urged insurance agents to be clear that they are becoming advisers in order to better serve clients.

"We can't put old wine into new wineskins, that is, if the mindset of those tied agents does not change, and assuming they continue the 'same old same old' (mentality) of doing business and engaging their clients. Merely name changing from tied agent to FA representative won't work."

Other FA players are worried about confusing consumers with so many different business models.

At last count by BT, there are five types: an exclusive FA firm fully owned by an insurer and primarily selling that insurer's products; a hybrid FA firm that is wholly-owned by an insurer but offers products from rivals; the dominant FA model where an insurer has a majority stake in the firm and offers products from multiple providers; an independent FA firm; and exempt financial institutions such as banks, insurance companies and insurance brokers.

Vincent Ee, managing director of Financial Alliance, said while sales have not been impacted by the rise of insurer-backed FA companies for now, he is worried consumers might not be aware of the intricacies or the differences between the various players.

Compensation structures of the different FA firms have "large differentiation" which could greatly disincentivise advisers from selling third party products, he said.

Industry players agree however that setting the right corporate tone is key to ensuring the sustainability of the sector.

SingCapital's Mr Chia noted that over the years, the Monetary Authority of Singapore (MAS) has implemented various robust regulatory frameworks to regulate misconduct and mis-selling. An example would be a recommendation under the Financial Advisory Industry Review (FAIR) known as the Balanced Score Card (BSC) that mandates a clawback of commission for such breaches.

"BSC essentially imposes financial penalty for any misconduct or mis-selling. However, we need good corporate culture to promote good ethics. This will go beyond just following rules and regulations. Overemphasis of incentives may not promote the right corporate culture," Mr Chia said.

Given the intensifying competition, he suggested that independently owned FA firms should consolidate for economies of scale.

The race by insurers to set up FA arms accelerated in the last three years as industry rivals tried to outdo one another by offering consumers a range of products and funds beyond their own. The trend also comes in the wake of a pick-up in the FA channel as a means of distribution.

Along with the rise of more insurer-affiliated FA firms is the renewed war for talent, the most recent being the expected migration of 300 Great Eastern agents to the newly launched AIA Financial Advisers, which begins operations this month.

In July last year, Aviva Financial Advisers was launched and before that, Manulife Financial Advisers opened its doors to consumers in April 2015. Great Eastern Financial Advisers is among the earlier ones to set up shop in the FA space, doing so six years ago.

The escalating poaching activity has troubled the Monetary Authority of Singapore (MAS), which said it was looking into such mass migration. The Life Insurance Association Singapore (LIA Singapore) has also said it is "working on some parameters on future movements" of agents.