Most insurance recommendations meet customers' needs; higher chances of misconduct at roadshows: MAS

THE Monetary Authority of Singapore (MAS), through its mystery shopping exercise (MSE) for financial advisers (FAs), found that roadshow sales had more incidences of unsuitable recommendations and inappropriate influence than through customer referrals.

Majority of FA representatives also failed to properly identify if the mystery shoppers were vulnerable customers, according to latest findings from MAS's third MSE released on Tuesday.

While this did not eventually affect the suitability of products recommended, the regulator said it takes a firm view that vulnerable customers should nonetheless be identified to accord them additional safeguards.

Overall, a majority of product recommendations made by FAs had met the mystery shoppers' investment and protection needs.

Compared to the last MSE conducted in 2011, the percentage of suitable product recommendations improved from 70 to 88 per cent.

The latest exercise was conducted on 500 FA representatives from 12 insurers and licensed financial advisers from mid-2018 to end-2019.

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Still, MAS has required the 12 FA firms to address the deficiencies uncovered by the MSE. It will also review its rules to improve FA representatives' conduct at roadshows and consult on proposals to enhance safeguards for vulnerable consumers.

The MSE also showed that while fact-finding conducted by the FA representatives was generally not as comprehensive as required by MAS rules, there was sufficient information obtained to make suitable product recommendations in most cases.

While obtaining a full set of a customer's financial information is important for holistic financial planning, it "may not be necessary" in the case of simple or low-cost products.

MAS said it will therefore review fact-finding requirements to allow FA representatives greater flexibility to collect information that better tailors to the needs and profiles of their customers.

Board and senior management of FA firms who have placed emphasis on delivering fair dealing outcomes and put in place robust policies and controls have generally fared better in the MSE.

Among the 12 FA firms involved, one firm stood out as having a robust sales and advisory process that translated into 100 per cent suitable product recommendations.

MAS said the firm has invested heavily over the years in instilling high ethical and conduct standards among its representatives, with strong tone from the top to put customers' interests first.

On the other hand, customers should review sales documents to ensure accurate representation of their financial profiles and needs. This would enable FA representatives to recommend products suited to their requirements.

MAS said the public can refer to MoneySense, the national financial education programme, for more information on what to look out for when seeking financial advice.

Lim Tuang Lee, MAS assistant managing director for capital markets, said: "High standards of practice require systematic and focused attention by board and senior management of FA firms to ensure that FA representatives put customers' interests as top priority."

This includes the proper onboarding and training of representatives; active supervision and monitoring of their sales and advisory activities; as well as putting in place appropriate incentive and remuneration policies and robust disciplinary frameworks, he noted.

Earlier last week, MAS rapped several major insurers for failing to meet rules that set out how supervisors should have been paid as part of sales of investment products and life policies.

These standards, among other things, set out how commissions should be capped for the sale of regular premium life policies.

The financial institutions that had breached requirements in this area are AIA Financial Advisers (FA), Prudential Assurance Company Singapore, Aviva Ltd, and Aviva FA.

READ MORE: Are you being oversold on insurance?