Findings of MAS financial advice survey 'disturbing'

[Musicwhiz]

The Straits Times
Jul 7, 2012
Findings of MAS financial advice survey 'disturbing'

By MAGDALEN NG

NEARLY a third of customers looking for financial advice and products were steered to unsuitable investments, according to a mystery shopping survey conducted by the Monetary Authority of Singapore (MAS).

People posing as normal customers assessed the advice being given by banks and insurers. Between October and December last year, 126 shoppers made 500 visits to 11 banks and four insurance companies seeking advice from representatives.

It found that in 30 per cent of the cases, the products recommended did not match the person's financial objectives or their stated investment horizon.

An independent panel of industry practitioners reviewed the suitability of the products based on the shoppers' personal profile, experience during the advice and sales process and the sales material handed out by the institutions.

While most advisers did engage in some form of fact finding - asking questions about the customer's financial situation, risk appetite and what products they already have - most did not go beyond basic information such as names, personal particulars and employment.

About 50 per cent of the mystery shoppers were not quizzed about their risk tolerance or financial objectives and 40 per cent were not asked for their investment experience.

Mr Lee Chuan Teck, MAS assistant managing director for capital markets, told the Singapore Management University Market for Financial Advice Symposium yesterday that these two findings were 'particularly disturbing'.

Mr Lee, who also chairs the panel for the Financial Advisory Industry Review (Fair), said: 'If we do not make an effort to understand our clients' needs, how do we expect to recommend the right product to them?'

The survey also discovered that most representatives disclosed basic information about the products recommended but details on risk factors and the amount and frequency of fees and charges, for example, were omitted in a significant number of advisory sessions.

The MAS imposed a rule in January that gets customers to take a test to prove that they have the relevant financial experience and knowledge before getting the go-ahead to buy certain complex investment products.

But the MAS can only do so much, Mr Lee said, adding: 'While we can regulate on what an adviser needs to do and who needs advising, it is harder to regulate the quality of advice given.'

MAS said that this survey differs from the last one in 2006 in terms of scope and the types of financial institutions surveyed so the results are not comparable.

It said that it will work with the Life Insurance Association (LIA) and the Association of Banks in Singapore to carry out regular mystery shopping exercises. Findings will be made public.

LIA president Tan Hak Leh said: 'We note the shortcomings, which require the industry's further attention.' LIA sees the regular mystery shopping surveys as a 'further initiative to enhance the effectiveness of the life insurance sales advisory process.'

The Securities Investors Association of Singapore said it was disheartening to know vital information such as risk factors was not disclosed to retail investors.

One customer, Mr Mervin Wang, 39, a marketing head at a multinational corporation, believes that the customer should not rely completely on the adviser. 'You need to be more knowledgeable about what is available so you can ask the adviser the correct questions, and engage him more meaningfully.'

songyuan@sph.com.sg

[d.o.g.]

My $0.02 is that the writing is on the wall for even more regulation for financial advisors. If the intent was to maintain the status quo the article would probably have said:

"It found that in 70 per cent of the cases, the products recommended matched the person's financial objectives or their stated investment horizon."

The facts are what they are. But the framing changes the picture.

[flinger]

I got to agree with this article.

When I asked if there is any insurance for risk in pregnancy complications and Neonatal / premature baby ...you know what insurance(S) I got suggested?

1. Whole Life plan for 100,000
2. Accident Care
3. Supremehealth
4. Critical Illness
5. Pregnancy Rider

They all came up to 5000 dollars in premiums.

I looked at it and was wondering, does that person think I am a fool??

3/4 of the suggested insurance was not related to what I was asking for.

[Temperament]

i don't believe as high as 70% of the cases, the products recommended matched the person's financial objectives or their stated investment horizon. i have subjected myself to their "expertise" many times (more than 5 times i think) yet i don't find any recommendation from them "suitable". The latest case, i bare all my financial data/status and ask them to come up with any recommendation that is suitable. And you know what they came out with an insurance product; what else can the bank makes more profit than an insurance product?
And worse still this insurance product has no "guarantee return". Ha! Ha! 70% of bank's advice met the person's financial investment objectives? No way. MY 2 cents through experience with the banks.

[d.o.g.]

i don't believe as high as 70% of the cases, the products recommended matched the person's financial objectives or their stated investment horizon.

I don't believe it either. But the article says the failure rate was 30%. Therefore, the success rate using the same data would be 70%.

[corydorus]

Not sure how difficult to match, 30% mismatch seems high. I would expect it to be less than 1% if they are professional enough.
3 out of 10 person just spent a large sum of their money that do not match their needs is "disturbing".

[CityFarmer]

Not sure how difficult to match, 30% mismatch seems high. I would expect it to be less than 1% if they are professional enough.
3 out of 10 person just spent a large sum of their money that do not match their needs is "disturbing".

If there are no conflict of interest, a "professional financial adviser" should be able to match their client's financial objectives or stated investment horizon with ease. This is what they are trained for, isn't it?

But if there are conflict of interests, than it is more difficult to match. Beside professional challenge, there is more demanding psychological challenge to deal with i.e. greed

In fact i am surprising to see it is 70% matching, i am expecting to see much lower percentage

[Temperament]

Not sure how difficult to match, 30% mismatch seems high. I would expect it to be less than 1% if they are professional enough.
3 out of 10 person just spent a large sum of their money that do not match their needs is "disturbing".

If there are no conflict of interest, a "professional financial adviser" should be able to match their client's financial objectives or stated investment horizon with ease. This is what they are trained for, isn't it?

But if there are conflict of interests, than it is more difficult to match. Beside professional challenge, there is more demanding psychological challenge to deal with i.e. greed

In fact i am surprising to see it is 70% matching, i am expecting to see much lower percentage

It is just like 99% of trained professional insurance agents will recommend you any insurance except "Term". When actually all you can afford or need now is "Term".

[d.o.g.]

It is just like 99% of trained professional insurance agents will recommend you any insurance except "Term". When actually all you can afford or need now is "Term".

I remember when Goh Chok Tong mentioned that since many Singaporeans were underinsured they should take up term insurance as an affordable way to boost their coverage. The insurance industry immediately protested. Nobody stood up and said "yes we will help Singaporeans get adequate insurance coverage". Everyone was only concerned about the impact on their whole life policy sales.

[Musicwhiz]

Nobody stood up and said "yes we will help Singaporeans get adequate insurance coverage". Everyone was only concerned about the impact on their whole life policy sales.

I'm not too surprised by this either. Almost all of the financial planners I've met are more interested in their own commissions than in my financial well-being. The questionnaires on "Risk Assessment" are just to fulfill mandatory requirements, but when it comes to selling products, they immediately push the Whole Life, ILPs and Endowments.

When I bought my Term insurance recently for my daughter, the financial broker was adamant that the majority of her clients had bought Whole Life and that I would do much better to follow them. She said at least they have a surrender value. When I mentioned that I would invest the difference, she kept quiet. The forms have been signed and I am now paying about 70% less (annually) than what I would have paid had I bought Whole Life.