Monetary Authority of Singapore delays commission cap but shouldn’t it be doing more?

The Monetary Authority of Singapore has delayed the 55% cap on commission financial advisers receive from the sale of life insurance policies a year after the industry asked for more time to implement the changes.

The remaining 45% will be paid out over the following five years or the remaining premium payment years, whichever timespan is shorter.

A spokeswoman from the regulator said: “Arising from industry feedback that it needs more time to implement the spreading and capping of commissions (SCC) rules, the SCC requirements will take effect on 1 Jan 2017.”

However, in the current low growth environment, isn’t it about time that investments for expats and international clients, especially in more regulated offshore jurisdictions, such as Singapore, and Hong Kong did away with upfront commissions paid to the ‘adviser’, with hidden charges and redemption penalties to recoup the commission paid? At Intelligent Investments, we certainly believe so.

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Recently we invited leading financial professionals from the UK to discuss how we navigate the diverging world we live in today. Of particular interest by all those who attended was the development of low cost investment solutions following significant changes in the financial industry in developed markets, such as the UK, namely with the banning of commission based advice.

20151124_201059One company spearheading the offering of low cost, flexible investment solutions for international clients is Momentum Wealth International. Until now, advice for international clients has been driven by insurance based products from providers such as: Friends Provident International (soon to be Aviva), Generali International, Hansard International, Royal London 360 (now RL360), Royal Skandia (now Old Mutual International), and Zurich International. Its hardly surprising given the amount of upfront commission these products pay, that so called ‘independent financial advisers’ or IFAs are keen to recommend them.

Its not unusual for the ‘adviser’ or broker to receive an upfront commission of 8% from the bond provider for recommending an offshore investment bond, or personal portfolio bond. The ‘adviser’ can then earn a further 5% upfront commission for the investments or funds they recommend within the bond. Where does this money come from? Quite simply you.

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In contrast, Momentum Wealth International’s Personal Portfolio is a fully flexible platform, with transparent charges, no redemption penalties, no hidden fund charges, and the adaptability to change if and should your circumstances change.

In a comment to a financial industry publication, International Adviser, Head of sales at Generali International Nick Griffin argued that for FAIR [Financial Advisory Industry Review] to be successful, it is essential for the MAS to “engage fully” with the industry and “take account of the reality of day-to-day business and the challenges faced both by life companies and advisers”.

Meanwhile, in a poll conducted by International Adviser of wealth managers and insurance professionals in Singapore last year, ‘More than half of the professionals saw little demand from their clients for greater fee disclosures over the last year.’ However, we would argue as clients become more aware of the level of charges on out dated, insurance based products, coupled with continuing market volatility, an increasing number of clients will seek out more cost effective solutions. It is perhaps more telling that the industry doesn’t see the client demand for greater transparency (or would prefer if there wasn’t).

Whilst insurance companies try to cling to outdated business and distribution models before international regulators follow developed markets in (a long overdue) ban on commission based advice, at Intelligent Investments we have always believed by putting our clients first, our business will continue to grow and that our clients’ best interest are served not by commission based advice but by working on a management fee basis.

 

Insurance companies respond to Singapore commission cap delay

 

Singapore wealth managers don’t see client demand for greater commission disclosure

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