The follow letter was published in Straits Times forum page on 4 August 2014:
Care needed when buying insurance direct
I SUPPORT the Monetary Authority of Singapore's move to offer consumers a choice in buying life insurance direct without paying for commission ("Come early 2015: Buy basic insurance directly, save on commission", last Wednesday).
It is suitable for those who are knowledgeable and do not need financial advice. However, I am concerned that those who do not have sufficient knowledge may also use this direct channel.
All life insurance policies have exclusions that differ among insurers.
Consumers may have a false sense of security when they buy insurance without advice. They may also not be aware of what constitutes material information, which they have to declare even without being asked.
On this note, existing financial advisers must change their business model and mindset towards an advisory role.
Many financial advisers focus too much of their activities on making the sale. If there is any advice given, it is often incidental to the sale.
A change of mindset means the focus is on the advice while the product sale is only incidental.
If financial advisers do not change their business model, they will suffer like remisiers who were unable to provide more value-added services as investors bypassed them by buying stocks online ("Tough times for brokers as trades slow, commissions fall"; June 23).
Accountants are urged to provide higher-value advisory services ("Accountants urged to stay 'ahead of the curve'"; last Saturday). Financial advisers must also do likewise.
The Insurance and Financial Practitioners Association of Singapore responded to my letter to further comment on this topic. The following letter was published in the Straits Times' Forum page on 6 August 2014:
How to weigh the worth of financial advisers
WE AGREE with Mr Wilfred Ling ("Care needed when buying insurance direct"; Monday) that the sale of life insurance products over the counter is suitable for those who are financially savvy.
We also share his concern that there are others, including those in real need of insurance protection for their families, who would be hard-put to grasp the details of just one product, much less tell the difference between insurance products sold by different companies.
The truth is, no one gets out of bed and decides suddenly to buy life insurance. Insurance products are not bought; they are sold. If the objective is to ensure that the population is adequately covered by life insurance, we are not sure that direct selling will achieve this.
A KPMG and Financial Services Council study in Australia, for example, looked at average sums insured for all types of policies across different channels, and found that "customers taking out insurance through an adviser had the highest average sum insured, and therefore likely claims, with the lowest sums insured coming from customers taking out insurance direct". That is, customers do not know how much protection they need.
Mr Ling suggested that financial advisers "add value" to their services - or risk going the way of remisiers, who are being bypassed by investors who trade online. We agree. Our association, which offers continual financial training, is now focused on getting members to specialise or branch out into aspects such as estate planning, business protection planning and even financial counselling. However, we are not like remisiers, who already have a financially savvy clientele. Our clients belong to all strata of society.
Yes, our association has a vested interest in this issue as it affects our members' rice bowl. It is right that consumers ask questions about the monetary value of a financial adviser.
The Monetary Authority of Singapore has already set commission limits on the industry and rolled out non-sales performance indicators. While these will crimp our earnings, we welcome them as measures to rid the industry of bad apples.
We ask that the consumer weigh the worth of a financial adviser in this way: Is he worth his commission? Has he ever mis-sold me a policy? Is he there when I need him urgently? Am I savvy enough to buy the right insurance product without having to pay for his advice?
Leong Sow Hoe
Insurance and Financial Practitioners Association of Singapore
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