In recent times, there have been a sudden increase in number of financial institutions that provide financial advice. I am not just referring to the quantity but the type of financial institutions that have increased. Here is a summary. If I am missed out any, feel free to add to the comment box below.
Bancassurance. This refers to banks selling insurance. Normally banks only sell insurance from one insurer. For example, DBS only distributes Manulife’s products. The bancassurance is the largest distribution channel in terms of weighted premium. According to the LIA stats, the bancassurance has a market share of a whopping 46% based on weighted premium. Given that its market share based on the number of policies is only 16%, we can assume that the average premium size for each policy is quite large. I am also sure that the banks hold the majority of the investment money although I do not know where to find the statistics for this.
Tied agents. These are representative that holds exclusive contract with insurance companies. Tied agents are normally self-employed individuals. In terms of number of policies, tied agents have the largest market share of 53%. However, in terms of weighted premium, its market share is 33%. So this implies that the premium per policy is lower compared to bancassurance.
Financial Adviser Representatives. These are individuals who represents licensed financial advisory firm. Quite a number of licensed financial advisory firms are owned by entrepreneurs. In terms of product ranges, the product offerings are diverse.
In recent times, there are new types of financial advisory firms. Here are some examples:
‘Tied’ licensed financial advisory firms. These firms are owned by insurance companies. Their product offering for insurance are limited although unit trusts are usually quite a lot. For example, Great Eastern FA only offers Great Eastern and Transamerica life insurance products although it has a larger range of investment options through iFAST/IGP.
Robo-advisers (investments). These are firms that provide investment services managed by software. Customer interactions are mainly through a web portal. These Robo-advisers provide basic KYC and investment advice during the on-boarding process. Their investments are mainly in ETFs. Examples are Autowealth Pte Ltd which holds the Financial Adviser License. Asia Wealth Platform Pte Ltd (also known as StashAway) holds the Capital Market Services License instead. Smartly is also another robo-adviser although I have not managed to find what kind of license it holds.
Robo-advisers (life insurance). So far there is only one company called PolicyPal Pte Ltd that is under MAS’ Sandbox program. Customers can upload their existing insurance policies to the website which the portal will provide an insurance summary. Users can chat with a robot called Kate which can provide insurance advice in terms of needs-analysis. Customers can buy life insurance directly. PolicyPal currently partners with NTUC Income.
My comments:
With so many choices, a typical consumer can be confused. To add to the confusion, representatives from the same firm/agency are not homogeneous in terms of competency, experience and remuneration model. Take for example, some advisers belonging to the same organization may choose to solely focus on corporate insurance. Others specialise in very specific products like marketing long-term care insurance. Still, others focus on providing holistic life insurance advice. For me, I focus on financial planning but I stay a mile away from all forms of general insurance.
The non-homogeneous characteristic is not a flaw – because there is no such thing as having expertise in everything - and neither is it unique to the financial industry. Take for example, not all lawyers do exactly the same thing. Some focuses on corporate law, others on family law. There are also those who are legal counsels in corporations. Each of these fields are further sub-divided into different specialisations. Those who need legal advice for divorce is not going to seek advice from mergers and acquisitions lawyers.
So, at the end of the day, it is important for potential customers to look for financial advisers who are the ‘best fit’. Unfortunately, that is easier said than done. How would a typical consumers navigate the complex spider web to know who is the ‘best fit’ unless he or she is in the industry? How does he know that investing with a robo-adviser is the best unless he is an investment expert? In fact, if he is an expert, shouldn’t he be investing directly on his own?
Here are three examples of how hard it is for a consumer to find a suitable financial adviser.
Example 1: John (not his real name) is a typical Singaporean who likes to buy properties for investment. John is not able to get any financial advice on this and how it will affect his retirement. Property purchases are usually the largest investments a person make in their entire lifetime and yet it is so hard to get good financial advice. There is no system for him to search for a financial adviser that has such skillset.
Example 2: Mary, a local, would like to seek health insurance advice. Her colleague, an expatriate, recommended his financial adviser to Mary. What Mary did not know is that the financial adviser specialises in international health insurance for the NRI market with no clients from the local market. As a result, the financial adviser is not in the best position to advice on private integrated shield plans. Mary ends up buying a product that may not be the best for her.
Example 3: Andy is looking for advice to plan for his retirement in 10 years. He found a financial adviser who called himself a Retirement Specialist. Andy ends up buying a 101 ILP that pays dividends which will be used to pay for Andy’s expenses when he retires. Actually, the ‘Retirement Specialist” is a product expert in 101 ILPs. Andy should have consulted a financial adviser who is familiar with rental income generation, CPF Life, private annuities and portfolio management.
This brings me to the next point that there is no standardization in terms of who can call himself a specialist. In the medical world, those who called themselves specialists must have obtained the necessary academic qualifications, experience and recognized by an authority. So if I meet someone who call himself a Cardiologist, I can be confident he is truly a specialist in his field. In the finance industry, many call themselves Senior Consultants, Senior Wealth Managers, Private Wealth Managers, Retirement Specialists etc. when their only qualifications are the CMFAS. Also, nobody knows what kind of experience they had previously. It will not be appropriate for a person whose only experience is in selling 101 ILPs be called a Retirement Specialist.
Why specialisation is not easy?
Existing financial advisers who truly want to specialise face a number of obstacles.
First, everybody is on their own in search of their own clients. Rarely does the firm provide any leads. If the firm do provide leads, it may not be the kind of target market desired by the adviser. E.g. if the agency provides the platform to do roadshow, it is difficult for the adviser to be a specialist in say estate planning as roadshow are normally skewed towards selling specific products.
Second, there is a significant lack of demand by the consumers for financial advice. Seeking financial advice is optional while seeking medical advice is sometime not an option. We see long queue at the polyclinics but not for financial advice. Without the large demand for financial advice, the adviser will not have the chance to clock sufficient experience in order to specialise in the field he wants to. In fact, 80% of the adviser’s time is spent on lead generation rather than on the actual advisory work. (Advisers who do not spent 80% of their time doing prospecting will find their production to be at the bottom of the chart.) For the remaining 20% of the time, the advisory work is spread thinly across many discipline (e.g. health insurance planning, disability income, investments, etc).
Third, there is little incentive to be a specialist as the specialist cannot expect fellow advisers to refer cases to him/her. Advisers seldom refer cases to a specialist due to the loss of ‘potential revenue’ and ‘loss of control’. This is unlike in the medical world where it is the cultural norm for a general practitioner to refer patients to a medical specialist.
Fourth, the infrastructure of the finance industry assumes the adviser is a one-man show. Take for example, if advisers refer their cases to me for joint field work, the investment account or insurance policy has to be tag to me otherwise I cannot service the account. It cannot be tag to two advisers because the system assumes one-man show. I do not know of any investment platform and insurance companies that allow tagging to multiple advisers. The closest I found is Aviva which allows the adviser to appoint Personal Assistants (PA). But there is a limit as to what the PA can do. For example, the PA cannot create investment trades. The ability to tag to two or more advisers to the policy/investment account would encourage advisers to refer cases to each other as the sense of loss of control is mitigated.
Last but not least, the large pool of individuals providing finance advisory services are just too many. Consider the medical professions, there are a total of 12,967 doctors in 2016. I heard there are more than 30,000 financial advisers in Singapore. For doctors, all humans can be their patients. On the other hand, only individuals who has the capacity to enter into contracts are the advisers’ prospects. e.g. minors and all those who lacks mental capacity cannot enter into contracts. Also, the frequency in which a patient visits to see a doctor is on average significantly higher than seeking advice from a financial adviser (e.g. you get sick much more often than say the need for an insurance review). Of course, this is made worst by the fact that people has less desire to seek financial advice as compared to seeing a doctor. With such a large pool of financial advisers, the adviser has to spent a lot of time in lead generation and less time in advisory work. With less time in advisory work, it implies less time to gain the necessary experience for specialisation.
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Personally the more choices the better as more competition results in lower fees or better services. Of course it can result in cowboy town environment being maintained, with more unruly cowboys coming in. But this is mainly up to the regulatory body & laws — S’pore takes the pro-business and lasses faire approach.
Now you have no-load UTs with free switching, more emphasis on low-cost term insurance with better coverage, more awareness of not mixing insurance with investment, better understanding of proper property analysis instead of “property sure win” mentality. All very good stuff for consumers. Tougher for industry insiders, sure.
Smartly platform is joint venture between Smartly & VCG Partners Pte Ltd. Smartly provides the technology while VCG Partners is the actual fund manager/adviser. VCG Partners has MAS Capital Market Services License, and is related to Vina Capital — a financial & property investment company based in Vietnam.
Currently, I find the local robo-advisories’ fees to be OK for small accounts, but expensive for large accounts because there is no cap, unlike in the US. Their advantage will be for those who want to have a relatively diversified portfolio, but who are too busy to mange & balance a bunch of ETFs, and/or those whose starting capital / DCA amount is too small to invest into a group of ETFs in a cost-effective manner.