MAS says [1]: The second key role is to help clients understand the specific products they invest in. In this, financial advisers play an important leveling role in a disclosure-based regime such as the one in Singapore. In a disclosure-based regime, the issuer or distributor of a financial product has the obligation to disclose all critical information about the product, but the onus is on the investor to understand this information, place these in the context of the investment environment and then arrive at a judgement on whether this is suitable for them or not. The reality, however, is that investors have different starting points, with degrees of financial knowledge and experience, and thus will likely have different capacities to process the information disclosed. Professional financial advice fills in the knowledge gap for the less knowledgeable investors.
Wilfred’s comments :
In the world of extreme complexity, I find the disclosure regime is not working and it has never worked in other profession fields. The onus should not be on the consumer to arrive at their own judgments on whether the product is suitable for them or not. How can consumers make informed decisions when they only got a few weeks to educate themselves while the products were designed by specialists with decades of experience? It is something like this: When I buy a medicine, I don’t think I am expected to understand how it works. I don’t have to understand anything about its chemical composition and properties before I eat the medicine. The onus is on the medical professional to prescribe the right medication. When I buy a car, I don’t think I am expected to understand how an engine works before I drive the car. The onus is on the car manufacturers to guarantee that it works. Yet, it appears that the consumer is over burden by the tons of disclosures containing technicalities that only a specialist can understand. The irony is that there are even additional disclosures on how to read the disclosures itself! How ridiculous this going to be? Don’t believe me? In the past, it is sufficient to give the prospectus (which is a form of disclosure) when selling a unit trust. Now you need more materials to explain the prospectus namely the Product Highlight sheet. The Product Highlight sheets do not contain extra information. It is merely to explain the prospectus. Yet, the prospectus itself cannot be relied on because there is a disclosure (within the disclosure) which goes something like this:
“This Prospectus has been prepared in accordance with the requirements of the SFA. The Authority assumes no responsibility for the contents of this Prospectus. The registration of this Prospectus by the Authority does not imply that the SFA or any other legal or regulatory requirements have been complied with. The Authority has not, in any way, considered the investment merits of the Fund. “
If that is the case, it implies that the Product Highlight sheet cannot be relied on (since it is based on the prospectus).
For insurance, the endless number of pages of the benefit illustrations is itself a disclosure to explain the main disclosure which is the policy contract. Yet, the benefit illustration is so complicated that there is a need for a two page 'guide' to explain the benefit illustration which is a disclosure to explain the disclosure. The irony is that there is talk in town that the benefit illustration isn’t part of the policy contract!
But I do agree that a professional financial adviser is one who fills the knowledge gap. In other words, The financial adviser is knowledge gap filler. One of the key attributes of a professional is that he or she possesses knowledge and skill not commonly understood by the public. This does not mean that the profession possesses trade secrets. On the contrary, he possesses knowledge and skill not commonly understood by the public is because of the long length of study, research and experience. In Singapore, financial advisers are not professional because they only need a couple of weeks to study the M5, M8, M8a, M9, M9a and HI. These were designed for ‘O’ level students. It is so easy that any tom-tick-harry who can click a few buttons on the computer can pass. How can a financial adviser claim to be able to help a person make a few million dollars of retirement money by just studying a few weeks of exam designed for O level students?
For further reading on what is meant by professionalism, please read my article: What Is Really Meant By "Professionalism"?
[1] The full speech by MAS can be found here: HERE
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