This article is inspired by this article YOUR PRACTICE-How to tell clients financial advice isn't free.
I have met many individuals who could not understand how financial advisers are paid. Very often, they think financial advisers have a salary. In Singapore, most advisers do not have a salary. They are self-employed. However, regulation requires them to be subject to a single Principal which is in charge of compliance, training and their competency. So here is a short article on how financial advisers are paid and why it is important for potential clients to understand it.
No salary (self-employed)
Most financial advisers are self-employed. They are like taxi-drivers who will only be paid if there is a case. Otherwise, they do not have any form of remuneration. Thus, their focus is to ensure they can sell a product. Without a product sale, there is no commission.
Fake salary (self-employed)
It is also possible for a financial adviser to have a ‘fake salary’. This occurs when the so-called salary has to be repaid through commission clawback. The ‘fake salary’ is none other than advancement. I always see some FA firms and agencies saying they pay $xxxx every month to the adviser which I suspect is a fake salary that has to be repaid.
To check whether is the salary a fake salary, check whether is there any CPF contribution and whether the adviser-principal contract is an employer-employee contract.
Since this fake salary has to be repaid through commission clawback, it means the adviser must sell products to earn sufficient commission to repay this debt. Again, the focus is on the product sale.
Real salary with super high quota
The financial advisers do have a real salary with CPF contributions. There will be a bonus if the adviser is able to exceed a certain quota which usually is ridiculously high. The bank uses this model.
Someone told me recently that a particular bank will pay a bonus of $3000 for every “$30,000 in Gross Revenue” to its adviser. To help you appreciate the meaning of this, a person who is self-employed adviser (fake salary or no salary), the commission equivalent is about $21,000! It is also equivalent to selling 10 policies of $2000 annual regular premium limited pay 25 years whole life!
If the adviser is unable to meet his quota, he will be fired within a few months.
Such a salaried adviser is actually the most worst off. He has to push products like crazy to his prospects and yet earn so little.
Real Salary with clawback
Such an adviser does get a real salary and his agreement with the Principal is an employment and employee contract. If the commission exceeds the salary, he gets an additional bonus equal to the difference between the commission and salary. If the commission is below salary, he will be fired.
It appears this model is worst off than an self-employed since a self-employed adviser’s sales quota is much lower and will not get fired so easily.
However, this model is used by financial advisers who are neither Singapore citizens nor Permanent Resident. They have to work in Singapore under Employment Pass (EP). As an EP holder, they must have a salary. Most expat advisers use this model.
The following is the summary:
- No salary (self-employed) – must push products to earn a living.
- Fake salary (self-employed) – must push products to pay off loan otherwise can become bankrupt.
- Real salary with high quota – must push products to fulfil super high quota otherwise will get fired.
- Real salary with clawback – must ensure commissions from products exceed the salary otherwise will get fired.
As you can see, that all four models focus around pushing products. Any financial advice given is only incidental to the transaction.
Not too long ago, I spoke to a lady who wanted some advice. Actually she wanted a second opinion. I told her that she can pay a fee to get advice or engage an adviser who does not charge a fee but will earn a commission by pushing her products. I explained to her the implication of these two models. Guess what? She said that she wants a product pusher (to that effect) because she did not want to pay for advice. I did not take on the case as I do not offer free advice.
So, how do I charge?
I benchmark my charges as half of that what a General Practitioner (GP) charges. A typical GP charges $25 for a 5 minutes consultation or $300 per hour. For my case, half of my time is on administrative and documentation for the purpose of compliance after the case is completed. The time spent on such administrative and documentation work is not charged to you. My effective fee per time is less than half of that of a GP.
The fee I charge is also in line with my qualification, experience and reputation as a leading professional financial planner (external link) in Singapore.
Many financial advisers and insurance agents charge you a much greater amount without you knowing by recommending expensive products with large hidden commissions. Some does not even have a basic financial planning qualification and experience.
I prefer to be transparent in how I deal with my clients. If you prefer transparency, I would like to meet you.
The following are relevant articles you must read to convince you that it is to your interest that you pay your financial planner instead of through hidden commissions:
- Why pay fee for advice when others provide free advice?
- Free advice could cost you your entire HDB flat!
Actually I do offer a very special rate for fresh graduate although I would charge the full rate if they are merely seeking a second opinion. See Fees & Charges for details.
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95% of so called advisers or those salesmen disguised as advisers with misleading titles
are NOT Interested in fee based advice because if they do they CANNOT
push those high commission products. Many of them are also not qualified.How could they with only those dogs and cats and cows can pass CMFAS toilet certs? Disgustingly they dare to call themselves Financial consultants or Financial planners to cheat and con their customers into beleiving that they are FINANCIAL EXPERTS. The problem is MAS thinks there is no necessity to regulate the titles whereas the Australian and UK regulators think otherwise
You must continue to campaign for fee based advisory model which is much fairer and beneficial to customers; lower cost for customers and objective advice that puts the customers’ interest first and above the advisers’.
In the light of what the minister of education is advising students pursuing tertiary education NOT to chase the paper but skills, it is timely also for MAS to stop setting those stupid cats and dogs can pass tikam tikam CMFAS license exams for insurance wannabees to ‘steal, con and cheat’ the public. MAS should consider raising the entry barrier to at least a diploma in financial planning if not a degree like its counterparts in UK and Australia.
Currently the exams only produce salesmen ,conmen and women.
Maybe Wilfred, you should write to the ST forum to remind MAS of its responsibility to the customers and public that only qualified and competent insurance agents with tertiary level financial qualifications be allowed to practise and NOT salesmen and conmen masqueraded as FINANCIAL EXPERTS with titles like financial consultants or senior or Executive Financial Consultants.. This are rubbish titles that insurance agents can’t fit them.
Imagine one day qualifications in plumbering and butchering can become heart surgeon.
You can’t believe it, insurance agents with string of letters after their names don’t know about finance but only wholelife and endowment or regular ILPs…..I found one with letters like certs in life, ILPs, gen. insurance, m9 ,m9a, dip in life insurance and all the worthless ABCs. I wonder whether the consumers know them. Maybe they think these agents are in all kinds of alhpebert soup business . And yes they are with slew of all kinds of wholelife and endowment crap soups.