Seth’s Blog on Finance

Banks Should Not Act Like Insurance Agents: ST Forum

I refer to the following letter sent to Straits Times forum by Ms. Jessie Loy:

Banks should not act like insurance agents

RECENTLY, my husband and I were looking to buy some insurance policies. As we had previous bad experiences buying through insurance agents who were keen on pushing only their own companies’ products, we thought of buying through banks instead.

Since most banks are now positioning themselves as one-stop centres offering a suite of financial products, we thought they would be independent. We were wrong.

Read Full Letter

Ms. Low and her husband definitely had the right idea when they avoided tied insurance agents, but visiting a bank for independent advice – between the sales quotas and exclusive bancassurance deals with insurers – is perhaps an exercise in futility.

Who else can one turn to then? Besides banks and tied agents, there are other types of financial advisers available. Non-independent financial advisers can offer a wider range of financial solutions than tied agents and banks, but similar problems exist – such firms are able to cut deals with product providers, getting extra remuneration for pushing a particular company’s policies. Some are even outright owned by insurance companies! Whatever the reason for their non-independence, it cannot be very consumer-friendly.

That leaves only the Independent Financial Adviser (IFA) firms. However, being from an IFA firm gives no guarantee that one’s financial planner is competent and ethical, but it is a very good way to narrow down a search for a good one. One still has to be prudent in finding an ethical planner who has one’s interests at heart.

A caveat to take note of would be that while IFAs in more mature countries like the United Kingdom and Australia are the dominant distribution channel and thus have access to all the product providers, the tied agency force remains the main player in Singapore even though it has been declining steadily and would continue to do so in future. This means that a small number of companies are still able to get by relying on their loyal agency force instead of distributing through IFAs. Personally, I feel that the reluctance to put their products up for easy comparison through IFAs suggests a lot about the competitiveness of their financial solutions.

In any case, consumers can do their part by being more financially aware and demand ethical and better advice from competent advisers. An increased demand for independent and competent advice will force a shift in the supply for it.

Again, Ms. Low and her husband definitely had the right idea – all they need to do is to visit an IFA.