Oversupply of Financial Practitioners And Its Effects

Singapore has a population of about 5 million while the number of practitioners in the financial advisory industry can be estimated to be about 20,000 to 30,000. This includes tied insurance agents, Financial Adviser firm representatives and banks’ financial services personnel. It is a considerably large number for our population size. How so?

Let’s look at how we compare to other countries:

Country Population No. of Advisers1 Ratio
United States 311,000,000 310,000 1,003:1
Australia 22,000,000 18,000 1,222:1
United Kingdom 62,000,000 20,000 3,100:1
New Zealand 4,430,400 1,963 2,257:1
Singapore 5,183,700 20,000 259:1

If we take the number of practitioners to be 20,000, there are only 259 people to each adviser, a far cry from United States’ 1,000 and United Kingdom’s 3,100. We have more advisers than Australia, a country which has more than four times our population!

Compared to other professions in Singapore

In comparison with other professions within Singapore such as those in the medical field, there are 555 people per doctor2 and 3,400 people per dentist3 in Singapore. Is there a need for Singaporeans to visit a financial adviser more often than he or she does a doctor or dentist? I highly doubt it. Yet, one can spot advisers virtually wherever there is dense human traffic – the word “adviser” used loosely since most merely practise product pushing at places like MRT stations, shopping malls and even IT conventions.

To further put things in perspective, there are no age restrictions on the people a doctor or dentist can see, while a financial planner’s potential clients are typically from the workforce. This reduces the already tiny number from 259 to just 168 since approximately 65% of the population are employed.

Ramifications of an excessive number of advisers

The financial needs of Singaporeans are also not adequately addressed by this large number of advisers. Reports show that Singaporeans are not financially well served by the financial advisory industry – less than 2 in 10 Singaporeans are ready to retire4, and most Singaporeans are underinsured5. It is my contention that the excessive number of advisers actually deteriorates the quality of financial advice.

Since there are so many advisers, competition over the solicitation of clients is intense – every single client an adviser can secure is another precious source of business to add to his commission and sales quota. Is it any wonder that overpriced policies are recommended in an attempt to maximise the revenue from each client? Leaving them underinsured and ill-prepared for retirement also preserves them as viable prospects for future business.

“Problems recommending term insurance”

I read with interest a comment left on a blog I frequent:

I agree with the comment’s suggestion that agents will have problems recommending term insurance if he has too few potential customers. The situation of an adviser having a small number of potential customers is largely the result of an oversupply of advisers. This is clearly a systematic problem that greatly hinders an advisers’ ability to recommend low cost solutions.

Reluctance to do proper financial planning

Moreover, people have become averse to financial planning due to the poor quality of advice as mentioned, coupled with the constant harassment from self-styled planners on the streets or via telemarketing. Product peddlers have rendered the term “financial planning” to a euphemism for “financial product sales”. Consequently, there is little demand for fee-based, proper financial planning because people think that they have done it by purchasing financial products.

The financial advisory industry that Singapore needs

The old adage of quality over quantity holds true for the financial advisory industry, but the industry will not change its spots willingly. Companies will continue to recruit as their sales will grow with the number of salespeople they manage to attract. Until market forces and/or regulators drag the industry screaming and kicking into better shape (if ever), individuals should exercise their own discretion in picking an adviser. Currently, the odds do not look good.

  1. Ranks of U.S. financial advisers shrinking–study
    Wanted! More independent financial advisers
    How many financial advisers operate in Australia?
  2. Statistics Singapore – Key Annual Indicators
  3. Dentist numbers in Singapore set to rise
  4. Less than 2 in 10 Singaporeans are ready to retire financially: Nielsen
  5. Most S’poreans not well insured: AIA poll
Thumbs up to keep me writing more!

4 responses.

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  • Reply
    hyom said 1912 days ago:

    Hi SethWee,

    I just stumbled onto your blog and I think your post is quite good. Let me share some thoughts on my own experience with insurance agents.

    I have been aggressively sold whole-life and endowment policies. So-called “good friend” of the family promoted endowment policies when she herself mainly bought hospital/health insurance for her own kids but did not mention anything about the health policies.

    I think term insurance are the best value-for-money deals if the main purpose is protection (I don’t like to mix insurance with savings, investment). Despite letting my preference known, most insurance agents either try to persuade me otherwise or simply walk away. Why waste time on someone with no profit potential? On self-reflection, can I really blame the insurance agents? I blame the insurance companies for setting the wrong kind of incentives that drive our insurance agents to behave badly towards Singaporeans. Can anyone honestly say he will sell term policies if he is paid on a commission basis? Financial planners who sell term policies are fee-based, not commission-based. Are they more ethical than the commission-based who sell policies that cause Singaporeans to pay a lot for insurance and still remain under-insured? I don’t think so. I think the problem does not lie with our financial planners not being ethical. The problem lies with the insurance industry in setting the wrong incentives that reward bad behavior. If behaving unethically leads to the million-dollar round table, you can be sure most of the knights on the round table do not get there in an honorable manner. The cause of the problem is insurance agents being paid mainly on commission.

    If Singaporeans want to get good financial advice, they have to pay for it. Unfortunately, if that does not come cheap enough, then fee-based financial service will evolve to serve mainly the rich. Do you see that as a possible trend?

    Nevertheless, advice that cost money(even if very expensive) is still preferable to free but biased advice.

    • Reply
      Seth said 1911 days ago:

      Hi hyom, I do indeed recommend term policies to every client when life insurance is required and I am remunerated by commissions. But I guess you are right too, because I am looking at moving towards charging fees when practicable.

      Thanks for your comment!

  • Reply
    Wilfred Ling said 1906 days ago:

    For New Zealand, there are 1963 financial advisers and with a population of 4,430,400, the ratio is 2257:1

    Sources:

    http://www.fma.govt.nz/help-me-comply/financial-advisers/how-to-get-licensed/afa-application-resources-and-templates/list-of-authorised-financial-advisers-(afa)/

    http://en.wikipedia.org/wiki/New_Zealand

    • Reply
      Seth said 1903 days ago:

      Thanks Wilfred, have updated the post accordingly.

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