Keep Commission Model, Say Financial Advisers, Managers

A friend highlighted this article to me a few days ago and I had quite a reaction to it.

The following are quotes from the article (bold emphasis added by me) and my comments:

An ad-hoc alliance of about 15,000 financial advisers and managers are hoping to sway a review panel, which is considering, among other things, doing away with the commission model that most insurance and financial advisory firms use.

It is entirely expected that all 13,000 tied agents would fight tooth and nail against the ban of commissions. Why? It’s simple – nobody would want to pay a fee to a person who is a sales representative of a product manufacturer. The old model worked because it was merely the transaction of products – advice is given “free” and the client will take up the product if he is persuaded enough, earning the agent commissions. The other 2,000 advisers probably come from financial advisory firms which are new-age financial sales agencies, just that they have more products to sell.

The alliance is arguing that the move towards a fee-only model – essentially a fixed fee for advisory services – would endanger the livelihood of the financial advisers.

I have established the case that there are already way too many practitioners in this industry. I think advisers who do not want to – or cannot – serve clients’ interests should rightfully leave the industry. Quality is more important than quantity.

It is also refuting an assertion by Monetary Authority of Singapore (MAS) Managing Director Ravi Menon that the commissions can amount to 160 per cent of the annual premium of a product.

Commissions may be less than 160%, but what about total distribution costs (which includes commissions, bonuses and various other agent incentives)? My sales training in my past experience focused on products that consist of distribution costs that amount to more than 180% of the annual premium of the product. A quick check at the sales roadshows near MRT stations and shopping malls will find many agents pushing this kind of product – especially when they have rents and free gifts to cover for.

Commissions are only a part of the story when there are bonuses and various incentives like overseas trips and free laptops the agent gets when he hits targets.

The review panel’s proposals, if adopted, would see the industry undergo the most wide-ranging shake-up in more than a decade.

The changes are already way overdue because we are rapidly approaching an entire generation of Singaporeans who are neither well-insured or prepared for retirement due to the bad quality of advice dispensed by practitioners. In fact, 13,000 tied agents and their agencies have resisted the shake-up in 2002 when the Financial Advisers Act was introduced.

This industry has proven that it does not like change when it is done for the better of the clients as it affects its bottomline. The commission model and “caveat emptor” (buyers beware) have failed and ordinary Singaporeans are facing the repercussions of an industry that uses “financial advisory” as a euphemism for “financial sales”. The regulator has to thus make a tough decision in light of strong opposition from this “alliance”.

To be continued.

Thumbs up to keep me writing more!

10 responses.

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  • Reply
    Annon said 2165 days ago:

    Lol, this is a classic example of quoting articles out of context. You pick all the negatives and ignore all the positives. Further, there any many points not discussed within the article, and you have failed to think further. There’s no insight in your write up. Please provide a more balanced and responsible write up.

    • Reply
      Seth said 2165 days ago:

      How is this quoting out of context when I link to the full article for all to read, as well as quoting blocks verbatim?

      I open up comments so that free discussion can be held; Instead of baselessly asserting on my flawed write up, do feel free to point out the “positives” and how my piece is lacking in “insight”, “balance” and “responsibility”.

      Ironically, you have proven my point that all 13,000 tied agents will fight against the ban of commissions. I know that you are a tied agent; no need to hide behind an anonymous moniker to criticise.

  • Reply
    Annon said 2164 days ago:

    I’m not really trying to hide, after all, I did leave my email for you to contact me if you wanna discuss topics off the board.

    Maybe consider this: What are the goals in the insurance industry. What is the current penetration rate for insurance. Are Singaporeans adequately insured.

    Would a fee based system or a commission based system serve more Singaporeans. Consider Uk and Australia amongst the other fee based countries. How has that served the citizens, and the insurance industry.

    Another point, is a fee based approach being fair to the low income, the middle income, the fresh graduates, the inexperienced.

    Lastly, how should a fee based approach be governed. Should there be rules to limit or cap fees?

    Of course, feel free to show some creativity and add some of your own ideas to discuss.

    • Reply
      Seth said 2163 days ago:

      A lot of the points you raised have been touched on and can be deduced from this entry as well as other of my posts on the blog. For example, I do not need to keep repeating that Singaporeans are underinsured in every single entry I write – my reader already knows that. Moreover, I am aiming for brevity (even though most of my articles are pretty wordy already); it is not meant to be a thesis or white paper on the commission-based model.

      Anyway, I have always intended to elaborate more on the topic. Do you not see the words “to be continued”?

      A fee remuneration model has its own considerations but that is another article for another day because the contention now is the commission-based model. The ad-hoc alliance is not concerned with ironing out the kinks in a fee model; it is concerned with keeping the commission model just the way it is. Commissions create an inherent clash of interests between practitioners and consumers and an alternative remuneration model needs to be found, and yet the industry wants to keep it – this is the topic at hand.

      You said that I have ignored “all the positives”. Do share these “positives”.

  • Reply
    Annon said 2163 days ago:

    It should be quite clear which are some positives (from the article). If I remember right, one talks about how consumers surveyed do actually want to keep the model as they enjoy how advisers actually stick with their clients throughout their lifetime and provide good service.

    Anyway, if you are trying to say that because somewhere on your blog you have touched on some of the points I mentioned (if you did), then I think that isn’t really being fair to the readers out there. Because, we should be mindful that each post we write can very well be the only post that a reader chances upon.

    As for your ‘to be continued’, come on.. You really want me to believe that if in your first post for this topic you are gonna be so one dimensional, you’re gonna suddenly change your style of writing altogether for the next continuation? It’ll probably be even more biased.

    • Reply
      Seth said 2160 days ago:

      Thank you for clarifying that things ought to be quite clear from the article which I linked to and quoted in its entirety. How again did I take things out of context?

      Please point out more “positives” since you have made a very damning accusation that I have ignored “all the positives”.

      Besides, I am very obviously writing my reactions to the article in sequential order. That part will come later.

      The article tries to imply that commissions are not as high as people say they are. I am merely pointing out that commissions and distribution costs are indeed high. I am rebutting the article point-by-point and I am not even halfway done but I can see you are very eager to prove my point by being one of the tied agents screaming and fighting against your beloved commissions.

      Kindly identify yourself and the company you represent rather than present yourself as a “concerned reader”.

  • Reply
    Annon said 2157 days ago:

    I’ll leave it to touch on the other points of the article when you ‘continue’ your write up on it.

    Anyway, I left my name as Annon for the very reason that I don’t believe who I am or how I earn a living matters in this situation.

    If I am a ‘tied’ agent, if I am a F&B business owner, if I am a civil servant, if I am a university student, is there a difference? My views and the mini ‘discussions’ I try to touch on should be the only important thing.

    I mean, even if I were working in a fee-based FA firm, would it matter? Maybe I just dislike your one sided arguments. A black sheep is all it takes.

    • Reply
      Seth said 2152 days ago:

      Tied agent representing Company P, you may cut the act of objectivity, and thank you for proving my point about how tied agents will do just about anything to fight against any changes to their precious commission-based model.

  • Reply
    Shawn said 2052 days ago:

    Ok, understood that Tied agents are natural commission suckers. What about fee based agents?

    Do they receive any form of monthly wages and entitle to Annual Wage Supplement and Performance Bonus from the company?

    • Reply
      Seth said 2046 days ago:

      It depends on the adviser/firm.

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