Seth’s Blog on Finance

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:

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 ↑