THE financial industry is in for another dramatic shake-up, this time involving tens of thousands of insurance agents and financial advisers that make their living through commissions.
The Monetary Authority of Singapore (MAS) said yesterday that it will launch a Financial Advisory Industry Review (Fair) aimed at lowering the costs of these products and raising the quality of advice given by those who sell them.
Chief among the sweeping proposals is a move to relook the cost of buying life insurance policies.
This is currently a tiered structure which sees the customer paying commissions not only to his agent, but also his supervisors.
Financial advisers, who can sell a variety of investments, will have to be better-educated to serve a more literate and sophisticated public, as well as keep up with more complex products on the market.
'The overriding aim of Fair is to protect and benefit the consumer. Putting the customer first - that must be at the heart of all our efforts,' Mr Ravi Menon, managing director of MAS, said yesterday.
He announced the launch of the review at the 50th anniversary dinner of the Life Insurance Association yesterday, taking many in the room by surprise.
Among those left most worried by the impending changes are senior agents and managers who have benefited for decades by what Mr Menon described as a 'commission-based, multi-tier distribution structure'.
'Take for example a whole life insurance policy,' he said.
'Together, the total commissions and overrides earned by the representative and his supervisors would be equivalent to about 160 per cent of the insurance policy's annual premium.'
He added that these commissions, together with other costs, can account for as much as 8 per cent of the total premiums paid by a customer.
The panel will examine whether this commission structure aligns the interest of representatives with the long-term interest of consumers or adversely induces representatives to sell products that pay them higher commissions.
Mr Menon noted that Britain and Australia have already banned commission payments and are moving to a fee-based model.
Another key aim of the review is to increase the current entry requirement of four GCE O-level passes for financial advisers. This is too low and does not reflect Singapore's rising education levels or the increasing complexity of products, said Mr Menon.
In this area, Singapore is again behind Britain and Australia. Australia's current requirement is a diploma, and Britain will match that by the end of this year.
'I am heartened to note that some insurers are already consciously recruiting better qualified individuals... but we must level the playing field and make this the industry norm,' Mr Menon said.
MAS has noticed a worrying trend of representatives going into other activities, including moneylending and selling real estate.
It will look at banning them from these other activities deemed 'in clear conflict' with financial advisory activities.
'Some financial advisory representatives have even applied to the Casino Regulatory Authority for a junket promoter licence,' said Mr Menon.
Mr Seah Seng Choon, executive director of the Consumers Association of Singapore, said the changes were long overdue for an industry that needs 'a dose of enhanced professionalism'.
'Consumers can look forward to having advisers who are better qualified, and to a higher degree of professionalism in the industry.'
Mr Tan Kin Lian, former chief executive of NTUC Income and a long-time proponent of lower costs for financial products, also cheered the changes.
'MAS has re-affirmed quite strongly that the interests of the consumer is very important. Commissions should be capped, or even removed entirely, as consumers are paying far too much and are not aware of this,' he said.
Major industry players seemed to take the news in stride.
But Mr Tan Hak Leh, president of the Life Insurance Association, cautioned that there must be in-depth consultation with practitioners and sufficient time to 'assess the effectiveness and viability of the recommendations made'.