THE past few years have been an uphill climb for the financial advisory sector. Volatile and sliding markets have shrunk assets under advisory and portfolio fees. As revenues fell, costs have stayed steady or even risen as competition for qualified advisers intensifies, putting pressure on firms to pay their representatives a larger share of revenues. As if all that was not challenging enough, the regulator's ongoing review of the industry has raised scrutiny on firms' capital structure, advisers' qualifications and fee or revenue models. A shakeout is underway and over the next two to five years, there may well be significantly fewer firms and representatives in business.

With this in mind, the Monetary Authority of Singapore's mystery shopping exercise is eye-opening and sobering. The survey, involving 11 banks and four insurers, found that the quality of advice fell far short of ideal. In the fact-find process, for instance, 40 per cent of financial service providers did not enquire about the customer's investment experience. Half did not ask about financial objectives or risk tolerance - items that are surely a must in order to match needs with solutions. Significantly, some 30 per cent of products recommended were unsuitable. The last time a similar exercise was done in 2006 - albeit with differing parameters - the results were also disheartening. It appears that in the space of six years, the advisory landscape has barely improved. In fact, in some ways, it seems to have regressed.

The way forward is by no means clear cut, simply because the imperatives of business - to clinch a sale and raise revenues - may often be at odds with what is best for clients. In a speech last week, MAS assistant managing director Lee Chuan Teck highlighted two key roles for advisers: to educate customers on financial planning; and to bridge the information gap, so to speak, between product providers and consumers. Both roles are important and arguably germane to the advisory function. But they are time consuming and may not generate revenues, at least not at the outset.

The crux is to align advisers' interests with clients'. A commission-based remuneration, which is the case among insurance agents and most licensed representatives, suggests that advisers are essentially sales people. This is the case too among bank representatives, who have a slightly different remuneration structure, but who still clearly act in the bank's interests rather than the clients'. Given these facts, the dreary results of the mystery shopping exercise are not surprising. While an outright ban on commissions is unlikely to be feasible, the ultimately goal must be for advisers to take on a fiduciary role, putting clients' interests first. This suggests advisers should not be remunerated by product providers or distributors, but instead, by clients themselves. As the debate on commissions versus fees remains contentious, disclosure at the very least should state how the adviser or representative is remunerated and all potential conflicts of interest. This surely is a key step towards more informed financial decisions.