Banking on a Sunrise Industry is important and financial services is indeed a rising star as Singapore becomes one of the world’s largest financial centre and hub. But choosing the right business model comes next and the Independent Financial Adviser (IFA) serves clients’ interest best compared to the other players. But even among so called IFAs, there are the truly independent and those who are not. Make sure you select one which truly is independent and offers wide choices.
The Right Industry, The Right Firm
As Singapore rapidly becomes one of the world’s largest financial centre and hub, the financial services industry is the rising star in our economy. Manufacturing, which contributed much to Singapore’s economic growth for many decades is contributing less and less while services, and particularly financial services, is becoming the key economic driver.
Legislation, especially the Financial Advisers Act which came into effect in October 2002, has led to convergence and consolidation. Whereas there were once business barriers between banking, finance, insurance and stockbroking, the scene today is that of an open playing field. Every one of these firms (banks, finance companies, insurance and stockbrokers) is now able to provide a wide range of financial services and products. But the true Independent Financial Adviser or IFA who is specifically licensed by the Monetary Authority of Singapore, is the distribution model which champions clients’ interest best by combining INDEPENDENCE and CHOICES. Clients are finding that they can best expect independent and fair and objective advice AND best-value products and services from IFAs.
WHO IS TRULY INDEPENDENT?
You may not be able to tell from the name of the company or the job title. You have to ask specific questions of the Representative and the firm. TITLES are just titles.
Titles like Financial Services Consultant or Financial Planner are not regulated by the MAS. The titles which are regulated are Financial Adviser which refers to the company and Financial Adviser Representative which refers to the person.
The majority of individuals who use the titles of Financial Services Consultant or variants of it are tied agents of life insurance companies. As defined by law, agents represent the interests of their companies and not the client’s interests. And tied agents in Singapore are only able to distribute one life insurer’s products.
Among licensed Financial Advisers (the companies), many are not INDEPENDENT and are only required to give advice which is “reasonable” and not “fair and objective”. They are also not required to offer choices and may be obligated or committed to support one insurer more than the others.
Applicants should check whether a firm is truly independent. One way to tell is whether INDEPENDENT is in the company name. Another way is to check who owns the company since an insurance company or stockbroking firm may own FA firms also. Firms owned by insurance companies, are to be expected, likely to give preference to their own insurers’ products. It is also useful to check which are the product manufacturers these firms are able to place business with to ensure you have wide choices.
What about EXEMPT Financial Advisers?
The representatives of firms which are exempt Financial Advisers (banks, stockbroking firms, insurance companies) are only expected to give “reasonable basis” advice which is defined in the Financial Advisers Act, and not “fair and objective” basis. Under reasonable basis, the Representative has to base his recommendation having regard to the information processed by him concerning the investment objectives, financial situation and particular needs of the person.
However, under “fair and objective” basis, the Representative must not be influenced by the commission of products and must be able to select products for clients from at least four product providers.
To the question which company should you join, the “model” answer is the Independent Financial Adviser which serves clients’ interest best by being truly independent and offering lots of choices of products and services.
While training can help one improve on a Representative’s score on advice, only independence and multi representation of product manufactures (insurance companies, fund managers etc.) can improve his score on solutions and giving clients best values.