A mystery shopping exercise carried out by the Monetary Authority of Singapore (MAS) recently suggests that the customer’s best interests may not be paramount with all advisers.
The law lays down that a rigorous and structured sales process has to be undertaken before any investment or insurance recommendation is made.
But the MAS found that for many financial advisers, the fact-finding process did not extend beyond basic information. About half of the 500 advisers checked did not ask about financial objectives or risk tolerance.
Alarmingly, 30 per cent of products recommended were unsuitable, as self-employed Ms Marie Tan can attest.
Ms Tan, 38, said she went to an NTUC Income outlet with her mother last March with the intention of buying a pure investment policy for her mum.
“We had specifically stated to (the adviser) that we would like to have a pure investment policy similar to the Ideal plan, which NTUC used to offer. The agent told us that the Ideal plan was discontinued and replaced by Vivolink,” she said.
Thinking that her instructions were clearly understood by the agent, Ms Tan’s mother, who is in her 60s, bought the plan.
But when she called to check on the value of the policy last month, she was informed by the call centre agent that only 45 per cent had been invested while the rest went to paying for insurance premiums.
“It was not what we wanted as we don’t need any insurance protection. The agent did not highlight to me that the Vivolink is an investment-linked insurance policy,” said Ms Tan.
She admitted that she should have read through the documents of the new Vivolink plan instead of making the assumption that it was the same as her previous policy, even though she knew of the 14-day free-look period.
There will be many issues that have to be highlighted and discussed before a product is recommended and often, it may not be easy to discern if your adviser is looking out for you or just treating you as a source of revenue.
Mr Lee Chuan Teck, assistant managing director of MAS, added: “If we do not make an effort to understand our clients’ needs, how do we expect to recommend the right product to them? I believe that some of the representatives could be acting more as product distributors than as financial advisers.”
So what should an adviser discuss with you before he makes any recommendations? Here are the five key issues that must be raised.
1 What is in your current portfolio?
First and foremost, your adviser should have a clear idea of what insurance coverage you already have and what investments you hold.
This is to ensure that you do not buy products that you do not need. For example, most people just need one life or term insurance policy as well as personal accident, critical illness and hospitalisation and surgery cover.
The adviser should also note what is the sum assured, and you can let him know if you wish to increase your coverage.
Mr Alex Lum, director of the MoneySense-Singapore Polytechnic Institute for Financial Literacy, added that you should ask the adviser how the recommended product would complement the existing portfolio and will it leave you overly exposed to certain assets.
2 What are your financial objectives?
Your adviser should understand what you are trying to achieve.
Are you saving to finance your children’s education or building up your nest egg? This will determine your investment horizon.
In the MAS mystery shopping survey, nearly 50 per cent of the financial advisers left out this pertinent question, which is one of the the reasons why Mr Lee finds the survey results “disturbing”.
3 Are you a risk taker?
Every investor has a different risk appetite, and similarly, some products entail higher risks, or lower returns.
Mr Lum said investors need to understand the risks and how much of your investment you could lose in the worst-case scenario.
An adviser should be able to set out these risks, leaving you to consider how comfortable you are taking on the investment.
4 The source and amount of your regular income
Advisers should only recommend products that suit your income level.
When the adviser makes a recommendation, you should find out how long the payment period for the product is.
And make sure you tell the adviser if you expect your liabilities to increase in the short to medium term, for example, if you plan to get married or buy a car.
5 What is your educational qualifications and investment experience?
If you are a seasoned investor, your adviser may not need to explain basic concepts or features of the investment product.
However, if you are a first-time investor or do not have a good grasp of these issues, your adviser should take the extra effort to list the features and risks of the product.
While financial advisers have a key role to play in the advisory process, consumer also have to take adequate steps to protect their interests.
MoneySense, a national financial education programme, recommends that consumers deal with qualified financial advisers regulated by the MAS.
Consumers should also research the products they intend to buy before meeting an adviser.
Marketing executive Karen Chan, 26, makes an effort to read up on the different investment products or insurance coverage before she discusses them with her adviser. “They have the knowledge, but in recommending a product, they use their professional judgment, which may or may not be the best option for me,” she said.
“I find that when I am able to engage them in a meaningful conversation on the pros and cons, I make the most of the advisory process, which enables me to choose the most suitable product.”
WHAT MAS FOUND
Between October and December last year, 126 “shoppers” – people posing as normal customers – made 500 visits to 11 banks and four insurance companies seeking advice from representatives.
They found that:
Were not asked about their risk tolerance or financial objectives
Were not asked for their investment experience.
Discussed fees and charges
Of the products recommended were not suitable
In addition, less than half provided warnings, exclusions and caveats, as well as a product’s free-look period.
“If we do not make an effort to understand our clients’ needs, how do we expect to recommend the right product to them? I believe that some of the representatives could be acting more as product distributors than as financial advisers.”
MR LEE CHUAN TECK, assistant managing director of the Monetary Authority of Singapore
Read up beforehand
“I find that when I am able to engage them in a meaningful conversation on the pros and cons, I make the most of the advisory process which enables me to choose the most suitable product.”
MARKETING EXECUTIVE KAREN CHAN, on doing research on the different products before meeting with her adviser