Friday, April 30, 2010
Remove Commissions for Financial Planners
I read with interest the news in Channel News Asia regarding Australia coming up with certain regulations to do away with the commission based model of compensation for financial planners.
This is indeed something interesting that Singapore should consider exploring.
In today's financial planning industry, Singaporeans are limited to the banks, insurance companies and independent financial advisory (IFAs) firms. While a new breed of financial planners are still emerging that charge clients based on a fee based model, the public as a whole seem unprepared to pay for financial advice.
As such, a large majority of financial planners are still paid based on commissions. They are considered financial planners but they have sales targets and objectives to meet. In fact, insurance companies recognise their "best" financial planners as those who are able to achieve the most sales for the company. Just look through those advertisements in newspapers featuring the top financial planners and you will notice that they are called : "TOP PRODUCING FINANCIAL PLANNERS" , etc.
This basically means that these are the people in the industry who managed to make the most money for the company and themselves, not for their clients!
I have nothing against financial planners being paid a commission. The issue I have is the potential conflict of interests that arises when it comes to recommendations to the clients. Because a financial planners is compensated based on commissions, his or her judgement could be skewed to favor products that pay higher commissions. Sometimes, it could even mean recommending products to clients that are unsuitable based on their risk profile. This is worrying.
Considering that most Singaporeans are not saving enough for retirement, any bad financial planning advice will only be more detrimental to their overall financial health.
Singaporeans ought to debate more openly about this issue and demand for more professional financial planners to serve its entire population. It is time that Singaporeans as a whole consider the option of moving the financial planning industry towards one which pays its financial planners based on a fee. This is similar to seeing a doctor or a lawyer. When one needs professional and independent advice, it is best that the professional you are seeking advice from does not have to struggle with conflicts of interests.
There are limits to what regulation can do. If the market is not ready for fee-based financial planners, no amount of regulation by MAS will help. Singaporeans need to ask themselves whether they are willing to pay a fee to meet up with a professional financial planner.
Let's do away with commissions for financial planners. Let's move towards a fee-based model of compensation for all financial planners. What do you think?
Categories: Financial Planning
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