The Monetary Authority of Singapore has published a consultation document in which it seeks comment on proposed new regulations that it says would “address the risks associated with large scale movement of financial advisory representatives from one financial advisory firm to another”.
The new regulations, proclaimed in a statement announcing them as being aimed at “promoting responsible recruitment in the financial advisory industry”, were published on the regulator’s website on Wednesday.
Explaining the thinking behind the new reguations, the MAS noted that the “recent mass recruitment of representatives by financial advisory (FA) firms from competitors was accompanied by sizeable sign-on incentives”, “a large part of” which is usually paid up-front, and tied to sales targets that these representatives must meet.
“Such recruitment practices increase the risk of FA representatives engaging in aggressive sales tactics in order to meet the sales targets and retain their sign-on incentives,” it adds.
The document, which may be viewed here, goes on to name four measures the MAS believes would reduce this risk.
A report in the Straits Times, also on Wednesday, quoted MAS deputy managing director of financial supervision Ong Chong Tee as saying that the four proposed measures about which the industry is being asked to comment had been “co-created with the industry”.
The four proposed measures are as follows:
- The first-year sales target set by advisory firms, which ties the new adviser’s sign-on incentive to achieving a certain level of sales in their first year, should be “no higher than the representative’s average annual sales in the preceding three years”.”Sales targets for subsequent years should be set at a reasonable level based on the representatives’ past performance, and would be subject to supervisory review by MAS,” the proposal continues, noting that this would mitigate the risk of the sales representatives “engaging in aggressive sales tactics to meet inflated sales targets”.
- Any sign-on incentives extended to new representatives should “be spread over a minimum period of six years” and the first-year payment “should be capped at 50% of the representative’s average annual remuneration in the preceding three years”. Any remaining sign-on incentives would then be “spread evenly over the next five or more years”.This, the MAS notes, would “[foster] better after-sales service to customers, as the payout of incentives may be withheld if a representative is subsequently found to have engaged in improper sales conduct”.
- Financial advisory companies in Singapore would, under the new regulations, be required to claw back a representative’s sign-on incentives “if the percentage of insurance policies serviced by the representative at his previous FA firm, and which remain in force, falls below a certain threshold, two years after the representative’s departure.” This measure, the MAS explains would “[deter] representatives from encouraging customers to surrender existing insurance policies and buy new ones from the new FA firms, without due consideration of whether the switch [would be] suitable” for the individual in question.
- Under the new regulations, advisory firms in Singapore would be required to undertake “enhanced monitoring of their newly hired representatives’ sales transactions” for a minimum of two years. This would include the appointment by such firms of an “independent external party” to conduct customer call-backs, in order to “verify that the sales and advisory process has been properly conducted”.
The first two measures would, according to the MAS document, “apply whenever a representative is offered sign-on incentives pegged to sales targets”, whereas measures 3 and 4 would “apply only to the mass movement of 30 or more representatives from one FA firm to another within a 60-day rolling period”.
The consultation ends on April 9.
Competition for experienced financial advisers in the Singapore market has been intense recently, as the jurisdiction’s status as a regional wealth management hub has grown, and as a number of major insurance companies have gone into the advisory business.
In 2016, for example, UK insurance giant Aviva unveiled a major, 280-adviser strong operation in Singapore, joining such insurance industry rivals as Old Mutual Wealth, which had just acquired the 30-adviser-strong AAM Advisory firm, and Manulife, the Canadian financial services group, which in 2015 had launched Manulife Financial Advisers there.
In July 2015, The Business Times, a Singapore business news publication, reported that three months into its birth, the Manulife business had “upset potential partners, including Zurich Life Insurance (Singapore), AXA Singapore and AIA Singapore”, by poaching so many of their staff.