Promoting responsible recruitment in the financial advisory industry
Singapore, 7 March 2018... The Monetary Authority of Singapore (MAS) has proposed measures to address the risks associated with large scale movement of financial advisory (FA) representatives from one FA firm to another. These measures, set out in a paper for public consultation, seek to safeguard the interests of consumers by promoting more responsible recruitment practices in the FA industry.
2 The recent mass recruitment of representatives by FA firms from competitors was accompanied by sizeable sign-on incentives. A large part of these incentives 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.
3 MAS proposes four measures to address this risk1:
(a) The first year sales target tied to sign-on incentives should be no higher than the representative’s average annual sales in the preceding 3 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. This measure mitigates the risk of representatives engaging in aggressive sales tactics to meet inflated sales targets.
(b) Sign-on incentives should be spread over a minimum period of 6 years. The first year payment should be capped at 50% of the representative’s average annual remuneration in the preceding 3 years. The remaining sign-on incentives are to be spread evenly over the next 5 or more years. This measure fosters 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.
(c) FA firms will be required to claw back the 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 threshold2 two years after the representative’s departure.3 This measure deters representatives from encouraging customers to surrender existing insurance policies and to buy new ones from the new FA firms, without due consideration of whether the switch is suitable.
(d) FA firms will be required to undertake enhanced monitoring of their newly hired representatives’ sales transactions for a minimum period of 2 years. This includes appointing an independent external party to conduct customer call-backs to verify that the sales and advisory process has been properly conducted.
4 The offer of large sign-on incentives may drive up costs in the industry. MAS has therefore made it clear to the industry that financial incentives offered by an insurer or its related FA firm to recruit representatives from another firm cannot be charged to the insurance funds as an expense.
5 The public consultation will end on 9 April 2018. More details can be found on the MAS website.
1 Measures (a) and (b) will apply whenever a representative is offered sign-on incentives pegged to sales targets, whereas (c) and (d) will apply only to the mass movement of 30 or more representatives from one FA firm to another within a 60-day rolling period.
2 The threshold is set within the range of 75% to 85%.
3 This measure relates to the persistency ratio, which refers to the percentage of regular premium life and accident & health policies that remain in force without lapsing or being replaced by another policy.