Published Date: 14 July 2015

"Financial Advisers (Amendment) Bill" - Second Reading Speech by Mr Lawrence Wong, Minister for Culture, Community and Youth and Second Minister for Communications and Information on behalf of Mr Tharman Shanmugaratnam, Deputy Prime Minister and Minister in Charge of the Monetary Authority of Singapore on 13 July 2015

1 Madam Speaker, I beg to move, "That the Bill be now read a second time".


2   In 2012, the Monetary Authority of Singapore (“MAS”) launched the Financial Advisory Industry Review (“FAIR”).  A panel chaired by MAS was set up to explore ways to enhance the professional standing and competence of the financial advisory industry and to create a more competitive and efficient market for the distribution of life insurance policies and investment products.  The panel, which includes representatives from the industry and consumer bodies, consulted the public and received over 1,300 responses and suggestions.  The panel subsequently made 28 recommendations in January 2013, most of which were accepted by MAS, after another public consultation.

3   The proposed amendments to the Financial Advisers Act (“FA Act”) will give effect to the accepted recommendations made by the panel.  Amendments will also be made to facilitate inspections of financial advisers by foreign regulatory authorities.

4   The enactment of the FA Act in 2002 helped to transform the landscape for financial advisory services in Singapore.  There is now greater consistency and better quality in the advisory services provided on both life insurance and investment products.  Financial advisers have also made steady progress in upgrading their standards and professionalism.  The FAIR initiatives will build on this foundation and put the industry on a stronger footing to meet the needs of consumers for more holistic financial advice in a more complex financial landscape.

5   MAS has consulted the industry and the public on the Bill amendments.  The feedback received has been carefully considered and incorporated into the Bill where appropriate.

6   Madam Speaker, I will now go through the main amendments in the Bill.


7   The first set of changes is in relation to the remuneration structure of the financial advisory industry.

8   Representatives of financial advisers (“FA representatives”) and their supervisors are today remunerated largely based on sales performance.  To better align the interests of FA representatives and supervisors with those of consumers, the Bill will require financial advisers to implement a remuneration framework that also incorporates non-sales key performance indicators (“KPIs”).  These non-sales KPIs include assessments on whether the representative has taken steps to understand the customer’s needs, recommended suitable products, provided adequate disclosures and conducted himself professionally.  A significant proportion of the remuneration of FA representatives and their supervisors will depend on how well they meet the non-sales KPIs.  All financial advisers will have to establish an independent sales audit unit to audit the quality of the financial advisory services provided by their FA representatives.

9   The Bill will also vest MAS with the powers to regulate the payment and receipt of remuneration of financial advisers, representatives and supervisors. This amendment will improve the remuneration practices of the financial advisory industry in two areas:

(a)  The commissions paid to FA representatives and their supervisors for sales of life insurance policies are currently heavily front-loaded, with the bulk payable in the first year of the policy.  The Bill will limit upfront commissions and require total commissions for a life policy to be spread over a specified period.  This change will create an incentive structure for FA representatives to support the continuous needs of their customers even after the purchase of a financial product.

(b)  Financial advisers and their representatives may be given short term incentives that are tied to sales of a specific investment product or type of investment product.  To guard against any undue influence from these incentives in the choice of product recommendations, MAS will prohibit the industry from offering such incentives to financial advisers and their representatives.  This will encourage financial advisers and representatives to focus solely on recommending products that are suitable for their customers.

10   These changes will better align the interests of financial advisers and their representatives with those of their customers.  We are not alone in regulating the remuneration of financial advisers.  Countries such as the United Kingdom, Netherlands and Australia have also moved in the same direction in recent years to better protect consumers. 


11   The second set of changes concerns making the provision of financial advisory services a dedicated profession.  To ensure that customers continue to receive good advice, it is important for financial advisers and their representatives to be primarily focused on their financial advisory roles. 

12   The Bill will allow MAS to restrict licensed financial advisers from conducting non-financial advisory activities which conflict with their financial advisory roles, result in a neglect of their financial advisory duties, or bring disrepute to the industry.  This restriction would also apply to all FA representatives.


13   The third set of changes will strengthen MAS’ regulatory powers over insurance brokers.  Currently, insurance brokers registered under the Insurance Act are allowed to provide financial advisory services upon notification to MAS.  While these firms are subject to financial requirements for their insurance broking activities, no additional financial requirements are imposed on their financial advisory activities as the scale of their financial advisory business has been small.

14   However, over the past few years, there has been an increase in the number of insurance brokers expanding the scale of their financial advisory activities.  Some of these insurance brokers may not have adequate financial resources to support their larger financial advisory business.  To address this risk, the Bill will empower MAS to prescribe or vary the financial or professional indemnity insurance requirements for insurance brokers which are similar to those currently imposed on licensed financial advisers.


15   The Bill will also empower MAS to approve inspections of financial advisers in Singapore by their foreign parent regulatory authorities.  Such inspections will allow foreign regulatory authorities to carry out effective consolidated supervision of financial groups headquartered in their jurisdictions.  


16   Madam Speaker, these amendments to the FA Act are part of MAS’ efforts to strengthen the financial advisory industry so that it can continue to grow with the changing needs of customers.  MAS will work with the industry to uphold the image of a highly competent and professional workforce, able to cope with fast-evolving market and technological changes, and dedicated to meeting consumers’ needs.  

17   Madam Speaker, I beg to move.