Published Date: 06 July 2017

"Putting Customers at the Centre" - Keynote Address by Ms Merlyn Ee, Executive Director, Monetary Authority of Singapore, at the Association of Financial Advisers (Singapore) 16th Annual Conference, at the Grand Copthorne Waterfront Hotel, Singapore, on 6 July 2017

Mr Raymond Ng, Congress Chairman,
Mr Vincent Ee, AFA President,
Distinguished guests, ladies and gentlemen,

A very good morning.


    Thank you for inviting me to speak at your 16th Annual Conference. It is encouraging to see so many of you here this morning.

2     We have come a long way since the introduction of the Financial Advisers Act, or FAA, in 2002. MAS now regulates more than 500 financial institutions and over 38,000 representatives under the FAA. Financial advisory (FA) firms today offer a wide range of products and services. These range from insurance and retirement planning to independent financial advisory, and robo-advisory services more recently.

3     All of you are familiar with the Financial Advisory Industry Review, or FAIR. We undertook this review to raise competency standards, and to create a more competitive and efficient FA industry. Our work does not end there. While the measures introduced under FAIR were wide ranging and in some cases, a first in the world, we regularly review our regulatory regime to ensure that it continues to be fit for purpose. I would like to thank AFA for providing constructive feedback on our policy consultations and sharing your views on market developments.

4     The financial advisory business is one that is centred on customers. It is thus crucial to instil confidence that FA firms and their representatives put customers at the centre of everything they do. At last year’s AFA conference, I talked about the state of the FA industry. I shared areas where the industry had made positive strides and highlighted aspects where there were gaps to fill. Today, I would like to continue on the same theme and share MAS’ observations of industry practices. I will also discuss some of MAS’ priorities in the supervision of the FA industry.
MAS’ observations of industry practices

5     As you know, MAS’ market conduct supervision centres on the sales and advisory practices of FA firms and their representatives; in particular how they treat their customers. We rely on a variety of supervisory tools and approaches to carry out our work. We engage firms regularly and review their regulatory returns and other sources of information such as audit reports and consumer complaints. We also conduct on-site inspections of FA firms to assess the adequacy of their sales and advisory processes and effectiveness of their compliance function and management oversight of their representatives.
6     Based on MAS’ supervision of the FA industry, we see a mix of good and undesirable practices. Let me start with the good practices.

Harnessing technology

7     Many FA firms are now tapping on technology to help their representatives in the advisory process. They are increasingly using electronic fact-find forms with built-in system controls. The system logic checks go beyond ensuring that all fields are completed and that customers do not sign partially-filled or blank fact-find forms. These system controls provide validation checks in several areas:

(i)     First, ensuring consistency of fact-find information obtained. For example, if the customer has not provided information on his existing investment holdings, the representative will be alerted if the customer subsequently indicates in the Customer Knowledge Assessment or CKA that he has investment experience.

(ii)     Second, ensuring suitable product recommendations. Most firms have internal guidelines on the types of products deemed suitable for different customers. To ensure that the representative makes a suitable recommendation, only investment products that meet the customer’s risk profile and needs are displayed in the system for recommendation to the customer.

(iii)     Third, checking that the customer can afford the product recommended. For example, if the customer indicates that he has not set aside three to six months of his expenses as emergency savings, the representative will be prompted by the system to check whether the customer has other sources of funds, particularly for products with a long premium payment term.

While these checks are not full-proof in ensuring that quality advice is provided, they can help reduce lapses and mistakes by representatives.

8     Another area where we see FA firms leveraging on technology, is data analytics. These firms use data analytics to monitor the behaviour of their representatives in two ways:

(i)     First, to identify sales trends and concentration risks across branches or agencies. For example, data analytics can be used to identify whether certain branches or agencies are selling products which pay higher commissions, or have a higher proportion of vulnerable customers.
(ii)     Second, to identify representatives that may require closer supervision, through predictive modelling. One firm is doing this by analysing variables in sales transactions, such as customer profiles, products purchased and investment amounts, to identify different combinations with higher probabilities of undesirable conduct.

These tools provide supervisors with an in-depth understanding of the activities of their representatives. This allows for more pre-emptive supervisory action if necessary. Management can also be informed early of potential misconduct, giving them the opportunity to intervene before an issue escalates.

Enhancing competencies

9     FA firms are not just investing in technology; they are also investing in their people. Many FA firms have structured training programmes for new representatives, using a variety of teaching methods such as classroom training, role-plays and online learning. The training encompasses various aspects of the financial advisory process, such as conduct and service standards, product knowledge, and regulatory requirements. For existing representatives, there are annual refreshers on the advisory process and product training whenever there are new product launches.

10      In some firms, there are in-house product specialists who advise representatives on the features and risks of insurance and investment products. Some of these product specialists also partner representatives in the advisory sessions to help answer customer queries. One firm offers Training & Competency (T&C) clinics where both new and existing representatives can consult the T&C staff on the proper documentation of fact-find and basis of recommendations. These are good measures that can help representatives deepen their competencies in today’s complex and fast-changing environment.

11     The FA industry has come a long way since the introduction of the FAA. Standards as a whole have risen, and FA firms continue in their efforts to raise their game. We are also encouraged by the industry’s willingness to address the concerns raised by MAS. Given rapid developments in the industry, even as FA firms take steps to rectify deficiencies identified by MAS, new issues arise. Let me now share four areas where there is room for the industry to do better:

(i)       Implementation of the Balanced Scorecard framework, or BSC in short;
(ii)      Marketing practices at roadshows and public places;
(iii)     Identifying emerging trends and risks; and
(iv)     Supervisory oversight.

Implementation of the Balanced Scorecard (BSC) framework

12     MAS recently conducted supervisory visits to several FA firms to gain a better understanding of how the industry has implemented BSC. Let me share with you some observations from the cases that we have reviewed so far. 

13     First, we have seen cases of incorrect classification of infractions. MAS’ Guidelines on Fair Dealing state that FA firms should train their representatives to avoid the use of terms which may convey a false sense of security. One of the measures in the BSC framework relating to information disclosure also states that representations to customers should not be misleading. To meet these expectations, an FA firm formalized its policy to expressly prohibit its representatives from using the term “savings plan” when describing an insurance policy. However, when representatives of the firm used this terminology in their life insurance sales, the Independent Sales Audit or ISA Unit took a more lenient approach by treating these cases as administrative lapses.

14     Second, we saw instances where the Appeal Committee showed a poor understanding of the BSC requirements and deviated from the assessment criteria used by the ISA Unit. In one case, the ISA Unit classified a case of misrepresentation to a customer as an infraction. However, the Appeal Committee subsequently reclassified the infraction to an administrative lapse on the basis that service recovery had been made. FA firms are expected to take prompt action to rectify the weaknesses identified by the ISA Unit. As such, the classification of an infraction should be independent of any remedial measures taken. In another case, the Appeal Committee upgraded the BSC grading of a representative with several infractions, without good reasons. This is also not in line with the BSC requirements.

15     These are just some of the weaknesses we have observed from the few visits that we have conducted. We will extend our review to more firms and share our observations of individual firms with their senior management. Where there are common themes or particular concerns observed across FA firms, we will engage the industry and provide further guidance to ensure consistency in practices.

Marketing practices at roadshows and public places

16     In December last year, MAS issued a set of guidelines setting out our expectations of FA firms and their representatives in their marketing activities at retailers and public places. In spite of the guidelines, we received several complaints over the last few months about individuals soliciting customers at MRT stations and shopping malls in an aggressive manner. Based on the feedback, these individuals would approach members of the public on the pretext of conducting surveys and lead them to representatives stationed at retail establishments. 

17     According to the complaints, these individuals were persistent in their behaviour. In some cases, gifts and vouchers were offered to consumers for completing a survey. One complainant alleged that he was asked to return the vouchers after he indicated that he was not interested in buying any financial product.

18     While we have only received a handful of complaints so far, I would like to take this opportunity to remind FA firms and representatives to uphold themselves in a professional manner, and ensure that their marketing activities do not tarnish the image of the FA industry. FA firms should also conduct mystery shopping and on-site visits to ensure that the marketing activities of their representatives comply with the Guidelines on Standards of Conduct for Marketing and Distribution Activities.

Identifying emerging trends and risks

19     The third area that I would like to talk about today is the importance of identifying emerging trends and risks. Many of you are already conducting some form of trend analysis within your firms. However, some firms do not conduct trend analysis of BSC infractions and consumer complaints. By doing so, FA firms will be able to identify representatives who repeatedly commit misconduct. They will also be able to ascertain whether such misconduct is prevalent among representatives under a particular supervisor, or among certain customer segments.

20     Some firms also restrict their analysis of consumer complaints to substantiated cases. However, a large number of complaints alleging the same misconduct, though unsubstantiated, could be a red flag that warrants closer scrutiny. While some firms are already making use of technology to perform their analysis, more can be done. I would like to encourage FA firms to review the scope of their trend analysis with a view to covering more areas. This will enable firms to supervise their representatives more effectively and be more pre-emptive in identifying potential misconduct.

Supervisory oversight

21     Last year, I spoke about how supervisors were not up to mark in a number of firms. We continue to see instances of supervisors validating the sales of their representatives despite inadequacies in the basis of recommendation documented in the fact-find forms. Some supervisors are not well-versed in their company’s controls and fail to pick up cases where representatives do not adhere to the firm’s policies and procedures.

22     We have also come across instances where supervisors treat customer call-backs as merely a procedural step and mechanically follow the scripts provided to them. Supervisors ought not to take call-backs lightly. Customer call-backs are a useful tool for checking on the quality of the advisory process, especially the verbal representations made by representatives.

23     While FA firms have taken active steps to comply with the FAA, “putting customers at the centre” needs to go beyond having systems and processes in place and mere compliance with regulations. Boards and senior management must inculcate a culture in their firms where fair dealing is embedded in all aspects of their business and deeply ingrained in the psyche of their representatives.

MAS’ supervisory focus

24     Let me now move on to talk about MAS’ supervisory focus for the FA industry. I will touch on two key areas, to give you a sense of some of our regulatory priorities for the year ahead.

25     First, mystery shopping. We have found mystery shopping to be a useful complement to our suite of supervisory tools to identify conduct issues. When customer complaints are lodged, it is often difficult to tell which party is right or wrong as many cases involve one person’s words against the other. Mystery shopping would allow us to find out what actually transpired in the conversations between representatives and their customers, in particular whether the verbal representations made by representatives were misleading or inaccurate.

26     Other foreign regulators also conduct such exercises regularly. Banks, insurers and industry associations too, conduct their own mystery shopping. As it has been about six years since we last conducted mystery shopping, MAS will be embarking on another exercise soon. Once the exercise is completed, we will share the findings with those surveyed as well as the public.

27     Second, enforcement. Supervision cannot prevent all harm, and this is where enforcement actions come in. To achieve effective deterrence, enforcement outcomes must be adequate to deter not just the offender from committing the same offence, but also others from engaging in similar misconduct. The centralisation of MAS’ enforcement function in August 2016 has strengthened our enforcement capabilities. You would have read about the robust enforcement actions MAS has taken in respect of the penny stock saga and 1MDB related offences over the past year.

28     Our Enforcement Department also looks at breaches of the FAA, such as misrepresentation, mis-selling and inappropriate advice. Going forward, MAS will be stepping up our efforts to investigate such misconduct. We will not hesitate to take strong enforcement actions where there is evidence of serious wrongdoing or blatant disregard of our rules.


29     Let me conclude.

30     I believe exciting times lie ahead for all of us. Undeniably, industry practitioners who offer quality advice will be well-positioned to compete in this growing market. As FA firms grow their business, they must ensure that their controls and processes keep pace. FA firms must also continue to maintain high standards of conduct and put the interests of their customers first.

31     MAS too, will do our part, and ensure that existing safeguards in the legislation continue to be relevant without stifling innovation in the industry. We will also enhance our supervision of the FA industry through the use of various tools and approaches, and continue to engage all of you in regular dialogue to discuss issues of mutual interest.

32     On this note, I wish you fruitful discussions and a successful conference. Thank you.