Published Date: 05 July 2018

"Strengthening Trust in the Financial Advisory industry" - Keynote Address by Ms Merlyn Ee, Executive Director, Monetary Authority of Singapore, at the Association of Financial Advisers (Singapore) 17th Annual Conference on 5 July 2018

Mr Raymond Ng, Conference Chairman
Mr David Choo, AFA President
Distinguished guests, ladies and gentlemen

A very good morning.


1   It is a pleasure to speak at AFA’s annual conference once again.
2   The theme for today’s conference is “Excel in a digitised world”. This is very apt given the technological revolution that is happening around us. For the financial services industry, the landscape today looks very different compared to just a few years ago. We see the emergence of fully digital banks that operate entirely online with no physical branches. Insurers have developed mobile apps allowing customers to keep tabs on their health status and policies, make claims and buy insurance. Financial advisory (FA) firms are also tapping on technology to help their representatives in the advisory process. Many have implemented electronic applications, with validation checks to ensure a more robust fact-find process. Others have begun leveraging on data analytics to monitor the sales conduct of their representatives.

3   As more FA firms embark on this digital transformation journey, it is important to remember that technology is an enabler, and not an end in itself. Financial advisory is fundamentally a people-centric business. At its core, financial advisory is about trust. For consumers to have trust in the FA industry, FA firms and their representatives must act in the best interests of their customers.

4   A recent survey by the CFA Institute1 revealed that only 10% of Singapore retail investors believe that their financial adviser consistently puts their interests first. This is lower than the global average of 35%. Clearly, more needs to be done. Consumers must have confidence that the FA firm they are dealing with will treat them fairly before they entrust their savings to the firm for advisory services.

5   Today, I would like to touch on three areas that can help build trust in an increasingly digitised world:

(i) Empowering consumers;
(ii) Raising standards of conduct; and
(iii) Enhancing surveillance.

Empowering consumers

6   In the area of empowering consumers, there are three aspects to pay particular attention to:

(i) Keeping customers engaged;
(ii) Communicating information effectively; and
(iii) Facilitating product understanding.

Keeping customers engaged

7   First, on keeping customers engaged. Let me elaborate using two examples.

(i) The first example relates to the advisory and sales form, which helps to facilitate a dialogue between the FA representative and his customer. A well-designed form enhances the customer’s experience during the advisory process. It helps customers understand why they need to provide important information such as their financial objectives and personal finances, and not treat the advisory process as a mere form-filling exercise. In return, FA firms will be able to obtain accurate and complete information on their customers. This can improve the suitability of products recommended and help customers meet their financial goals.

We have worked with the industry to co-create the key principles to guide the design of a good advisory and sales form, and recently consulted on our proposals. I am aware that some of you are in the process of transitioning from paper-based application forms to a fully electronic fact-find process. This is an opportune time for you to consider how best to apply the principles in the Guidelines as you move towards electronic fact-find forms.

(ii) My second example is goal-based advice. We have seen some FA firms move from selling products at a transactional level to adopting a more holistic goal-based advisory process. This augurs well for the industry. It requires representatives to focus their conversations with customers on what is important to them and what their life goals are, with discussions on product recommendations coming later in the process. I am sure many consumers can better relate to such an approach. I would like to encourage all of you to shift from product-centered advice to goal-based advisory so that you can deliver more holistic and comprehensive financial advice to your customers.

Communicating information effectively

8   The second pillar to empowering consumers is communicating information to them effectively. A few FA firms have adopted a good practice of providing their customers with a key facts document to draw their attention to key features of investment products. This document highlights important information such as fees payable, risks inherent in the investment, the guaranteed and non-guaranteed amounts, and the free-look period. The Question-and-Answer format also encourages consumers to read the document and enables them to digest the contents easily.  

9   Similarly, we recently implemented two FAIR initiatives to enhance consumers’ understanding of life insurance policies. Insurance companies and financial advisers are now required to furnish two new point-of-sale documents:

(i) First, a cover page to the Policy Illustration and Product Summary to highlight salient features of life insurance products; and
(ii) Second, a bundled disclosure document to highlight that bundled products such as endowment and whole life plans have both insurance and investment components, and consumers have the option of purchasing an unbundled term life policy and investing the premium savings.

We have worked closely with consumer bodies and industry associations to ensure that the information presented in the cover page and bundled disclosure document are reader friendly. Going forward, MAS will be looking to use behavioural insights to further enhance the effectiveness of disclosure documents such as the Product Highlights Sheet for unit trusts and ILP sub-funds.

Facilitating product understanding

10   The third aspect of empowering consumers is putting in place processes so that consumers understand what they are buying. Some firms send out a post-sale survey via SMS to check whether customers understand the investment products they have purchased. The survey results give the FA firm an indication of whether the advisory process has been properly carried out. If this is not the case, the firm will reach out to the affected customers and check if they wish to continue with their purchase.  Conducting surveys via SMS is one way that FA firms can leverage on mobile technology to obtain customer feedback in a convenient and effective manner. As Singaporeans are now more technologically savvy, FA firms can explore other ways of using technology to engage their customers.

Raising standards of conduct

11   Let me now move on to the second area – raising standards of conduct in the FA industry.

12   Last year, I talked about the complaints MAS had received regarding aggressive behaviour exhibited by some representatives at roadshows. Besides sharing these observations with the FA firms concerned, we asked them to review their controls to ensure compliance with MAS’ Guidelines on Standards of Conduct for Marketing and Distribution Activities. We also asked these firms to come up with action plans to address any compliance gaps.

13   While these firms have taken active steps to address the issue, we continue to observe sporadic episodes of representatives engaging in inappropriate conduct in their marketing activities. Some representatives use gifts to entice members of the public to sit through a marketing pitch while other representatives seek to obtain the contact details of consumers on the pretext of conducting a survey on shopping habits. We have also received a handful of complaints on door-to-door prospecting activities. Some of these activities occurred late at night. There were also a few complaints of representatives trying to generate sales leads through children when their parents were not home. We have engaged the firms concerned and where misconduct was substantiated, the firms have taken disciplinary actions against the representatives involved. We have also required these firms to step up their oversight of roadshows through surveillance activities such as site visits and mystery shopping exercises.

14   I would like to take this opportunity to remind FA firms and representatives to conduct your roadshows and other marketing activities in a responsible manner so as not to damage the reputation of the FA industry or cause any harm to consumers.  While the issues I have shared are not widespread, I am raising them to your attention so that those of you who are active in roadshows and public prospecting activities can take pre-emptive measures such as tightening processes at your respective firms and enhancing checks to make sure that your representatives do not engage in unprofessional conduct.

15   Instead of allowing their representatives to conduct roadshows and door-to-door prospecting, some FA firms prefer to leverage on technology for customer engagement. These firms use technology to help their representatives identify customers with insurance needs. For example, an FA firm has rolled out a mobile app which allows individuals, who may not be existing customers, to upload their insurance policies on the app. The app will analyse and notify users if they are over or under insured in any area. With these individuals’ consent, the FA firm will subsequently reach out to them and provide financial advice. Another FA firm is exploring the use of video conferencing tools as a way for its representatives to hold virtual meetings with customers. This allows for more regular customer interactions and are convenient for both customers and representatives.

16   I had earlier shared some examples of inappropriate behaviour of representatives in their marketing and prospecting activities. One important element that underpins representatives’ conduct is the firm’s culture. FA firms need to shape the right culture within their organisations, and have in place a framework that promotes the desired conduct among their representatives. They also need to design appropriate incentive systems as how an FA firm rewards its representatives signals the accepted corporate culture. This, in turn, directly influences representatives’ sales behaviour.

17   Remuneration policies must not just motivate high performance based on sales and profits. FA firms should implement remuneration structures that align the interests of representatives with that of their customers. Poor remuneration practices create a breeding ground for aggressive sales and unethical conduct. Recent episodes involving the offer of hefty sign-on incentives tied to sales targets to entice representatives to move from one FA firm to another is a case in point. Such remuneration practices can give rise to heightened market conduct risks, such as product pushing and improper switching. As you are aware, MAS recently consulted on a set of proposals to address these risks. We are studying the feedback closely, and will issue our response to the consultation and the final measures in due course.

18   We also know of FA firms that have put in place remuneration policies that incentivise good behaviour. One FA firm does not set any sales quota for its representatives so that they can focus on selling the right products to their customers. In another FA firm, representatives with a Balanced Scorecard Grade of C and below are not entitled to receive non-monetary incentives in that quarter. These are examples of good practices put in place by firms to inculcate the right conduct and culture among their representatives.

Enhancing surveillance

19   Let me now turn to the third area – enhancing surveillance.

20   FA firms, especially those with a sizeable representative population, are increasingly using data analytics to monitor and manage market conduct risks. They are making use of analytical tools to identify red flags such as representatives with a concentration of sales in products that pay higher commissions, spikes in sales to vulnerable customers, and branches or agency units with recurring complaints and misconduct. Such information are shared with their senior management and business heads through dashboards with data visualisation tools. This allows Management to take pre-emptive measures before major issues escalate.

21   I know of one FA firm which generates monthly reports to identify changes in customers’ details such as their educational level, language spoken and risk profile. Such changes may suggest that representatives are making amendments to their customers’ profiles so as to be able to sell them riskier or more complex products. When such changes are detected, the supervisor will contact the affected customer to confirm the changes made to the customer’s profile. These are commendable efforts by the firm in utilising data analytics to strengthen surveillance of its representatives’ sales conduct. Measures such as these allow FA firms to carry out their compliance and risk management functions more efficiently and effectively.

22   I shared in my speech at last year’s AFA conference that MAS would be stepping up our efforts to investigate improper conduct such as misrepresentation, mis-selling and provision of inappropriate advice. You would have read about the recent prohibition orders that MAS had issued against six individuals for the mis-selling of investment products. These individuals were barred from the FA industry for two to seven years.

23   I mentioned earlier about the recent occurrence of large-scale movement of representatives across the industry and the attendant risks. MAS has worked with the affected FA firms to ensure that they have robust controls to address the heightened risks. In addition, we are employing data analytics and scrutinising the sales transactions of migrated representatives. Any suspicious transactions and potential improper switching will be thoroughly investigated. MAS will not hesitate to take enforcement actions where there is evidence of misconduct. We will spare no effort to weed out errant representatives from the industry.


24   Many of you have worked hard over the past few years to raise standards of conduct among your representatives, and to build trust in the FA industry. You have also taken MAS’ feedback seriously, and continue to work with us to address our regulatory concerns. This is work-in-progress as new risks may surface over time and we need to continually raise the bar. It is heartening that more and more of you are harnessing technology to enhance the advisory process for customers and to strengthen your compliance monitoring systems to identify potential misconduct. These efforts will go a long way towards improving the financial well-being of Singaporeans and enabling the industry to identify emerging risks early.

25   I see from the conference programme that there are many interesting topics lined up such as Digital Transformation in Financial Services and Using Fintech to Stay on Top of the Game.  I am sure you will have fruitful discussions over the next two days. On this note, I wish all of you a successful conference ahead.

26   Thank you.

1 https://trust.cfainstitute.org/wp-content/uploads/2018/04/CFAITrust-Global-Report.pdf