The Business Times, Wednesday 13 March, 2002

The independent view

I AM writing in response to the commentary 'Much ado about independence. Why?', BT, March 9 by Genevieve Cua. Ms Cua's commentary gives the impression that the 'independent' financial adviser (IFA) concept is not necessary or has been a failure elsewhere.

Just because 'independence' has not achieved the perfect elixir elsewhere, should we not adopt it?

But The pertinent question that we need to ask is: Are the people of Singapore going to be better off if we regulated the 'independent' FA concept? And not whether it would be lead to a mere improvement.

Ms Cua also raised the interesting point that 'independence' would be a powerful marketing tool. Indeed, this is the reason why we need to regulate it!

It is so effective that some tied agencies, which are well supported by their principals, give the impression in their marketing efforts that they are independent. They use their agency name but blatantly omit which company they represent. This is the frustration that we, as independents, face in practice. It has to stop once and for all.

The importance of the IFA network as a distribution channel has compelled many insurance companies and other product manufacturers to acquire stakes in such firms elsewhere. Indeed, not too long ago one prominent insurer announced their intention to set up an 'independent' FA network with a level of support commensurate to hitting certain sales target set by that insurer. If left unchecked and undefined there will be all sorts of oxymoronic masquerades of 'independence'.

Ms Cua also mentions the UK experience. Again the question that needs to be answered is whether the UK would have been better off if they had not regulated 'independence'.

The UK is concerned about the lack of competition because over the years IFAs have grown to control about 50 per cent of distribution in the UK. And large IFA networks dominate the market with significant influence on product pricing.

Ms Cua also says 'interestingly, few people spontaneously say in surveys that advice should be independent. Instead, they say advice should be honest, appropriate and tailored to their needs'. The question again that needs to answered is: Who is more likely to be able to fulfill this - the tied agent or the independent? Persistency ratios are often seen as a proxy of this in life insurance. One only needs to compare this between independents and tieds (agencies, bancassurance) to get the answer.

Finally, I fully agree with Ms Cua that notwithstanding the Financial Advisers Act, caveat emptor applies. However, the principle of caveat emptor is only effective if prospects and clients are fully and accurately informed.

The FAA has provisions for that and regulating 'independence' is an important derivative of these provisions. Our experience shows that if we do not do this, ways and means will be found by the unethical to misuse or abuse 'independence'. The ultimate loser then will be the confused Singaporean public.