Financial sales reps face audits from next year

Quarterly scorecard will ensure higher service standards


Customers can expect higher standards of advisory and sales services from personal bankers, tied agents and financial advisory representatives when the balanced scorecard (BSC) framework kicks off on Jan 1.

The scorecard involves assessing a representative's performance every quarter and assigning a grade from A to E, which in turn can affect remuneration.

This audit process will take into account non-sales factors such as whether the representative has taken steps to understand the customer's needs, recommend suitable products and make adequate disclosures.

Over the past year, financial institutions, insurers and financial advisory firms have been conducting trial runs to ensure that their sales forces and independent sales audit units understand the processes and straighten out the kinks before Jan 1.

The BSC framework, which is part of the Financial Advisory Industry Review (Fair) recommendations, aims to raise the quality of advice and to mitigate risks of product pushing and pressure sales tactics.

Each quarter, checks will be done on sampled transactions of each representative. At least one new sales case closed by the representative will be selected for an audit that will subject the sales and fact-find documents to close scrutiny.

The audit team will assess if there is a reasonable basis for recommending the product and if it meets the financial objectives, investment horizon, risk profile and financial situation of the customer. That will help the team arrive at a grade from A to E for the representative.

If infractions are uncovered during the audit process, more sampled transactions by the same representative in the same quarter could be audited to determine his score.

And if the overall score is between B and E, the representative's commissions from the quarter's new business will be clawed back on a graduated scale, capped at 60 to 80 per cent.

Representatives with an E grade will have to be accompanied by a superior - who should be graded A - when he or she advises customers for the next three months. In addition, the representative should not be allowed to perform any supervisory role for at least a year.

The kind of infractions that are likely to result in an E grade include misrepresentation, lack of reasonable basis for product recommendation, omission of material information and fraud, which affect customers' interest adversely.

Life Insurance Association (LIA) president Khoo Kah Siang told The Straits Times that most insurers have gone through at least one quarter of testing. But the LIA wants to continue to work with the regulator to understand the framework's potential grey areas and iron out potential administrative kinks.

"The purpose of the framework is to enhance the competencies of advisory services to consumers. We want to make sure that we are not penalised on administrative errors," said Dr Khoo.

Insurers have spent much resources and time over recent months putting in place the infrastructure for the BSC framework and training their sales force to ensure that they know how to complete their documentation and avoid obtaining poor scores, especially if they result from administrative errors.

It is not surprising that some insurers have imposed strict guidelines for their tied agents on how and what can be written in the sales and advisory documents.

This has been a drain on resources for licensed financial advisory firms, said Mr Vincent Ee, president of the Association of Financial Advisers (Singapore).

He told The Straits Times that the BSC is "resource-intensive" both at the setting-up phase and in its actual operation.

"We believe it will continue to be a drain on resources of the licensed financial advisers. Nevertheless, the industry understands the objectives and benefits of the BSC framework," said Mr Ee. "Firms are diligently implementing the BSC with the aim of raising the professional standards of advice."

Most licensed financial advisory firms, such as Avallis Financial (previously known as First Principal Financial), do not have sufficient internal resources, so they will engage the services of law firms to assist in the sales auditing process.

The BSC framework also requires firms to conduct mystery shopping and phone surveys with customers to ensure proper selling.

Most banks have already implemented the BSC framework.

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A version of this article appeared in the print edition of The Straits Times on December 11, 2015, with the headline Financial sales reps face audits from next year. Subscribe