Financial advisers must do more to identify vulnerable clients: MAS
Mystery shopping exercise finds higher incidence of unsuitable recommendations at roadshows
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In cases where recommendations were deemed unsuitable, the products did not meet the mystery shoppers' financial objectives or had tenures longer than their time horizon, said the Monetary Authority of Singapore.
PHOTO: ISTOCKPHOTO
Calvin Yang, Calvin Yang Manpower Correspondent
There were more instances of financial advisers offering unsuitable recommendations or using inappropriate influence - through gifts or incentives - at roadshow sales than through customer referrals, a mystery shopping exercise by the Monetary Authority of Singapore (MAS) has found.
A majority of financial advisers also failed to properly identify if their clients were vulnerable, according to latest findings released by the central bank yesterday.
While this did not eventually affect the suitability of products recommended, MAS said it takes "a firm view" that vulnerable clients should be identified so that extra safeguards can be put in place. These include clients who are aged 62 or older and are not proficient in spoken or written English.
Overall, most product recommendations made by financial advisers had met their customers' investment and insurance needs. Suitable product recommendations rose to 88 per cent in the latest mystery shopping exercise done in 2018 and 2019, up from 70 per cent in the previous exercise in 2011, said the authority.
Most financial advisers helped the mystery shoppers to make accurate and complete disclosures of their medical conditions, it added.
MAS had engaged an external consultant to conduct the exercise on the sales and advisory practices of the financial advisory industry from mid-2018 to end-2019. It covered 500 representatives from 12 financial institutions, comprising six life insurance companies and six licensed financial advisory firms.
In cases where recommendations were deemed unsuitable, the products did not meet the mystery shoppers' financial objectives or had tenures longer than their time horizon, said MAS.
In some instances, the recommended product was not affordable given the client's financial situation. Some advisers also recommended investment products that were riskier than what was appropriate for the clients' risk profiles.
The findings come after years of efforts to raise the competency of such company representatives and the quality of their practices.
MAS has made it a requirement for the 12 firms to address issues uncovered by the exercise. It will also review its rules to improve representatives' conduct at roadshows and consult on proposals to boost safeguards for vulnerable consumers.
MAS recognised that "while obtaining a full set of a customer's financial information is important for holistic financial planning, it may not be necessary in the case of simple or low-cost products".
Overall, most product recommendations made by financial advisers had met their customers' investment and insurance needs. Suitable product recommendations rose to 88 per cent in the latest mystery shopping exercise done in 2018 and 2019, up from 70 per cent in the previous exercise in 2011, said the authority.
Hence, it will study requirements to allow financial advisers more flexibility in this area.
On releasing the findings nearly two years after the fieldwork was done in end-2019, MAS told The Straits Times that "significant work was performed" in reviewing at least 1,000 hours of audio recordings, as well as transcripts and sales documents.
Concurrently, MAS did a policy review on vulnerable customers based on the findings, it added.
Mr Lim Tuang Lee, assistant managing director of capital markets at MAS, said maintaining high standards requires efforts by the board and senior management.
"This includes the proper onboarding and training of representatives, active supervision and monitoring of their sales and advisory activities, as well as putting in place appropriate incentive and remuneration policies and robust disciplinary frameworks."
