SINGAPORE - 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 customers, according to the latest findings released by the central bank on Tuesday (June 22).
While this did not eventually affect the suitability of products recommended during the exercise, MAS said it "takes a firm view" that vulnerable clients should be identified, so that additional safeguards can be put in place. These include clients who are aged 62 years 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. "The investment returns illustrated in the insurance policies were properly explained by most financial adviser representatives."
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. The mystery shoppers, made up of members of the public with varying profiles, posed as customers interested in seeking financial advice.
In cases where recommendations were assessed as 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 said financial institutions where senior management and the board are focused on fair dealing outcomes and robust policies generally fared better.
Still, 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 enhance the safeguards for vulnerable consumers.
The latest exercise found that while the fact-finding carried out by representatives was not as comprehensive as required by MAS rules, there was sufficient financial information obtained to make suitable recommendations in most cases.
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".
Hence, it will study fact-finding requirements to allow financial advisers more flexibility to collect information that better suits the needs and profiles of their clients.
MAS also urged customers to review sales documents to ensure that their financial profiles and needs are reflected accurately. This would enable advisers to recommend products suited to their requirements.
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 transcribing audio recordings and reviewing transcripts and sales documents. At least 1,000 hours of recordings had to be reviewed, together with accompanying 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 financial adviser firms have progressed and improved their practices, raising the quality of advice offered to their customers.
"High standards of practice require systematic and focused attention by board and senior management of financial adviser firms to ensure that representatives put customers' interests as top priority," he said.
"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."
