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     FrontPage Edition: Tue 20 June 2006

MAS conducts first mystery shopping survey on financial advisory practices


MAS Conducts First Mystery Shopping Survey on Financial Advisory Practices
The Monetary Authority of Singapore (MAS) released the findings of its first mystery shopping survey on practices in the financial advisory industry.
The objective of the survey was to assess the quality of the advisory and sales process. The quality of advice provided was not assessed.
The survey was conducted from October 2005 to February 2006, and covered 30 licensed and exempt financial advisory firms from the banking, insurance and capital markets sectors (FIs).
In total, 100 representatives were surveyed on either the sale of investments or insurance policies, collectively referred to as investment products.
The key findings of the survey are as follows:
(i) Fact-find
93 representatives conducted a basic fact-find before recommending investment products. However, the fact-find was not detailed. Only 64 representatives asked about the mystery shoppers' financial situation and 69 representatives asked about their current investments. Only 28 representatives asked other pertinent questions such as retirement and marriage plans.
(ii) Disclosure
91 representatives disclosed the benefits and returns of the investment products recommended. 65 of them highlighted the risks and fees associated with the products recommended. Only eight explained the warnings, exclusions and disclaimers and 25 informed the mystery shoppers that they could cancel their purchases within the cancellation or free-look period.
(iii) Recommendation
84 representatives discussed and confirmed the mystery shoppers' financial objectives and needs before recommending an investment product. 95 representatives gave reasons for their recommendations, of which 52 did so in writing.
Overall, the survey revealed that most representatives conduct a basic fact-find before making a recommendation.
However, there are gaps in the quality of disclosure and manner in which the reasons for recommendations are documented.
The survey also found that FIs generally had better processes for investments as compared to insurance sales. For example, when giving advice on investments, 48 out of 50 representatives ascertained the risk appetite or investment time horizon of the mystery shoppers before making a recommendation.
However, for advice on insurance products, only 31 out of 50 representatives checked the mystery shoppers' ability to meet regular payments before recommending an insurance policy.
MAS has shared the findings of the mystery shopping survey with the industry associations and made the following recommendations:

(i) FIs should implement procedures to monitor the extent of fact-find conducted by their representatives and provide training to enable them to conduct more comprehensive fact-finds, in particular, for insurance sales and larger amounts invested.

(ii) FIs should put in place systems and controls to ensure compliance with the disclosure requirements in the Financial Advisers Act. Examples of good practice observed among some FIs are having a checklist for representatives as well as a declaration by clients to ensure that the requisite disclosures are made.

(iii) FIs are required to present the basis of their recommendations to clients in writing when recommendations are made. Supervisors should also make sure that the recommendations made by representatives under their supervision are reasonable.

Mr Shane Tregillis, Deputy Managing Director (Market Conduct), MAS, said, "We have seen some positive developments by FIs over the last few years in putting in place better internal systems and processes. The challenge for FIs now is to improve on the implementation of these processes and monitor their representatives to meet the standards expected."
Mr Tregillis added that, "This will require FIs to focus on the longer term needs of their clients rather than higher sales volumes in the short run. Consumers also have a part to play. They need to better understand the products they are buying and the risks involved."
To enhance consumers' knowledge of financial matters and skills to be more self reliant in managing their finances, MoneySENSE has launched two new online consumer guides. The "Key questions to ask the person recommending an investment product to you" guide and the "Key questions to ask yourself before buying an investment product" guide are available on


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