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Source:
www.mas.gov.sg |
MAS Conducts First Mystery Shopping Survey on
Financial Advisory Practices |
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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.
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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
www.moneysense.gov.sg. |
Source:
www.mas.gov.sg |
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