The Monetary Authority of Singapore (MAS) has taken note of the recent mass recruitment of representatives by financial advisory (FA) firms from competitors.
MAS believes this recruitment practice to be risky as it is not in the customers' interests and may drive up costs in the life insurance industry.
MAS has identified the basis of success for this recruitment practice to be the offer of large sign-on incentives, and has accordingly released a consultation paper on the measures to address the risks posed by the use of sign-on incentives in the recruitment of FA representatives. The consultation period closes on 9 April 2018.
Proposed measures and risks addressed
MAS has proposed the following four measures to address the risks posed by current recruitment practices:
|Proposed measure||Risk addressed|
|Where a FA representative is offered sign-on incentives pegged to sales targets:|
| ||Mitigates the risk of representatives engaging in aggressive sales tactics to meet inflated sales targets|
| ||Prevents improper sales conduct and fosters better after-sales service to customers as the payout of incentives may be withheld if a representative is subsequently found to have engaged in aggressive sales, even before that representative is familiar with the new FA firm’s product offerings, in order to receive the large sign-on incentives promised in the first year.|
|Where there is mass movement of 30 or more representatives from one FA firm to another within a 60-day rolling period:|
| ||Deters representatives from encouraging customers to surrender existing insurance policies and to buy new ones from the new FA firms, without due consideration of whether the switch is suitable.|
| ||To verify that the sales and advisory process has been properly conducted.|
Early adoption of measures
The Life Insurance Association (LIA) Singapore has adopted the measures proposed by MAS as industry guidelines on 14 March 2018, even before the expiry of the consultation period.
Noting that individuals do move between companies for career advancement, the LIA nonetheless emphasised the importance of having guidelines which ensure that ethical, professional and responsible recruitment practices are being adopted.
Changes in employment practices
Industry commentators have described competition for experienced financial advisers to be intense given Singapore's growth as a regional wealth management hub and the move by a number of major insurance companies into the advisory business.
As employers, in addition to ensuring that their agents comply with the standards imposed by the Financial Advisers Regulations when servicing their clients, FA firms should ensure that their employment practices are fully aligned with the MAS measures in the following aspects:
- at recruitment: monitoring offers and other sign-on incentives;
- during contract negotiations and drafting standard terms: provisions to cap average annual remuneration, and introducing post-termination claw back terms; and
- in management and compliance staffing: to perform enhanced monitoring of their newly hired representatives’ sales and conduct customer call-backs.