Second to our health is perhaps our financial health, for it dictates our quality of life and important milestones like homebuying, raising a family or retiring. Having a good financial adviser is therefore of paramount importance.
Unfortunately, the state of the financial advisory industry in Singapore is quite abysmal, with commissions being the primary mode of remuneration and tied agents still being a thing. Here are some tips on how to find yourself a good financial adviser.
Do not think of tied agents as proper advisers
Tied agents – or “financial advisers” who represent a single insurance company – have job titles like “financial consultant” on their name cards, but they are far from being proper advisers. To use an analogy, tied agents are like doctors who are limited to prescribing medicine from a single drug company.
Not only are there significant clashes of interest in such a model, many insurance companies lack solutions required for a proper financial portfolio.
Even if they do offer a particular solution, it tends not to be competitive. Roughly three to four different types of coverage are required to insure someone comprehensively, for instance, and what are the chances a single company can give you the best product for each category of coverage? It is simply impossible for a tied agent to deliver good value to his/her clients.
Tied agents are named as such also because they are quite literally tied to their companies which are called captive insurers. Leave the company? There goes your recurring commissions. Tied agents’ clients also belong to the company, meaning to say they are contractually unable to continue providing advice to their clients – something I discovered through personal experience. On top of being unable to deliver good value to their clients, tied agents have poor agency over their own careers, and I wonder why anyone would take advice from such people.
Avoid financial advice from banks
Getting your advice from banks suffers the same downsides as going to a tied agent. Banks usually sign exclusive deals with insurers – or they could outright own insurance companies themselves – so you are once again going to be sold in a really biased manner.
Banks also tend to impose high sales targets for their sales team, and you can forget about getting sensible advice and strategies like buying term insurance or investing in low-cost ETFs if you’re speaking to a sales representative from a bank.
Not all IFAs are good advisers
The answer seems to be to find someone from an independent financial advisory (IFA) firm, right? Yes, but it’s not so simple.
There are actually many times of financial advisory (FA) firms, and you might be surprised to know that some FA firms are actually not independent. For instance, some FA firms might have special agreements with their product providers to push their products, which naturally puts their objectivity in question. Some FA firms are even outright owned by insurance companies, so you can only imagine what kind of advice one might receive from such firms.
Truly independent FA firms have to ensure that they give objective advice, as well as not enter into such agreements.
Even if you do find an IFA, do remember that while all good advisers are IFAs, not all IFAs are good advisers. If a person is commission-driven and just want to maximise his/her benefits, having many products from multiple providers does little to ensure that you get the best advice or solutions from the person.
Do your own research
Your best bet is to do your own research, and it can be as easy as googling the product names recommended to you.
Alternatively, you can always ask people who can be more objective about it since there are fewer clashes of interest. Ask in a chat group (of course – mine) for second opinions rather than blindly trusting your agent/adviser is a prudent thing to do.
Ultimately, nobody would care about your own financial health as much as you do, so brushing up your knowledge is essential.
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