Types of Financial Advisers and Whom You Should Avoid
If you’re in the market for a new insurance policy or seeking financial advice, you would do well to narrow your search by excluding those with high conflicts of interest between you and them.
There are three main types of people who claim to provide financial advice in Singapore:
- Tied agents
- Bank representatives (eg. relationship manager)
- Financial Adviser Representatives
Inherent bias of tied agents
You can easily rule out tied agents if you are counting on unbiased advice. The whole point of a tied agent is to sell products of the insurer that has recruited him/her. Despite their self-aggrandising “financial consultant” titles, they are simply salespeople of the company. They are remunerated as such, they are trained as such, and their contract bounds them as such.
The word “tied” is quite literal; they are contractually obligated to only recommend products of their captive insurer, and even if your tied agent occasionally recommend products from other companies, I cannot help but feel it’s just to feign some sense of impartiality so you would trust them with at least a purchase or two.
A more unbiased person would have left to another platform that does not heavily impair their ability to provide less skewed recommendations. Well, of course, he/she would have to give up all the recurring commissions and clientele painstakingly built up over time. Again, the “tied” in “tied agent” is pretty literal.
Bank reps have sales quotas
One might think that having a basic salary would mean that bank reps can be less commission-inclined than their tied agent counterparts, but I find that having to sell products to meet quotas creates an even stronger incentive than commissions for poor recommendations.
Anecdotally, my personal belief is that incidents of selling inappropriate products tend to arise from bank sales staff due to their propensity to meet customers with sizeable sums of money to set aside. Fixed deposit? Why not this structured product instead?
Even if we wave this off as my personal disdain for bank salespeople, banks tend to enter into sales contracts with at most one or two insurers, making the clash of interest between you and them similar to that between you and a tied agent. Some banks even have their own insurance companies and sell those products exclusively.
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Financial Advisory firms are independent of product providers… most of the time
Your best bet are Financial Advisory (FA) firms and their representatives, but even then, you need to be aware of the different types there are.
Some FA firms are owned by insurance companies, and they end up being very little different from tied agencies, having products mainly from one product provider.
The ones you want are those who represent a broad range of product providers be it for insurance or investment products. Consider the following analogy: when you’re sick, would you rather go to a doctor who can prescribe nearly any medicine, or would you go to a drug company representative that can only sell products from his/her company?
Some FA firms are a lot more serious on being independent, and this term is regulated by the authorities; you have to meet certain standards to show that your product recommendations are not being swayed by the product providers. Otherwise, it is kinda like meeting a doctor who is given incentives to recommend certain companies’ drugs.
Improve on your own financial knowledge
Of course, having products from multiple providers doesn’t make one a “doctor” – there are plenty of FA representatives who are just supercharged salespeople with more products to sell, especially when the whole industry is still so heavily commission-based.
Thankfully, financial knowledge isn’t as difficult to pick up as medical knowledge. Spend a little time to read up and research on what benefits you, then find a FA rep that you are comfortable with. Even if you can’t find a “doctor”, a “pharmacist” isn’t too bad to get “medicine” from if you have some knowledge. Just steer clear of the “drug reps”.
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Those really open ones not only have a wide range of companies to offer, but also willing to show the commission structures of the different products in addition to the benefits & limitations.
There are a tiny number of FAs who will rebate a % or all of the commissions back to you. Those 100% rebate ones tend to work for upfront fees. The fees depend on scope of work & complexity of the case or family.
99% of FA reps are just salespeople. Although they may represent a big number of insurance companies or investment firms, they tend to push those with higher commissions. Insurance / investment companies know this too. So every month, insurers / investment firms will take turns to have special extra commission promotions for FAs or banks to push certain products.
No difference from salespeople at electronics appliances stores who will push whichever brand is giving higher commission promotion for this month.
Or property agents sucking up to their managers to be allowed in condo launch showrooms, as they will get 5% commissions for condo launch sales, instead of the usual 2%.
Thanks for a very-well-written article, Seth; I found it very encouraging to me to keep up the good fight in offering the best bespoke unbiased advice that I can to my clients. Take care and stay safe.