MAS slams financial advisors' mass firm-hopping

It launched a public consultation for four measures that could address this.

The Monetary Authority of Singapore (MAS) launched a public consultation for four measures that it proposed to address the risks associated with mass jumping of financial advisory (FA) representatives from one FA firm to another.

MAS said the recent mass recruitment of representatives by FA firms from competitors was accompanied by sizeable sign-on incentives. “A large part of these incentives is usually paid up-front and tied to sales targets that these representatives must meet. Such recruitment practices increase the risk of FA representatives engaging in aggressive sales tactics in order to meet the sales targets and retain their sign-on incentives.”

Firstly, MAS proposed that the first year sales target tied to sign-on incentives should be no higher than the representative’s average annual sales in the preceding three years. Sales targets for subsequent years should be set at a “reasonable level” based on the representatives’ past performance and would be subject to supervisory review by MAS.

“This measure mitigates the risk of representatives engaging in aggressive sales tactics to meet inflated sales targets,” the agency said.

MAS also wants to require that sign-on incentives should be spread over a minimum period of six years. The first year payment should be capped at 50% of the representative’s average annual remuneration in the preceding three years.

The agency added that the remaining sign-on incentives are to be spread evenly over the next five or more years. “This measure 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 improper sales conduct,” it said.

The third measure will require FA firms to claw back the representative’s sign-on incentives if the percentage of insurance policies serviced by the representative at his previous FA firm and which remain in force, falls below a certain threshold (75%-80%) two years after the representative’s departure. “This measure 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,” MAS said.

Lastly, FA firms will be required to undertake enhanced monitoring of their newly hired representatives’ sales transactions for a minimum period of 2 years. This includes appointing an independent external party to conduct customer call-backs to verify that the sales and an advisory process has been properly conducted.

“The offer of large sign-on incentives may drive up costs in the industry. MAS has therefore made it clear to the industry that financial incentives offered by an insurer or its related FA firm to recruit representatives from another firm cannot be charged to the insurance funds as an expense,” MAS said.

The public consultation will end on 9 April 2018. More details can be found on the MAS website.