Value of financial advice

Dear Mr. Tan,

In your view, are the commissions paid to insurance agents too high? What is the situation in other countries? Please be frank.

REPLY

In some countries, the financial adviser helps the customer to achieve significant savings from income tax or estate duty. To qualify for these savings, the customer has to meet certain requirements. These are complicated for the ordinary person. They need the professional advice of the financial adviser.

Although the financial adviser earns a large commission, the customer still achieves a net saving from the savings in income tax or the higher return from investing their savings in the life insurance or investment product.

A good example are the tax incentives given to encourage people to save for their retirement, such as superannuantion funds in Australia or the 401k in America.

This type of tax savings is not available in Singapore.

As the financial adviser is not able to create any tax saving for the customer or give other tangible value, it is important that the commissions should be kept low.

In my view, the customer is better off by investing in large, well diversified, low cost funds.

ADDITIONAL NOTE:

In Malaysia and Indonesia, the commission rates are about 30% to 50% lower than similar products sold in Singapore. These limits are set by the authority to ensure that the products offer fair value to the consumers.

In my view, the commission rates in Singapore are too high. In the case of NTUC Income, the commission rates are lower than the market - so their products provide relatively better value to the customer.