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Salesman VS Advisor

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This is a long overdue entry. Something I am so passionate about, and hence, should definitely be in my journal to cast my thoughts in stone.

Before I go on, a disclaimer: I might be over generalizing in this entry, but I feel its justified purely based on my experience and discussions with fellow peers.

Having chosen the path of financial planning at a young age, I am now somewhat dis chanted and disillusioned by how the industry has evolved. I like to emphasize the word chosen, as i realize that with entry levels so low in the industry, it seems that this career path is considered an alternative, or a last resort even. Ah yes, MAS did introduce some licensing papers, but who would trust a doctor if they could complete a PHD in a couple of months? 4 years in the industry might not see long to many, but hey, at least I am not myopic, or perhaps I chose not to be. Whatever happened to ethics in work? The thing I observe the most is that people do NOT question their work enough. How does it add value to a society? Is it what they  believe in? For some, work is work, as long as it pays the bills, feed their material desires, supports the family, then that’s it. Coming back to the financial planning industry, I am jaded by the fact that a general consumer does not see it as a professional job, but more like a salesman.

During the onset of the 21st century, along with the ridiculously loose monetary policy of America, Singapore was also prospering well. On came the liberalization of the financial industry. More financial instruments like mutual funds, investment linked plans were introduced to the markets. Coupled with MAS decision to allow CPF holders to participate in collective investment schemes, the market simply took off. The bull run which kicked off around 2003 also fueled the appetite for risk.

Of course when that happened, the banks did not want to miss out on the party. Hence, traditional banking models of deposits and lending expanded into a world of unit trusts, insurance, structured deposits, equity linked notes, bonds etc. A whole new revenue model brought about realization to the banks that such products brought about lucrative profits. People associated with the sales side of a retail bank were suddenly flushed with commissions, recognition and bonuses. One would think that in a traditional bull run, a market would consolidate after 2 years or so. But that did not happen. That triggered a mass recruitment of so called bankers to effectively bring in more sales. With banks coming into the picture, an industry which fundamentally should be driven by advice became a purely sales driven one. I always liken it to selling fishes in the market. Prudent advice on cashflow management, risk control,  became a story telling session of the hottest investment or insurance product in the market. The banks were happy, the insurance companies and asset houses were happy, and the clients were happy. From a client’s perspective, during the good times, less questions will be asked, advice is cheap, and all they needed was a sweet tongue and a transactor. The banks duly obliged.

Fast forward to today, the major investment banks blew up in spectacular fashion mainly because they took unwarranted risks. But to me, the real pain comes over at the consumer banking side, where hard earned money of the young, old, educated, retired simply vanished. Loads of law suits between consumers and banks came about. Hell, even our property tycoon Oei Hong Leong was not spared. He had a tiff with Citi Private Banking. Who’s to blame? A deadly concoction  of excessive risks, chasing high returns, sales driven bankers/advisers contributed to what Alan Greenspan terms as “irrational exuberance.”

I believe that the position personal bankers, financial advisers, relationship mangers are so loosely used by financial institutions that it does not matter anymore. If banks and other financial companies adopt such a myopic approach to financial planning, than we might as well be regarded as sales executives instead. MAS is naive to assume that by imposing compulsory training hours and system to the industry, a strong ethical culture will evolve. At the end of the day, most banks only focus on the bottom line. With a culture of chasing targets and high commissions attached to products, prudent advise is often compromised.

If Singapore truly wants to become a global financial hub, then I suggest it takes a page from the developed countries like the UK and Australia, where fee based advising is more prevalent. In fact in the UK,  the commission structure will be siphoned out in 3 years. MAS response to the current crisis is to reduce commissions, alter KPIs to be less sales centric and increase basic pays for the bankers. It remains to be seen whether this is merely a knee jerk reaction to appease the general public for the short term before the banks are back to their shenanigans again.

Which do you prefer? A salesman or an adviser?

Stage Advisory Process Commission-based Fee-based
A 1. Objectives
2. Fact finding
3. Analysis
4. Recommendation
Nothing paid here Majority of the fee earned here
B 5. Implementation/ product purchases Majority of the commissions paid here Minority of the fee earned here
C 6. On-going review Commissions repeatedly paid here for sales of unnecessary products Fees earned here for providing on-going service

Written by Nabs

September 23, 2009 at 10:25 am

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  1. […] status co is more important. (one of the reasons why bad banking practices occur – my previous article) Such society pressures actually restrict talent to be harnessed in the most efficient way. Our […]

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