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Financial Advisers could get into serious trouble
01 Apr 2017 (83 views)

Many financial advisers could get into very serious trouble if a consumer were to take up a case against them under an existing law, called the Financial Advisers Act. A copy of this Act can be viewed at this link.

You should pay special attention to clause 7.2 to 7.3 as follows:

Reasonable Basis 
7.2 A financial adviser should ensure that its recommendations are suitable for the client, taking into account the information it has obtained from the client. It should ensure that its recommendations are based on thorough analysis and take into account alternative investment options. 


7.3 A financial adviser should explain to the client the basis for its recommendation and why the investment product it is recommending is suitable for the client. 

Clause 7.2 requires the financial adviser to "take into account alternative investment options".

Most of the investment linked policies recommended and sold by financial advisers (including insurance agents who are covered under the same law) have an Effect of Deduction of 30% or more of the accumulated premium. An alternative investment option, such as the STI Exchange Traded Fund, which carry similar risks to the ILP, have charges that amount to less than 10% of the accumulated premium.

Take an example. The recommended ILP has an accumulated premium of $300,000, Effect of Deduction of $120,000 (40%) and a projected Surrender Value of $180,000. If the alternative investment option has lower charges that take away only 10% of the accumulated premium, the consumer will get back $270,000 instead of $180,000. 

Has the financial adviser met with the requirement to 'take into account alternative investment option" that has similar risks and a much lower charge? Has the financial adviser met the requirement of 7.3 to explain to the consumer the basis of his recommendation?

In 2015, 110,000 investment linked policies were sold. i suspect that most of these ILP policies  have Effect of Deduction higher than 30%. I have seen some cases where the EOD is more than 60%.

Will the financial advisers and insurance agents who sold these policies be able to justify that they have complied with section 7.2 and 7.3 of the Financial Adviser's Act?

Tan Kin Lian


Financial Advisers could get into serious trouble
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Many financial advisers could get into very serious trouble if a consumer were to take up a case against them under an existing law, called the Financial Advisers Act. A copy of this Act can be viewed at this link.

You should pay special attention to clause 7.2 to 7.3 as follows:

Reasonable Basis 
7.2 A financial adviser should ensure that its recommendations are suitable for the client, taking into account the information it has obtained from the client. It should ensure that its recommendations are based on thorough analysis and take into account alternative investment options. 


7.3 A financial adviser should explain to the client the basis for its recommendation and why the investment product it is recommending is suitable for the client. 

Clause 7.2 requires the financial adviser to "take into account alternative investment options".

Most of the investment linked policies recommended and sold by financial advisers (including insurance agents who are covered under the same law) have an Effect of Deduction of 30% or more of the accumulated premium. An alternative investment option, such as the STI Exchange Traded Fund, which carry similar risks to the ILP, have charges that amount to less than 10% of the accumulated premium.

Take an example. The recommended ILP has an accumulated premium of $300,000, Effect of Deduction of $120,000 (40%) and a projected Surrender Value of $180,000. If the alternative investment option has lower charges that take away only 10% of the accumulated premium, the consumer will get back $270,000 instead of $180,000. 

Has the financial adviser met with the requirement to 'take into account alternative investment option" that has similar risks and a much lower charge? Has the financial adviser met the requirement of 7.3 to explain to the consumer the basis of his recommendation?

In 2015, 110,000 investment linked policies were sold. i suspect that most of these ILP policies  have Effect of Deduction higher than 30%. I have seen some cases where the EOD is more than 60%.

Will the financial advisers and insurance agents who sold these policies be able to justify that they have complied with section 7.2 and 7.3 of the Financial Adviser's Act?

Tan Kin Lian