International news 23/11 – Singapore revamps planning industry

Singapore’s financial planning industry has become one of the first in the South East Asian region to adopt a licensing regime for independent financial advisers (IFAs).

Singapore's financial regulator, the Monetary Authority of Singapore (MAS), has introduced a raft of regulatory measures to boost consumer protection which include the IFA licence proposal.

According to former FPA chairman and RMIT adjunct professor of financial planning, Wes McMaster, the new measures indicate that the financial planning industry in Singapore is developing the way the Australian industry has over the past 20 years.

"This marks the beginnings of a transition from what is now largely a tied agency advice model to an independent advice model," McMaster told the recent Asia Pacific Financial Planning conference.

At the moment, almost all financial planners throughout South East Asia operate under a tied agency structure, much like the Australian industry until recently.

However, under the guidelines proposed by the MAS, Singapore's financial planners will soon be able to offer consumers products from a range of sources.

McMaster says the transition from tied agencies to IFAs will take some years but not as long as it took in Australia.

"It took 20 years in Australia but these are different times and this is a different place," he says.

One of the major factors slowing down the process in Australia was the inability of the life insurance mutuals to embrace the change. However, McMaster predicts Singapore's institutions will be quicker to adapt.

"They will recognise that they are in the relationship business," he says. "For a bank to have a banking relationship with a customer is one thing. However, for a bank to have a financial planning relationship with their customer is far more valuable.

"It will give the bank influence over more of the client's financial activity, increase customer loyalty and also increase the penetration of in-house products per customer."

Apart from the opportunity to become IFAs, Singapore's financial planners also face tougher regulations which require them to complete a fact find for every client; undertake at least 30 hours of professional training a year; and disclose distribution costs to clients.

The new regime comes into effect at the start of the next financial year.

Portfolios bulge

Portfolio administration services such as wrap accounts now make up 25 per cent of the entire US mutual fund market, according to a report by research house Cerulli Associates. The report found assets with fee-based financial planners topped $US1.4 trillion at the end of 1999, compared with US$275 billion in 1994. But it appears teh price of the wrap services are heading south. The average fee actually paid by a mutual fund wrap client, excluding the fund's underlying MER, was 1.18 per cent in the first quarter of 2000, compared with 1.26 per cent three years ago.

Ethical funds

Calvert Group has launched what is believed to be America's first technology-specific ethical fund. The Calvert Large Cap Growth Fund, formerly the Bridgeway Social Responsibility Portfolio, will absorb the Bridgeway Social Responsibility Portfolio into a new, socially-screened large-cap fund. The US-based fund will focus on the environment, workplace practices, human rights and product safety. Ethical funds, known in the US as socially conscious funds, have taken in about $US1.2 billion this year, after garnering $US1.5 billion for full-year 1999, according to figures from FinaCalvert.

Pension opportunity

Financial planners currently advise on only 5 per cent of the almost $2 trillion to be withdrawn from US retirement plans in the next five years, according to a study by the Spectrem Group. The study found that investment advisers are involved in the decisions affecting $US121 billion. It found that about 38 per cent of those involved in retirement plans will put money in rollover IRAs, 23 per cent left their assets in former employer retirement plans, and 32 per cent took out the taxable money.

Energy change

The push by non-traditional financial services companies to join the market has spread to infrastructure groups in Scotland. Scotland's Scottish and Southern Energy (SSE) is planning to offer an online financial supermarket by early next year. SSE recently launched an online service, providing pensions to business customers. It has signed up with Scottish Amicable as a pension provider and according to the UK's Financial Times, will source additional products from Scottish Equitable, Friends Provident and Scottish Widows. SSE joins the likes of fellow utility Centria, retailer Marks & Sparks in the UK financial services market.

E-trade success

US investors who trade in stocks over the Internet have on average double the assets of those who transact using traditional channels. They also have almost double the amount of money in equity investments, according to Perpetual's retail business boss Gerard Doherty. Doherty, who recently returned from a trip to the United States, says advisers are increasingly establishing their own Web sites to exploit the trend. He also says "do-it-yourself" online financial planning continues to grow.