On Insurance Discussion SG, Singapore’s largest Facebook community for insurance, the issue of trust in the insurance industry comes up frequently. In a recent study released this year by the CFA Institute of Singapore, only about 10% of respondents believe that financial advisers put their clients’ interest first, while less than 50% of people trust the industry as a whole.
Is it really possible to trust financial advisers, since most of them depend on commissions to make a living? What do financial advisers think about the scepticism and distrust of their profession?
To explore this topic in-depth, DollarsAndSense invited Kennard Lee, an agent from AIA, to take part in a passionate and lively conversation on The DollarsAndSense Podcast with host Dinesh Dayani and Managing Editor Timothy Ho.
Below is a transcript of their conversation, edited for clarity. If you’re interested, you can listen to the entire podcast episode as well.
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Drawing A Distinction Between Trusting An Adviser’s Intentions And Their Competence
Dinesh: “Regarding the issue of trust, perhaps we need to make a distinction between trusting an adviser’s intentions and trusting their knowledge and competence. You might trust your family member or friend as a person, but even if they have your best interests at heart, do you know if you can trust they have the right knowledge to recommend the best plans for you?”
Consumers Need To Take Responsibility For Their Financial Planning Decisions
Timothy: “If you think about other aspects of our lives, like travel, we don’t just blindly accept what people tell us right? We might examine our tour operator’s itinerary or flight recommendations and then search online to see if there are cheaper alternatives, compare fine print, and get reviews from people we know.
The question is: Why do we not apply this same sense of responsibility in our personal finance matters?
Having trust in financial advisers is one thing, but we should also take responsibility for our own financial well-being and educate ourselves, rather than leave everything to the financial adviser. This will equip us to evaluate whether the advice we receive is good and if we can trust it.”
Dinesh: “Perhaps this tendency to rely on the expertise of financial advisers or insurance agents comes from a generation ago, when information about insurance products was scarce, consumers relied heavily on.
It was really hard to know what alternatives existed. Now, on the internet, there is more information available, so there really isn’t any reason not to find your own information.”
Kennard: “People don’t enjoy financial planning and tend to procrastinate. After all, no one wakes up thinking they want to buy insurance.”
Timothy: “People are not excited about financial planning, but if you don’t do it, you put yourself at risk of not getting the right recommendations.”
The Role Of A Financial Adviser Is Still Indispensable
Kennard: “With direct purchase insurance options, some people might wonder if they still need a financial adviser. I think for certain types of insurance products like personal accident policies, it is fine for consumers to buy online directly from the insurer.
But for things that are a little more technical or require investment decisions, such as policies that invest in par funds, most people will need some advice and consultation. If consumers buy an Investment-Linked Plan without getting a good understanding about how it works and the risks-reward trade-offs they are making, they might regret it years to come.
Also, some people prefer the human touch and appreciate the relationship with their financial adviser, especially in times of difficulty.”
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Timothy: “We’ve all known of cases of people regretting their insurance product purchases years later. Sometimes, it is not that the products themselves are bad, but it might not be the most optimal use of your funds, given your limited resources and goals.”
Kennard: “Exactly. I have clients who might be quite well-to-do and think they don’t have to worry so much about higher costs or overlapping coverage. I always remind them that insurance is a long-term commitment.
If clients have more challenging financial situations years down the line, they might realise they should have been more discerning before making purchases. So even if you are rich, budgeting and buying only what you need is still important.”
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Do You Want Your Financial Adviser To Be Rich?
Kennard: “I think that the richer your financial adviser, they will be less likely to succumb to the pressure to sell you something that gives higher commissions, whether you need it or not.”
Timothy: “Let me just note that just because someone looks rich means they are really rich. You can appear rich, but actually are poor because you spend so much. Look beyond the superficial trappings and take time to know your financial adviser. To really know someone, the relationship you build with them is important.”
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Are Financial Advisers Legally Obliged To Help Their Clients Make Claims?
Timothy: “Is your financial adviser or insurance agent legally obliged to help you make claims?”
Kennard: “Legally, no. But I personally believe that helping clients with the claims process is a must. You’ve sold the policy, and if your client is unaware about how to go about making claims, you should point them to the right direction, whether means asking the hospital to e-file your integrated shield plan claim, going to the insurer directly, or helping them submit claim forms.”
It Takes Two Hands To Clap For A Constructive Financial Planning Relationship
Kennard: “It is a financial adviser’s job to dig deep and find out exactly what their clients’ goals and risk appetite is, recommend the right products, and help them understand the decision they are making.“
Timothy: “In other words, consumers themselves need to be clear about what they want, so financial adviser can help them accordingly.”
Dinesh: “What should insurance buyers do to have a good meeting with their financial adviser?”
Timothy: “Just like engaging an interior designer, don’t just talk to one person or buy from the person just because they are your cousin or friend. Of course, there is no harm to talk to them first, since you already have a prior relationship with them, but you should not make a decision solely based on that.
Talk to a few persons, do your own research. If we will do such research to find the best flights or credit card deals, there is no reason why we shouldn’t invest the time to do it for our financial planning.”
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Kennard: “Before being sceptical, I think consumers can give agents the chance to do their presentation and make your own assessment. Time and further interactions will tell if this agent is sincere or just want to make a quick buck.
An ideal, working relationship between client and financial adviser takes two hands to clap.”
The Discussion Continues – With You
What do you think? To continue the discussion with Kennard or our DollarsAndSense podcast hosts, you can head to Insurance Discussion SG, Singapore’s largest Facebook community for all things insurance.
If you have a topic you’d like the team to cover next, drop us a message at [email protected]. If you like what you hear, you can listen to other episodes in Season 1 of the DollarsAndSense Podcast:
Episode #1: What Is Retirement, Anyway?
Episode #2: Does Paying Singapore Ministers High Salaries Get Us The Best Talents?
Episode #4: My Child’s Education VS My Retirement – Which Is More Important?
Episode #5: Can You Really Trust Your Financial Adviser To Give You Good Advice?
Episode #6: Does The “Class” You’re Born Into Define You And What You Can Achieve?
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