Have you ever wondered how many financial jargons you need to know when purchasing an insurance policy so that you do not become a victim of misselling? How confident are you in understanding fully what was stated on your insurance contract and how it works? Or do you even know what you have just purchased?
Ignorance on insurance matters can cost you a big bomb. According to a survey of more than 1,000 Americans, 46 percent of Americans believe that advisers are legally required to put the best interests of their clients first when dealing with retirement assets. They are wrong, and we would not be surprised to find the majority of Singaporeans being surprised by the answer to this question as well.
Truth is, consumers are constantly at risk of being sold policies that are not necessarily in their best interest due to conflict of interests between the advisers and consumers.
The U.S. Department of Labor is looking to implement a rule that will force financial advisers to put their clients’ interests first when handling retirement accounts. Singapore should definitely look to improve the efficiency of the industry too, and this involves stronger regulation to be in place for the current system. Below are some possible ways we can go about doing it.
Enhancing consumers’ ability to sue
An initial proposal of the rule that the U.S. Department of Labor is looking at, will be to implement the need for firms handling retirement account to sign a legal contract with their clients to make clear that the firm will be putting the client’s interest first.
This move opens up the possibility that dishonest and non-complying firms may be exposed to penalties and lawsuits, allowing consumers to have some power to seek justice in court if they feel they have been missold to.
Purchasing of policies from an agent will require one to be transparent to the agent, be it health conditions or financial status. However, this is usually a one-way communication where an individual tells the agent the kind of product he or she is looking to purchase before the agent recommends one. If an initiative is passed down for agents to be transparent to the clients, then agents will need to reveal the commission that they are getting from each product that they are selling. Consumers would be able to identify through the commission payout if an agent is inclined towards selling him high margin products.
Higher barrier to entry
There are times where the inexperience agents are taught a certain sales pitch to the extent that they themselves believe that the product is a one-size-fits-all for their clients. Many do not even understand the mechanism behind the product they are selling, other than the sales pitch they were taught over and over again, which they have perfected after pitching it to so many customers.
The insurance industry might need to step up to increase the credibility of agents in the industry. A higher barrier of entry ensures the quality of the agent with adequate knowledge to give proper advice to their clients.
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