This article was written in collaboration with Financial Alliance. All views expressed in this article are the independent opinion of DollarsAndSense.sg
Why would someone choose to join an independent financial advisory firm, instead of pursuing a career in private banking? To understand better, we sat down with John Dasson, an Associate Wealth Advisory Director with Financial Alliance, Singapore’s largest independent financial advisory firm.
In our conversation with John, we discussed the financial advisory process, his best advice for young Singaporeans starting their financial planning journey, and whether he thinks financial comparison sites and robo-advisors will be a threat to the livelihood of financial advisors.
DollarsAndSense (DNS): What made you choose a career as an independent financial advisor?
John Dasson (John): I joined Financial Alliance right after graduating with a double major degree in Finance and Accounting. Like most finance graduates, I naturally gravitated towards a career in banking. A recruiter put me in touch with Financial Alliance during this time and it felt like the best fit for my personal value system and I decided to join the firm.
I had discovered my passion for wealth management previously, after doing an internship at an asset management firm. I realised that I would enjoy the scope of work of a financial advisor tremendously, such as putting together investment portfolios, making recommendations for insurance coverage and structuring wills and trusts along with mortgage advisory.
I chose Financial Alliance in particular because I liked the idea of being able to offer a wide range of services and products, not limiting my recommendations to a single company or product provider, and to be able to give independent, unbiased advice. The aspect of independent advice really resonated with me, because if I were a client, this is what I would want for myself as well.
It has always been my belief that independent advice is a very valuable commodity and I enjoy being able to provide comprehensive solutions that best fit my clients’ needs.
There are many ways to make a good living, but meeting clients, understanding their requirements, and then using my expertise to craft unique solutions is something that still gives me great satisfaction today.
DNS: What are the biggest financial planning mistakes you see from interacting with clients over the years?
John: There are really too many to name. The scary thing is, they are much more common than you may think.
One example is buying products without a good understanding of their pros and cons. The product might be poor or offers bad value compared to other comparable alternatives in the market.
I have seen cases of clients being mis-sold universal life insurance policies with premium financing as an investment, when they had no need for life insurance in the first place, and when other alternatives exist to better meet their needs, with or without financing.
There could also be excessive gearing (borrowing money from the bank to invest), with the client not being fully aware of the risks they are taking. Gearing in itself is not a bad thing, but clients need to know the risks and how they can be mitigated.
Another mistake that I often see is clients not having a comprehensive financial plan with goals and not knowing where they stand at any given point in time. This can be costly in the long run as it may lead someone to start planning for their retirement only at a much later stage in their life, which causes them to lose out on years of compounding growth of their investments.
Another mistake relating to insurance is clients having a poor combination of products, sold to them by different people, that don’t work as synergistically as they could and should.
This means that there might be overlapping coverage – which is essentially wasted – or they might have coverage gaps, so they might be spending a lot on insurance premiums but still end up not being protected for basic things like disability income.
Another common mistake that I come across are investment portfolios that are not sufficiently diversified. A significant exposure to non-short duration bonds during this current climate of rising interest rates or concentrated exposure in certain equity segments is an unnecessary risk that I often come across.
DNS: What advice would you give young Singaporeans to avoid some of these personal finance pitfalls?
John Dasson: One piece of advice I would give to Singaporeans is to learn and increase their own financial knowledge. It can be as simple as reading the ‘Invest’ section in the Straits Times or reading books like ‘The Intelligent Investor’ by Benjamin Graham.
While the services of a trusted and competent financial advisor are essential, at the end of the day, no one is going to value your own hard-earned money as much as you and you need to continue to learn and increase your own knowledge to be able to evaluate the options that are presented to you. Remember that when you are working with an advisor, the interaction should feel like it’s a conversation between the two of you and there should not be a feeling of pressure.
Another extremely important piece of advice would be for you to understand what the internal rate of return (IRR) of an investment is. Different investments have varying and uneven cash flows, and IRR is an objective way of comparing among investment options.
From there, you can then calculate your inflation-adjusted returns and risk-adjusted returns, and decide which investment makes the most sense for you, at your desired risk level. Microsoft Excel is a great tool and it is not difficult to learn how to do these computations.
That’s the biggest personal finance life skill I think all Singaporeans, young or old, should have.
DNS: Do you think financial comparison websites or robo-advisors will eventually replace the need for financial advisors?
John: I like financial comparison websites, because they help consumers realise that there are many choices in the market and that not all products are designed the same way. It gets people thinking about what features they need from each type of product.
I think financial comparison websites are good for simpler products like general insurance or term insurance. Singaporeans are savvy, and many are doing their own research to compare individual products.
However, the way policies and benefits are structured can also be quite complex, making an apples-to-apples comparison difficult. Thus, Singaporeans can still benefit from a professional financial advisor.
Rather than just evaluating a product, an advisor should ask what you aim to achieve by purchasing the product, whether it is the best solution to meet that particular need and how that solution fits into your overall portfolio.
A holistic approach is important and an individual might not realise that there are other more pertinent needs that need to be addressed.
Regarding robo-advisors, I believe that they have a place in the market, and it is a segment that will continue to grow. That being said, robo-advisory works for certain groups of clients. It offers convenience and it suits people who want a hands-off approach. That being said, there are many reasons why someone would prefer a traditional advisor to manage an investment portfolio.
For example, a human advisor can also see and understand a client for more than just their investment portfolio. They can draw links between the other aspects of a client’s finances and provide holistic tailored advice. This would hold especially true for clients with a larger amount of wealth as the value add from a human advisor can be massive.
This is why I believe robo-advisors would be more suited for those with a smaller investible amount, for instance, the retail market.
I think that robo-advisors are here to stay and what will eventually happen is that traditional financial advisory firms will incorporate robo-advisors to do simple tasks, such as portfolio rebalancing and switching, so that human advisors have their time freed up to focus on other aspects of the client’s wealth management. It would require some adaptation from the human advisors but responding to technological changes is inevitable in any industry.
DNS: What are your thoughts about the Monetary Authority of Singapore (MAS) wanting to tighten commissions structures paid to financial advisors?
John: Commissions paid to financial advisors may attract negative attention in the headlines due to advisors potentially being swayed in their recommendations by monetary incentives.
To me, working with an independent financial advisory firm eliminates much of this problem, since they offer products from a wide range of product providers, and cannot be incentivised to favour one over another.
Greater transparency is a positive development for financial advisors who have their clients’ interests at heart, and bad for “insurance/investment salespeople” who just want to sell products. That being said, a product with a higher distribution cost does not necessarily equate to an inferior product. There are many variables that determine what is the best option for a client in a given situation.
I like the idea of the client having more information, since the more information they have, the easier they would find it to make an informed decision.
A savvier clientele is inevitable, and I believe this will spur financial advisors to develop their knowledge and increase their ability to value-add. Advisors who only know how to sell will end up leaving the industry, and we will end up with a smaller but more competent pool of advisors.
DNS: Tell us more about the services that you provide.
John: The job essentially boils down to this: Find out what our clients’ goals and needs are, and then source for the best products from the market that meet their needs and to tailor a solution.
In order to accomplish this, we have to be proficient in a wide range of areas, such as investment portfolio management, insurance portfolio advisory, wills and trusts, and even mortgage advisory.
For example, if I have a client who tells me that they wish to buy a private property in 3 years’ time, I’ll calculate the financial ratios relevant to them, such as the Mortgage Servicing Ratio and Total Debt Servicing Ratio, based on the property price they are looking at so that they get a feel of what they can actually afford.
By knowing how much they would need to pay in monthly instalments as well as how much they would need for their down payment, I would go on to project how much their current savings/CPF monies would have grown to at the intended time of purchase. Knowing these figures is vital as it enables me to decide on how much of their monthly income needs be allocated for the property need as well as what short/medium term investment instruments would be appropriate to meet this need, and how much of their monthly income can be allocated to other areas such as retirement planning.
It is calculations like this that help a client to know where they stand. When the time comes to make the purchase, I can help them compare mortgage packages across the banks and to pick the best one.
Various components of a person’s finances are interlinked: insurance, investments, mortgages, retirement planning, estate planning. With a deeper understanding of how all these parts work together, a competent financial advisor would be able to effectively advise their clients on how they can reach their goals.
When I help clients get the best deal and optimise their portfolio, I get a great sense of satisfaction, since I know that my clients are doing exactly what I would do if I were in their shoes. When I see my clients’ money grow as a result of my recommendations, I feel happy knowing that I have had a hand in helping them.
On the flip side, I always get mixed feelings when my clients make an insurance claim, because it means that something bad has happened.
At the same time, I see the monetary value of the policies and know that, with the monetary aspect taken care of, they can focus fully on recovery. Such incidents over the years reaffirms the importance of the work that financial advisors do.
DNS: One of the services you provide is to give advice on structuring wills and trusts. Is this something only those with large amounts of assets need to worry about?
John: There is a wide misconception that wills and trusts are only for those who are very wealthy. In fact, regular Singaporean couples who have life insurance policies and a property or two might already be leaving behind a few million dollars in assets to their children.
There are many potential pitfalls in the inheritance process and a valid will is the first step for the assets to be distributed in accordance with their wishes. That is only the first step however, since if only a will is done, the children would inherit the full assets at 21 years (nominated CPF monies will be payable at 18 years) of age. This can be a potential problem as they may not have the ability to manage the assets and there is a chance that the assets may be misused or squandered.
By embedding a testamentary trust within the will, these assets can be safeguarded on behalf of the children, and a set amount can be disbursed each month to support the children as they grow up, while the rest can be sustainably invested before the children inherit the full value once they reach a certain age. The trust can pay out the amount according to the parents’ wishes and often parents choose for the children to inherit the full value after they have completed university and started to work, so that they are more mature and better able to manage large sums of money. Standby trusts are also an option.
Choosing a guardian for minor children is also an extremely important part of the estate planning process. I advise clients on how to structure their wills and trusts and we have an in-house legal team that drafts these documents.
Many of my clients are also SME owners. They often face a unique risk which they themselves may not realise, and that is, if they pass away and the surviving shareholders are unable to afford or do not have the liquidity to buy out their share. This may result in the deceased’s share being bought out at a lower valuation and the surviving family ends up receiving a lower amount. We structure funded buy-sell agreements to mitigate this risk.
There are many ways to fund the agreement, such as term insurance, universal life insurance or traditional whole life insurance – each with its own pros and cons, different costs, and different tax implications.
DNS: You mentioned Financial Alliance having an in-house legal team for estate planning work. What are the other ways Financial Alliance supports advisors and clients?
John: The amount of support that Financial Alliance provides its FA Representatives is pretty remarkable. We have a FA Representative strength of approximately 330, but there are more than 60 staff employed to do investment analysis, insurance product research, legal and administrative work. This is an amazing ratio of professional support staff behind the advisors
Our investment research department, headed by Sani Hamid (who takes a top down approach) and by Victor Wong (who takes a bottom up approach), is very experienced with a combined total of over 50 years of experience in the banking and investment management industry.
The company also invests heavily in technology. We have proprietary financial planning tools as well as systems we use for product comparisons and projections, with the latest market data and product information that full-time support staff maintain.
The nature of the market is that it is ever-changing, so having dedicated research teams behind us is a game-changer to help advisors fulfil their mission to deliver the best possible advice to clients.
It is clear that even in the age of automated tools and online resources, the expertise of a good and trusted financial professional continues to remain essential when it comes to having a holistic plan that incorporates insurance, investments, estate planning, and mortgage advisory.
Founded on the philosophy of valuing independent, unbiased financial, Financial Alliance continues to leverage on technology and shared resources to ensure that their advisors have what they need to in order to deliver the best possible service to each client.
To find out more about Financial Alliance and what they can offer, you can visit their website. If readers would like to get in touch with John, you can contact him directly on his Financial Alliance profile page.