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Where is our local Financial Advisory Services Industry heading?

By Percy Chong, 28th May 2015

With a career spending over 18years in the Financial Advisory Services(FAS) Industry, and working very closely with Financial Adviser Representatives (FAR) in Singapore, no question gets asked more often than “what ASG sees in the future of the FAS Industry?”

Rather than gazing into the crystal ball to predict, ASG have always relied on our past, as the best predicted of our future.

Fee-based Services (Licensed Financial Adviser) over Traditional Channels (Tied-Agency, Bancassurance etc)

Since the introduction of the Financial Adviser’s Act (FAA) in 2002, there has been ongoing chatter revolving around the viability and even replacement of traditional channels by the Fee-based Service Provider.

Fast forward 13 years today, the fee-based model is just not getting the traction that it has touted. The Licensed FA firm has done what they could and the market has spoken. There is lesser emphasis now on the fee-based services rendered to clients, but more on their obvious advantage of diverse product offering. With that, they have veered back to very much the same compensation structure(ie. commission payment for products/services sold) that Tied-Agency has been practicing all these years.

However, there are still some edgein the Licensed FA’s compensation that is derive from their “investment” business (ie. from trailers fees of assets under management), and it has become one of their strongest values proposition in Financial Adviser Representative’s (FAR) recruitment.

History has shown us that there will always be a select group of clientele who would appreciate a more customize or bespoke services/experiences over the mass market solution.  The proverbial debate over the importance of the customisation over cookie cutter solutions will never have any definitive conclusion.

In the end, there will a select few who prefers the channel and are ready to pay. But it is unlikely for them to come out as the dominant channel in the marketplace. And it would also be a much tougher sell going forward, as more product providers are cutting their fees and charges on products/services to meet the demand of the online/DIY (Do-it-yourself) market.

Online/DIY (Do-it-yourself) versus Traditional Channels

Online/DIY business will certainly overtake all other channels as a new generation of consumers seeks to have their option, research and purchasing experience done online. The floodgate for this change has recently been opened, with the Regulators allowing more products to be sold online.

There is no doubt that e-commerce is here to stay. The fate of the industry is not just confined and shaped by the growing number of online buyer itself, but ASG feels the real impact will be felt when there is an overall reduction in the fees and charges brought upon by this market’s growing demand.  

Much like the stock broking industry that saw the reduction of fees charged (triggered by DIY investing), it has seen a dramatic downsizing of the industry.

The shift to the online/DIY channels will definitely be amplified as the charges between channels become more pronounce. It will definitely encourage more traditional prospect to endure the initial discomfort to learn the new buying process and cross-over.

And there will also be a knock on effect, impacting the areas of FAR recruitment as well as the sales & marketing strategies for the FAS industry in general.

Who will be the future Financial Adviser Representative (FAR)?

It has been increasing tough to entice candidates to join the industry as a FAR. Our highly educated local workforce seems to gravitate towards a more “stable” or non entrepreneur career. With the exceptions of foreign nationals (who have taken up permanent residencies in Singapore), whose increased presence as FAR, has been observed over the last couple of years.

Working with local Financial Adviser firms, ASG has noticed a good 30-40% of new batches of recruits are foreign nationals (ie. predominantly from China, India, and Philippines). And the gap seems to be widening towards the foreign candidates, almost in tandem with the growing migrant population in Singapore.

There also seems to be noticeable “hunger” among the new migrants for success (in both learning and sales performance), not found in our local population. Their growing success is further amplified by the cross border sales business brought in by them, all thanks to Singapore’s influence and reputation in the region.

Clearly, the FA firms or Tied-Agencies with the most aggressive foreign talent policies and strategies will triumph in the next recruitment race.
The current regulatory framework of the industry (ie. FAIR Guidelines etc), however, does little to help or dampen the impact to local FA firm’s recruitment strategies. The introduction of the Balance Scorecard compensation approach will not be a huge determinant of recruitment results as widely expected; not as long as the overall commission level remains attractive.

The real recruitment shakedown will be brought about again by the reduction in fees and charges, encourage by the proliferation of the online/DIY channel. The impact of change in the long term compensation structure will far outweigh the short term effects that the Balance Scorecard brings to the recruitment.

Regulatory Changes Affecting the FAS Industry

Another recent regulatory change that had a major impact to the FAS industry is the introduction of the Personal Data Protection Act (PDPA).
With the launched of the Do-Not Call (DNC) registry, FARs operating on a business-to-consumer (B2C) approach were all affected. But when one door closes, another will open!

To make up for this change, enterprising FARs has been “forced” to set their sights on a more lucrative and exclusive business-to-business (B2B) opportunities (eg. Corporate, Group Business etc); which are not affected by the Regulations. So, what use to be elusive market requiring specific market knowledge to operate, will soon be a common place as the pie gets shared with newer, hungrier FARs moving up the knowledge and value chain.

This move will also bring about a knock on effect to other complementing industry. And growing number of individual FARs or Tied-Agencies will either be developing additional “contact centre” capabilities (ie. database development & outbound tele-marketing services), or outsourcing these requirements to established contact centre to enhanced their B2B marketing capabilities.

It will invariably improve the operational efficiency of the individual FARs and Tied-Agencies, as they scale and automate their business processes. A well-developed B2B marketing process will also be a game changer for the recruitment of well-heeled candidates into the industry.

Concluding thoughts…

With all these changes, does it spell the end for the industry?

On the contrary, ASG feels the FAS industry is entering a new trajectory…a new order of business. New approaches to delivering the business will emerge, and FARs or FA firms who recognised the increasing importance of business trends and market profiles will have the greatest chance for business survivor. And their ability to outsource non essential, low value added services to remain productive will prove to be a key surviving strategy for them.

Article contributed by Percy Chong (through Asian Sales Guru)
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