The Monetary Authority of Singapore (MAS) has taken note of the recent mass recruitment of representatives by financial advisory (FA) firms from competitors.

MAS believes this recruitment practice to be risky as it is not in the customers' interests and may drive up costs in the life insurance industry.

MAS has identified the basis of success for this recruitment practice to be the offer of large sign-on incentives, and has accordingly released a consultation paper on the measures to address the risks posed by the use of sign-on incentives in the recruitment of FA representatives. The consultation period closes on 9 April 2018.

Proposed measures and risks addressed

MAS has proposed the following four measures to address the risks posed by current recruitment practices:

Proposed measure Risk addressed
Where a FA representative is offered sign-on incentives pegged to sales targets:
  • First-year sales target tied to sign-on incentives should be no higher than the representative’s average annual sales in the preceding 3 years.
  • Sales targets for subsequent years should be set at a reasonable level based on the representatives’ past performance, and would be subject to supervisory review by MAS.
Mitigates the risk of representatives engaging in aggressive sales tactics to meet inflated sales targets
  • Sign-on incentives should be spread over a minimum period of 6 years.
  • The first-year payment should be capped at 50% of the representative’s average annual remuneration in the preceding 3 years.
  • The remaining sign-on incentives are to be spread evenly over the next 5 or more years.
Prevents improper sales conduct and fosters better after-sales service to customers as the payout of incentives may be withheld if a representative is subsequently found to have engaged in aggressive sales, even before that representative is familiar with the new FA firm’s product offerings, in order to receive the large sign-on incentives promised in the first year.
Where there is mass movement of 30 or more representatives from one FA firm to another within a 60-day rolling period:
  • FA firms will be required to claw back the representative’s sign-on incentives if the percentage of insurance policies serviced by the representative at his previous FA firm and which remain in force, falls below a certain threshold (set within the range of 75% to 85%) two years after the representative’s departure.
  • MAS will consider the persistency ratio, which refers to the percentage of regular premium life and accident and health policies that remain in force without lapsing or being replaced by another policy.
Deters representatives from encouraging customers to surrender existing insurance policies and to buy new ones from the new FA firms, without due consideration of whether the switch is suitable.
  • FA firms will be required to undertake enhanced monitoring of their newly hired representatives’ sales transactions for a minimum period of 2 years.
  • This includes appointing an independent external party to conduct customer call-backs.
To verify that the sales and advisory process has been properly conducted.

Early adoption of measures

The Life Insurance Association (LIA) Singapore has adopted the measures proposed by MAS as industry guidelines on 14 March 2018, even before the expiry of the consultation period.

Noting that individuals do move between companies for career advancement, the LIA nonetheless emphasised the importance of having guidelines which ensure that ethical, professional and responsible recruitment practices are being adopted.

Changes in employment practices

Industry commentators have described competition for experienced financial advisers to be intense given Singapore's growth as a regional wealth management hub and the move by a number of major insurance companies into the advisory business.

As employers, in addition to ensuring that their agents comply with the standards imposed by the Financial Advisers Regulations when servicing their clients, FA firms should ensure that their employment practices are fully aligned with the MAS measures in the following aspects:

  • at recruitment: monitoring offers and other sign-on incentives;
  • during contract negotiations and drafting standard terms: provisions to cap average annual remuneration, and introducing post-termination claw back terms; and
  • in management and compliance staffing: to perform enhanced monitoring of their newly hired representatives’ sales and conduct customer call-backs.
Explore More Insight
View All