Describe how a bank adviser works with you and what you pay for it, either directly or through the fund.
Before you act on investment advice from a bank, check three things. The adviser should be registered with MAS (Monetary Authority of Singapore). They should start from your needs before mentioning any product. You should also know how they are paid. Bank advisers are usually paid through charges built into the funds they sell, so you pay for the advice even though no bill for it ever arrives.
Wei Ling holds a fund she bought through her bank. The bank has invited her to a portfolio review on Saturday morning, and her relationship manager wants to talk about "rebalancing into opportunities". She has a vague sense that she pays for these meetings somehow, but she does not know how much or what she should expect in return.
Nothing here argues for or against advice. Good advice can be worth far more than it costs, and knowing what you pay makes it easier to judge whether you are getting that value.
In Singapore, anyone who gives financial advice on investment products to retail clients for a bank or financial adviser firm must be an appointed representative. MAS keeps a public Register of Representatives that lists them. Each entry shows the person's firm and the activities they may carry out, for example advising on collective investment schemes.
Wei Ling searches her relationship manager's name on the register. She finds him, sees which bank appointed him, and confirms that advising on collective investment schemes is one of his listed activities, a check that takes her two minutes.
Do the same for your own adviser. If you cannot find them on the register, or their listed activities do not cover what they are advising you on, ask why before going any further.
Proper advice starts with questions about you, and the product comes later. These questions are called a needs analysis, and they should come before any recommendation. A needs analysis covers:
your goals how long until you need the money your income and commitments what you already hold your investment experience how much loss you could take, both financially and emotionally
A recommendation should follow from your answers to those questions and come with reasons you can read. A meeting that opens with a fund that is "doing very well" has the order backwards. You can ask to go through your goals first, and you can ask for the reasons behind any recommendation in writing.
Before the review, Wei Ling writes her goals in one line: growth for retirement, at least fifteen years away, with an emergency fund already set aside in cash. In the meeting she will watch the order of the conversation and expect her goals and needs to come up before any product, and if they do not, she will ask to start with her goals.
Most bank-sold funds pay for advice in two ways. The sales charge is taken from your money when you buy, and it shows on your confirmation as a deduction. Lesson 2.1, "One-off charges: buying, switching and selling", covers it. The trailer fee is the share of the yearly management fee that the fund manager passes to the bank for as long as you hold the fund. You do not pay it as a separate charge, because the fund manager pays it out of the management fee charged to the fund, so that the bank will provide ongoing advice and service to you. For the share of the management fee that typically goes to the distributor, see the unit trusts guide on MoneySense, the MAS financial education site. Lesson 2.2, "Yearly charges: management fee, expense ratio and trailer fee", covers it.
You met both charges in module 2. Using the example figures from there, Wei Ling paid a 2% sales charge (an example figure) on each purchase, and part of her 1.5% yearly management fee goes to the bank each year as a trailer fee. Neither charge arrives as a bill for advice, so the cost of the advice is real but easy to miss when you read your statements.
Being paid per sale pulls an adviser in one direction. They earn more when you buy and switch more often, and they earn more from funds with higher sales charges and trailer fees. This does not make any adviser dishonest, and many advisers are careful to resist it. It does mean you should ask direct questions about fees and incentives and expect direct answers. You can also buy funds without advice. Lesson 3.2, "Fund platforms: lower charges, more of the work on you", explains how, and lesson 3.4 compares the cost of buying with and without advice.
Advice has value when it changes what you do for the better. It might stop you from selling in a panic when markets fall. It might catch a gap in your insurance, set up a plan you would not have made alone, or get you to leave a fund alone when you wanted to tinker with it. Advice has little value if all it does is present a fund you could have picked yourself.
The test of advice is what happens after the sale. Ask your adviser what they will do for you next year and the year after. Ask whether there will be a yearly review and whether they will tell you if the fund changes manager or strategy. Ask whether they will get in touch when markets move sharply, or only when there is something new to sell. The trailer fee pays for ongoing service, so it is reasonable to ask what it buys. If the answer is "not much", that is useful to know before you put in more money.
Wei Ling goes to her Saturday review with three things: her one-line goals, her fund's charge sheet from lesson 2.4, "List every charge on one fund", and a short list of questions on fees, conflicts and after-sale service. She has also decided not to agree to any switch in the meeting, and she will take any recommendation home with its reasons in writing and read it there.
You can prepare the same way. Search your adviser on the MAS Register of Representatives and check their firm and listed activities. Write your goals in one line: what the money is for, how long until you need it, and whether your emergency fund is in place. Bring your charge sheet from lesson 2.4. In the meeting, check that your goals and needs come up before any product, and ask to start with them if they do not. Do not agree to any switch in the room, and take each recommendation home with its reasons in writing so you can read it there.
Your own questions are the activity below: five of them, on fees, conflicts and what you get after the sale.
Write down five questions to ask a bank adviser about fees, conflicts of interest and ongoing service before you buy a fund.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).