You will be able to explain how advisers are paid and what they must do before recommending a product.
Ryan is a good friend and, as far as Jun Hao can tell, a decent adviser. He answers messages late at night, he helped Jun Hao's parents with a claim, and he has never been pushy. He has also recommended a whole life plan, an ILP and a switch of Jun Hao's old policy, each of which would have paid him more than the term cover Jun Hao ended up choosing. Both things can be true at once. To work well with any adviser, friend or stranger, you need to know how they are paid and what the law requires of them.
Most insurance advisers in Singapore are paid mainly by commission from the insurer, not by fees from you. The commission comes out of the premiums you pay. That is part of the distribution cost you met in lesson 1.1, Every premium pays for risk, costs and sometimes savings, and in the illustration in lesson 3.2.
For long-term policies, a large share of the commission is paid in the first years, with smaller amounts in later years. That's why early surrender values are low, and why an adviser earns more from a new sale than from servicing a policy you already hold.
Commission also differs between products. A regular-premium whole life or ILP with a large premium generally pays more in total than a term policy with a small one, simply because the premium is larger. That doesn't make the adviser dishonest. It does mean that the product that pays them best and the product that suits you best are not always the same, and you should know which is which.
Advisers work in different kinds of firms. Some represent one insurer and sell only its products. Others work for financial adviser firms that can recommend products from several insurers. Banks have representatives too. A few advisers charge fees for advice, sometimes alongside commission. Ask which kind you're dealing with, because it limits what they can offer you.
Under the Financial Advisers Act and MAS rules, a representative recommending a life insurance or investment product must have a reasonable basis for the recommendation. In practice that means they must first find out about you: your objectives, your finances, your existing cover and your circumstances, usually through a fact-find form. You can decline to give some information, but the adviser must then warn you that the advice may not suit you.
They must also explain the product clearly, including its costs and risks, and disclose material information such as the total distribution cost shown in the benefit illustration. MAS also expects firms to deliver fair dealing outcomes, which include suitable advice and clear information. Selling financial advice in Singapore: needs-based and compliant teaches this from the adviser's side; lesson 3.1, Why the fact-find is the most important meeting, shows what a good fact-find looks like.
A recommendation that arrives before anyone has asked about your dependants, your debts or your existing policies has skipped the step the law requires.
You don't need to be suspicious. You need answers to a few direct questions, asked politely and written down.
How are you paid on this policy, and roughly how does that compare with a term policy for the same cover? You may not get an exact figure, but the illustration's total distribution cost gives you one, and a good adviser won't mind the question.
What did you learn about my needs, and how does this product meet them? Ask to see the fact-find and the written reasons for the recommendation.
What alternatives did you consider, and why did you rule them out? If the answer doesn't include term cover for a life cover need, ask why not.
What does this cost me in total, and what would I get back if I stopped in year three or year ten?
Can I see the product summary and benefit illustration to read before I decide, without signing anything today?
MAS keeps a public Register of Representatives. Search it by name before a first meeting. It shows whether the person is a registered representative, which firm they act for, what kinds of products they can advise on, and whether MAS has issued any prohibition order against them. It takes two minutes and the information is current.
If someone offering financial advice isn't on the register, don't deal with them. If they are, check that the products they're recommending fall within what they're registered for.
Many people buy insurance from friends or relatives, as Jun Hao did. That can work well, because a friend has a reason to look after you long after the sale. It can also make hard questions awkward. A friend adviser deserves the same questions as a stranger, and the good ones expect them.
Jun Hao asked Ryan all five, in a message. Ryan answered each one, sent the fact-find and the illustrations, and said frankly that term cover paid him much less. Jun Hao trusted him more afterwards, not less. Lesson 7.5, Write your household insurance plan and adviser brief, puts these questions into a brief you can hand any adviser before you meet.
Write five questions to ask any adviser, covering pay, the needs analysis, alternatives and costs.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).