Financial advisers get 1-year reprieve from zero sales fees

Singapore

DEFERRING by one year the move to reduce the sales fees collected by financial advisers under the CPF Investment Scheme (CPFIS) has drawn a palpable sigh of relief.

There are about 20,000 financial advisers in Singapore, a segment of whom focus on selling investment-linked insurance policies and unit trusts offered under the CPFIS.

From Oct 1 this year, the sales charge they earn as commission from doing this would have been brought down to zero, but this reduction will now be delayed to Oct 1, 2020, the government said on Tuesday.

Leong Sow Hoe, president of Insurance and Financial Practitioners Association of Singapore (IFPAS), said: "The reaction from the ground is very positive. My phone hasn't stopped ringing."

Philip Pang, NTUC Income vice-president and head of investments, said: "The deferment of the fee reduction is most welcome, given the feedback from the industry. This move will give those affected more time to adjust and evaluate their options."

A year ago this month, the Ministry of Manpower had announced the removal of the sales charge and a reduction of the wrap fees cap for the CPFIS in two phases. The first phase of reduction took effect last Oct 1.

Sales charges were halved from 3 per cent to 1.5 per cent.

The second phase that was to have taken effect in October this year would have brought the charges down from 1.5 per cent to zero.

In October 2018, the wrap fee cap was lowered from 1 per cent of assets under management (AUM) for CPFIS members to the current 0.7 per cent. It was to have been further reduced to 0.4 per cent this October, but this will now happen instead on Oct 1, 2020.

A joint statement from the Ministry of Manpower and the CPF Board said the reprieve comes "in response to industry feedback that financial advisers require more time to adjust to the revised CPFIS fee structure".

One investment manager said the aim of going to a zero sales charge is so that investment products are bought rather than sold - in a way forcing investors to understand these products so that they buy these themselves. It is hoped that this will improve their returns.

But for financial advisers, it means a loss of commissions from selling CPFIS products. It may hit some of them so hard that they could end up dropping out of the industry.

Mr Leong said: "The one-year reprieve will thus give them time to discover opportunities in the insurance industry." They can use that time to identify the needs of clients in areas like retirement, education and health care, he said.

He expects many financial advisers to dust off their retirement plans and return to active selling of CPFIS products. There might well be a recovery in the sale of single-premium products, he added.

Sales of single-premium products under CPFIS fell 62 per cent to S$29 million in weighted premiums in Q4 2018 from the preceding quarter, said the Life Insurance Association Singapore last month.

Investments under CPFIS are considerable, but have been coming down. At the end of Q3 2018, the total sum invested through the Ordinary Account under this scheme was S$17.6 billion, down from the peak of S$27.2 billion in 2007.

The total funds invested through the Special Account was S$5.4 billion at the end of Q3 2018, down from S$7.7 billion in 2008.

Lim Chung Chun, chief executive of iFast Financial Pte Ltd, said: "The one year of reprieve will help us and financial advisers adjust to the loss in income."

When the news of zero fees came out in March 2018, "it wasn't good news from a business perspective, but we accepted the need to help investors lower their costs", he added.

About half of iFast Singapore's total AUM of more than S$5 billion - S$2 billion plus - comes out of CPFIS funds.

But Mr Lim believes that the industry consolidation will in the long run benefit "serious" financial advisers.

"For those who remain, zero commissions may not be a bad thing," he said. He cited the case of the United Kingdom, where a ban on commissions on all investment products since 2013 and a movement towards a fee-based regime has led to financial advisers earning more.