Every now and then on social media and online communities like Insurance Discussion SG, you’ll hear negative experiences of Singaporeans complaining that their financial adviser has misrepresented benefits of products for the sake of commissions.
After the public outcry denouncing the agent in question (and perhaps the company), the accusatory finger would typically also be pointed at the Monetary Authority of Singapore (MAS), which has the responsibility over regulating the financial services and insurance industry.
MAS has a unique two-fold challenge to solve: It has to address this problem of errant agents mis-selling for the sake of earning commissions, while not affecting the existing structure that the industry loves, which provides financial rewards to good performing agents.
It seems like an impossible task, but MAS actually came up a something that fulfils these two (seemingly paradoxical) criteria. It is known as the Balanced Scorecard (BSC) framework.
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What Is The Balanced Scorecard Framework?
Issued in 2015 after many rounds of public consultations and in partnership with the insurance industry, the BSC framework establishes a set of standards, audit procedures, as well as penalties and remedial actions applied to representatives of insurance companies and banks who distribute investment products and insurance policies with an investment component, including life insurance plans.
Thus, personal accident and hospitalisation and general insurance products do not fall under the BSC framework.
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Infringements Under The BSC Framework
The BSC framework groups infractions by financial advisers and bank representatives into two types. Category 1 are the most serious, and refer to advisory services that have a material impact on a client’s interest. Category 2 infractions refer to other infractions that do not fall under Category 1.
According to MAS, here is an illustrative, non-exhausive list of Category 1 infractions:
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Based on the number and category of infractions an individual financial adviser or personal banker receives for the quarter, they will be given a grade rating from A (the best) to E (the worst). Receiving a rating other than A will result in a series of actions, such as closer supervision, more checks, and a reduction in commissions earned.
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These grade ratings are not only affected by one’s personal sales and services, but in the case of managers and supervisors, the grades of their juniors also affect their own rating. If a particular team has bad BSC grades, the grades of their manager will be affected, which can result in them receiving commission penalties themselves, and not being allowed to mentor or supervise juniors until their grade improves.
In this way, the BSC framework seeks to align the agents’ interests of earning more commissions, with the interests of their clients. By mis-selling, you risk severe penalties and a whole lot of troublesome corrective actions. As you can see, just one Category 1 infraction can mean agents will earn 25% or less of their entitled commission.
Enforcing The BSC Framework Standards
The BSC framework requires insurance companies and banks to establish an Independent Sales Audit (ISA) unit to conduct post-sales checks on every representative each quarter, using documentation review, sampled client surveys and mystery shopping.
In conducting documentation reviews, the ISA unit would be examining 4 sets of non-sales Key Performance Indicators (KPIs): 1) Understanding a client’s needs, 2) Suitability of product recommendations, 3) Adequacy of information disclosure, and 4) Standards of professionalism and ethical conduct in relation to the provision of financial advisory services.
When agents change company, their BSC grade remains with them. Their new company needs to be made aware of their BSC grade and is responsible for continuing to enforce the required remedial actions and additional checks.
Some companies might see a bad BSC grade as a negative sign of a candidate’s integrity and professionalism, and it might affect one’s career prospects.
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BSC Framework Protects Consumers Behind-The-Scenes
Many consumers might still not be aware of the existence and role the BSC framework plays in safeguarding their interests and curbing bad behaviour among financial advisers and personal bankers who sell investment-related products.
But as you can see, the audit and supervisory requirements that the BSC framework places on insurance companies and banks is extensive. Consumers can be heartened to know that these checks, along with harsh monetary penalties for errant agents, are helping to build a more healthy financial services industry.
So, the next time an agent shows you how many sales awards they received or their Million Dollar Round Table title, the next question you can ask is: “What’s your Balanced Scorecard framework grade for the past four quarters?”
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