We have heard a number of times about unethical advisers’ behavior. I would like to write about one type of unethical client’s behavior.Sometime ago, the newspaper reported that NTUC Income opened a business center for walk-in customers. This is what we called the insurer’s direct channel business. One NTUC Income insurance agent was anonymously quoted as saying that his client approached him for financial advice but subsequently went direct to NTUC Income to purchase the product concerned because the insurer was able to give a discount. The agent was furious. A couple of weeks ago, my colleague experienced the same thing in which she provided advice to her client only to discover her going direct to NTUC Income to purchase because the insurer gave one month premium waiver. Yet another adviser shared of his experience of his client going direct to another insurer (not NTUC Income) on her own accord after seeking his advice on the matter because the insurer gave discount to the insurance policy. Recently, this almost happened to me when my client wanted to exercise his free-look and go direct to the insurer to purchase when he mistakenly assumed that my quotation was more expensive then the insurer. 

To set the record straight, there is nothing wrong with insurers selling direct to customers. This is another distribution channel. To date, we know there are up to four business channels available: banassurance, tied-agencies, FA firms and direct. All channels are theoretically required by law to provide the same level of financial advice to their customers (whether how that theory is practiced requires another blog for another day).

The problem lies with the client’s behavior. To understand further, it is necessary to know the financial advisory process. A typical financial advisory process involves the following six steps:

1. Establishment of client-adviser relationship. Understanding the client’s objectives
2. Gathering of financial data and soft facts
3. Conducting analysis to the data
4. Research and recommend according to the result of the analysia
5. Execute and implement the recommendation
6. Monitor the implementation

Every step requires time and effort for the adviser. A typical protection planning case requires about 20 hours of time for steps 1 to 4. If the client has existing policies that are rather disorganized, the amount of time required could escalate to 30 to 40 hours to fully understand all existing policies. This includes the time meeting face to face, phone discussion with client and crunching the numbers. For a typical retirement planning case, I have done a case which requires 14 working days full time due to the time spend in conducting research on regulatory matters.

As I mentioned in the previous few blogs, there are various way which an advisor is compensated. The most common way is through commission. In such a model, if the client would to accept the recommendation but decides to execute the recommendation through another source, what he is saying is that he agrees with the work which the adviser has done for him but disagree to compensate him for the work. This is not much different from taking a taxi but refusing to pay for the cab fare. As far as I know, this is no different from cheating. In fact, the word unethical is a word that is too mild. The obvious reason why clients prefer the alternative source is due to discount, rebates or free gifts. However, must a person resort to cheating just because of a discount? Do not forget that step 6 (monitor the implementation) implies a regular financial review that is required. No financial plan remains static forever but does require regular review. A client who resorts to cheating effectively burnt his bridge with his adviser. It is obvious the adviser will no longer be willing to service his future needs. Perhaps many people are not aware that financial advisers do choose their clients. We do turn away clients whom we do not want to do business with. Have you come across advisers who do not wish to pick up your call or reply your emails? It could be a case of the adviser not wanting to do business with you. For myself, I will always pick up my calls but I am a direct person. For clients that I do not wish to do business with, I’ll tell them directly. I have done that before due to the lost of good faith arising out of disrespect for the professionalism.

It has been said that a fee-based financial planning will solve the problem. This sounds good in theory but it is not working in Singapore. I know of people who earn $10,000 a month but unwilling to pay for a fee-based financial planning. Perhaps it has to do with Singapore culture rather then anything else.

What then should a person do? Here is my advice: Choose a trusted adviser first. After the few meetings and if you fully agree with his financial advisory process and his recommendations, please implement the recommendations from the very same person. If you are interested to be a walk-in customer, then do that right from the beginning (although I must say that you will not have a delegated adviser). However, if you feel that the financial advisory process is not up to your expectation and you have certain misgiving with regard to the recommendation, then seek a second opinion from another adviser but do inform the new adviser that you are merely seeking a second opinion. This is to avoid misunderstanding.