Just received an email that one “strategic” partner has been instructed by MAS to cease all volume based remuneration arrangement. So this means no more commissions from them. I didn’t think it was a big deal to me as I had used their service as a tool and am mainly remunerated through fees paid by clients separately. Think so far the total commissions I earned from them should be less than $100 for the first six months of this year. So the impact is not significant. But to think about it, it is probably the beginning of a storm because the sleeping bear called MAS has being awaken from its long winter sleep after being blamed by many for failing to regulate in the industry.  

It is unclear to me what exactly is “volume based” remuneration. Is it commissions that are related to say the frequency of transaction (like brokerage fees), percentage of the investment size (like sales charge of x%) or like a percentage of the insurance premium (like 50% FYC of an ILP)? How about those management fee that is charged on an on-going basis based as a percentage of the asset under management? All these sounds like volume based. If MAS is serious about getting rid of these commissions, there will be massive layoffs and the entire banking, finance, insurance and investment industry will collapse overnight because its salespersons (aka “financial consultants”) don’t know how to sell without commissions.

But it is a good thing for consumers. If MAS instruct all product and service providers to cease paying commissions altogether and hopefully this means reducing the cost of their products/services. If the product providers do not reduce the cost of their products despite not paying commissions, then consumers will be taken for a ride once again.

Whether it is unit trusts, broker fees, insurance, etc I really feel that paying commissions are not to the interest of the customers. Customers should pay for actual service rendered and not based on the kind and size of the products they purchased. In our current situation, many financial advisers claim to give “free” advice but they actually get huge commissions for selling unsuitable products. As a result of them “spoiling” the market by claiming to give free advice, the fee-based industry could not grow significantly. It is also bad for product providers which want to make good products. Currently, they have to spent huge amount of money in marketing, advertisement and commission to sell their products. If they do not need to pay commissions, they can reduce their cost and compete based on quality.

I would like to suggest that by doing away with commissions and if the customer wishes to buy directly from the product providers, they can do so based on an “execution” basis without any advice. However, if they need any advice, than they must be prepared to pay for an advisory fee to get the advice. The advisory fee must be paid regardless whether the product is bought.

So will MAS do it? Frankly speaking, nay. When the economy recovers, customers will complain that MAS is too rigid and the rules will be loosen. People will get greedy and start buying their toxic assets and when the economy come crashing down, they will lose most of their money and the cycle continues. There are only three things that are certain: death, taxes and greed.