Malaysian IFAs should switch to fee for service - experts

Financial advisers in Malaysia should not wait for regulators to replace commissions with fees for service, but follow the global trend favouring such arrangements, according to panellists at s recent Expert Investment Forum in Kuala Lumpur.

However, panellists at the discussion on the future of the advisory industry in Malaysia, were uncertain on how long such a change in remuneration models might take. Simon Cook, managing director of Intelligent Investments, said it was a matter of “when, not if” fee-based advice would become the norm. “It's in the interests of clients,” he said. “People want to know where the motivation for the advice is coming from,” he said. Intelligent Investments has already switched from commission to fees for its advice.

Foreign countries were setting trends towards fees not the Labuan Financial Service Authority, said Stuart Williamson, chief executive of Montpelier. “If you look at the UK, or Europe or places like Hong Kong, Singapore, Australia, they're going down this route,” he said.

“If you take examples of companies like AES in Abu Dhabi, they've basically got rid of the whole life insurance model, which is already twenty years out of date, and they've gone down the pure custody route – you charge a fee at the front end, and you don't have any lock-ins."

“People want to know where the motivation for the advice is coming from,”

“That is the future, and that is the way we should be going as an industry, and not waiting for the LFSA or other people to get us to do it,” ” he said,

Future in fee-based approach
Stuart Yeomans, chief executive of the Farringdon Group, thought the Labuan Financial Services Authority was only taking “baby steps” to widen and strengthen regulation, and agreed that changes were being driven by the industry.

“I know there are a couple of companies that are taking a fee-based approach,” he said. “I think that's a good thing for the industry.” Yeomans said he didn't think LFSA was going to shake up the industry by insisting on fee-based remuneration soon. “Never say 'never', but I don't think it's going to happen, certainly in the next three to five years,” Yeomans said.

The only product provider on the panel, Guy Medcraft, regional director for Asia at Hansard International, had a different perspective, arguing that regulators were driving changes in remuneration, although he agreed that fee-based advice was inevitable.

“The regulators do really have their teeth into what we do – who we do business with, our terms of business, how we operate and who we have contracts with.” he said. But Medcraft said he was worried that regulators did not completely understand the difference between protection and investment products.

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