Financial Advisory Process


Who does your financial adviser representative represent?

We will refer to the individual advising you as the financial adviser representative and the firm he represents as the financial adviser or financial adviser firm. Your financial adviser representative must tell you which firm he represents and the products and services that he is authorised to sell.

If he is a representative of a life insurance company, he can only advise you on that company’s products. He may be referred to as a tied agent. He may only advise you on the products of other financial institutions if the life insurance company that he represents has agreed to distribute those products.

Similarly, a representative of a bank or other financial institution can only advise you on the products of the life insurance companies that his bank or financial institution has agreed to distribute.

Representatives from “Independent Financial Adviser” (IFA) firms can provide and advise you on the products of at least four life insurance companies. He must clearly show you that he does not have financial or commercial links with these insurance companies that could influence his recommendations to you.

Do choose a financial adviser representative carefully. You must be comfortable with him as you will be revealing personal financial information about yourself, in order for him to provide you with a suitable recommendation. Do ask your financial adviser representative about his track record, for example, the range of products he has sold, where he gets his product ideas from (beyond what he thinks is suitable for you) and what advice he gives or has given when returns on products like participating policies and ILPs have not met expectations.

Insurance companies must reveal all costs and charges associated with the product you are buying. The cost and charges include any commissions your financial adviser representative will receive from the insurance company. For life insurance policies, financial adviser firms are not required to disclose the remuneration amount. They need only disclose the distribution cost to their clients. Do also find out who you are dealing with.

What is the financial advisory process?

When you meet your financial adviser representative for the first time, he will tell you which company he represents and show you that he is an appointed representative. He will also explain his role and the types of financial advisory service and investment products he is authorised to provide. 

  • Know your client

    You will be asked to complete a ‘know your client’ (fact-find) form to gather enough information for your financial adviser representative to assess your financial situation, insurance protection needs, and investment objectives. Do give your financial adviser representative a clear idea of what you can afford (after paying for monthly expenses, debt and other financial obligations). Let him know if you face any budget constraints. He will also need to understand your risk profile.
  • Recommendation

    Your financial adviser representative must have a reasonable basis for any recommendation made. The recommendation must take into consideration your financial situation, particular needs and investment objectives. The financial adviser representative will explain why the life insurance products recommended are suitable for you. He will explain the features of the products and also the costs and charges involved.

Investment-Linked Plans (ILPs) are currently classified as Specified Investment Products (SIPs). Consumers should be aware that such ILPs can have features that are more difficult to understand. You should ensure that you understand the key risks and features of such products before investing in them. Financial institutions such as financial adviser firms must assess whether you have the relevant knowledge or experience to understand the risks and features of SIPs before selling them to you. The process is known as the Customer Knowledge Assessment (CKA).

The financial institution will inform you if you are assessed not to possess the relevant knowledge or experience. If you still intend to proceed with the transaction, the financial institution must offer advice to you. Only financial institutions which are authorised to provide advice may do so. Certain safeguards will also apply.

Read the consumer guide on SIPs here.

  • Documents

         Your financial adviser representative must present to you a copy of the following documents

- Financial Needs Analysis
This contains information you shared with your financial adviser representative for him to identify your financial goals / investment objectives, protection needs, and financial situation including what you can afford. Check that the information is accurate. Make sure you understand how your risk profile has been described and that you are comfortable with this. 

The document will state the product recommended and why it was recommended. Discuss these with your financial adviser representative and assess if the recommended policy meets your needs. 

- Product Summary
This describes the features, exclusions, limitations, fees and charges of the recommended product. It is important to read and understand this document. 

- Product Highlight Sheet: 
This is provided for ILPs. It describes the key features and risks of the relevant ILP sub-fund. 

- Benefit Illustration
This illustrates the benefits (projected amounts payable in the event of claim or early termination) of the policy, including total cash values (guaranteed and non-guaranteed) and total death benefit (guaranteed and non-guaranteed). It also sets out the premiums, cost of distribution and charges. The cost of distribution includes the commission the insurer pays to your financial adviser representative. Do take note that illustrations are projections and you may not actually get the returns set out in the Benefit Illustration. 

- Other documents
Your financial adviser representative will either provide you with a hardcopy of "Your Guide to Life Insurance" or direct you to the online guide. He may also ask you to sign off on a reference checklist to confirm that the documents have been presented to you. Do make sure you have received and read all the documents before you sign the checklist.

  • What if you disagree with the recommendation or fact-find documentation?

    If you don’t think the documents present an accurate picture, e.g. if your ability to take risks and lose money is over-stated, you must inform your financial adviser representative. Always ask for clarifications in writing.

    If you disagree with your financial adviser representative’s recommendation, tell him what you really need, e.g. if you want protection coverage, and no investment, be clear about this or you may end up paying for something you don’t need or want. Do ask for other recommendations.
  • Review

    Your financial adviser representative may contact you to review your policy. A regular review will help you see if your insurance needs are being met. For example, you might want to increase your life insurance coverage because you now have more children. On the other hand, the participating endowment policy you bought for your child’s education may have underperformed and you now need to save more in order to achieve your savings goal.

    If your objectives are not being met, you may wish to consider other options, e.g. saving more or investing more whether through other financial products or the current policy.

    If your objectives, personal or financial circumstances have changed e.g. if you have difficulty keeping up with your premium payments, you should approach your financial adviser representative for advice.

 

 The above information is prepared in collaboration with the Life Insurance Association Singapore.