Friday, December 12, 2008

"Wanted Trusted Advisors"

The Straits Times had an article today on the results of a survey on Singaporeans' attitudes towards financial planners. The article is here.

The survey results indicate that Singaporean consumers "ranked trust as the most important attribute when dealing with financial advisers".


Trust seems like the obvious thing to prioritise in light of the Minibonds fiasco; that's why so many Singaporeans gave it as their 'model' answer.

This survey is an object lesson in the old saw that what people say they do is different from what people actually do. 

What do Singaporeans really rank as the most important attribute when dealing with financial advisors?

That the advice is FREE.

Note that in the same article, it was stated that "Another crucial point raised in the study was that most participants preferred employers to provide access to financial advice as a company benefit."

Think about it. If financial advice was deemed really important to many people, would they simply go with the default choice of advisor provided by their employer, or would they hunker down and really put in the time and effort to seek out good advice on their own?

Employer-provided health insurance is a common benefit, but most people are prudent enough (i hope) to obtain private coverage on their own, usually for reasons of better coverage or portability.

The same goes for financial advice provided as a company benefit. People would deem the quality of such company-provided advice adequate and not seek out private advice on their own only if they perceived financial advice as a fungible commodity that should be low-cost or free.

And in a market where advice is often "free" (most financial planners get paid through commissions on products they sell), why pay for it?

[Do bear in mind that if companies provided financial advice as a benefit, it is possible that the lowest cost, and hence likeliest to win, bidders for such a contract to provide "advice" might waive their charges just to have the opportunity to sell commission-laden products to a "captive" audience. That is no improvement over the current situation.]

Accepting "free" advice is the chief reason why so many Singaporeans get conned, yes conned, into dubious investment schemes. Minibonds, structured products, oilpods...the list goes on. All this because "advice" was given to them by, who else, the agent shilling the product.

There are very few certified (which by the way, is no guarantee of ethical conduct) financial planners in Singapore that earn their money not through commissions, but fees for their time and advice instead. And this is likely due to the mentality of most Singaporeans that one should not need to pay for financial advice.

One last caveat. Investing is a risky business, so paying for advice is no guarantee of good advice. Just unbiased advice. All that it really does is to align your advisor's interests with your own (after all, if you get biased advice that leads to an investment loss, your advisor wouldn't be your advisor anymore, would she?).

That's why despite being a non-finance professional, I took the pains to study the intricacies of finance and investment on my own. That way, I can decide for myself whether or not to make an investment. 

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