Being Independent
What contitutes "Independent", as defined by MAS?
Here is the full document download as long as 10 pages, but I am not going to ask anybody to read it, as much as to understand it. So, I will summarise it for the ease of understanding.
The ultimate description on this issue is presented on this sentence:
In Point 11 (Page 6), MAS put a boundary on the definition of "independent" as: "The key issue is whether such commission or other benefit is likely to create a bias in favour of a particular investment product, class of investment product or product provider."
So, there are 3 types of bias mentioned in the statement:
1. Particular investment (including insurance) product
2. Particular class of investment (or insurance) product
3. Particular product provider
which, as a result, leads to a difference in (higher) commission.
So, any violation of one of these biases will constitute non-independence according to the Financial Advisers Act.
Example for each type of those biases:
1. Adviser pushes for free 1 year insurance,
although it does not suit your insurance portfolio.
2. Adviser pushes for ILP policy, although client prefers traditional policy.
3. Adviser only shows you an illustrations from one company only, although he/she said that he/she represents multiple companies
In order to avoid mis-selling, the Adviser must be able to prove to the client that he is free from the above-mentioned bias(es). You can ask the adviser to:
1. Show you the logical reasoning why he/she recommends the particular products and its suitability when combined with the rest of your portfolio.
2. Show you two or more illustrations belonging to similar type of policy.
3. Show you two or more illustrations from different companies.
4. Show you the Distribution Cost (commission) from the above comparison.
Note: Recommending higher commission product does not automatically mean the adviser is not independent. Sometimes there is a special feature that the expensive policy carries. However, the most important thing is that the adviser must explain the product and its features clearly to the client.