Sunday, October 01, 2023

Does nobody want to provide financial services to the mass market anymore?

Now that the furore has died down, I'm sharing some thoughts about today's sad state of the finance industry. 

Here is a little background on where I stand: quite early in my ERM course, my students are often stuck with ILPs and endowments they bought some time ago and getting suboptimal returns from them. But I need the license to tell them what to do with these investments. My solution was introducing them to a salaried advisor from Money Owl, the only source of salaried advisors with the license to get them to drop the plans. Otherwise, my students are on their own and need to develop their confidence with dividends investing before they can pull the plug.

I did this introduction for no fee initially, but subsequently, MoneyOwl would send me $20 food vouchers for each introduction I made. This would have been a derisory sum if not for the positive feedback I got from my students about their excellent service. In one case, we even got a student to go through the FIDREC process and won a better deal from financial institutions that missold these products to my student.

( Today, FAs meet my student and actually run away from her. She won a case with FIDREC! Who says my job is all about the money? )

I suspect this is the essence of what went wrong with MoneyOwl. 

Someone always pays in this business. In the case of commissioned salespeople, it is the client. In the case of MoneyOwl, I suspect the advisor has to contend with a fixed monthly salary and the allies who have scant incentives to introduce customers to them. All this while commissioned advisors are getting wined and dined for the ILPs they shove into the masses' throats by hooking up with them on Tinder or using LED balloons to traumatise their kids. No amount of virtue signalling that you are the good guy will beat the almighty dollar paid to introducers and marketers. Case in point, I have had a very profitable arrangement with iFast Global Markets over the past few years.

So, we have the industry in this sad state today. Everybody wants to serve the rich. People need help finding a way to profitably serve the masses. 

  • Even the might of the NTUC Social Enterprise has decided to sound the retreat for Money Owl. I can attest that Money Owl gave excellent service to the masses. Sadly, it was simply not sustainable.
  • Major robo-advisors here are running on VC funding and are yet to be profitable, no matter how cocky they are or the beautiful people they put on ads. It's no fun placing money on them to find them consolidated with a stronger player a few years later.
  • You need about $350,000 to qualify for the fee-based advisor here. They are virtually a monopoly in this space and prefer investors who are "stewards of their wealth" and not those searching for investment alpha. 
  • TD Ameritrade wants to do something other than serve retail customers in favour of Accredited investors. 
  • Even in my line of work, raising the fees of my courses to a four-figure sum has given me more attentive students and a better class of people to serve. 
The sad state of affairs is that for the bulk of the masses, the only people who can serve them now are commissioned salespersons who are legally allowed to call themselves financial advisors, with all the conflicts of interest inherent in this current arrangement.

Do I have a profitable solution for financial advisory for the masses? I don't. But there are smarter people looking at the problem, and I have a reasonable expectation as a member of the public that this an issue that needs to be addressed. 

The government agencies need to reflect on their strategy that believes that some kind of technological innovation will eventually solve the problem of financial inclusion while subjecting the middle class to being cattle for commissioned salespeople to feed on. I have said in an earlier article that with tax loss harvesting, robo-advisors will see the kind of adoption in places like the US.

My ideal outcome should be a total ban on the commissions' regime, favouring a system similar to the UK. But the first step is to apply pressure to restart a review of the commissioned regime in 2013 by MAS. Voters and citizens need to support MAS to give them the backbone to fight back the industry lobby, I believe they will threaten to leave this market and generate a lot of unemployment. But in reality, societies without commissioned advisors do exist! Skills Future will allow unemployed commissioned salespeople to join the healthcare industry.

At a personal level, if we are limited to a fee-based regime in Singapore, I will jump into the fray and get licensed to do the work myself. If I can compete on investment performance and knowledge sharing, I should find a way to survive, maybe even thrive in this new regime.

If I have to go on Tinder to catfish single women or traumatise kids by taking back LED balloons for new clients, I won't stand a chance in this profession.

Anyway, I will miss Money Owl. Fortunately, I already have a great relationship with iFast Global Markets and will find a way to continue working with the excellent MoneyOwl Alumni there. 

I know that commissioned FAs are exulting over their recent victory. 

But they've yet to win the war, and I hope to see their regime crushed one day. 

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