According to the Monetary Authority of Singapore (MAS), both insurance agents and financial advisors are under the same licensing called ‘Representative for Licensed Financial Advisers or Exempt Financial Advisers’, which their company will register them under. Both have to have Representative Notification Framework (“RNF”) numbers.
Leaving aside personal and private bankers (who also have to have RNF numbers), the two key players in the financial planning landscape are tied (or “captive”) insurance agents/financial advisors and independent financial advisors, both of whom can play a crucial role in shaping an individual's financial future. However, the term insurance agent is slightly outdated and nowadays, the key difference is what the individual specialises in rather than the official job title. The capabilities and services therefore overlap, leaving many clients unsure of which one to turn to for their needs.
In Singapore, it is important to note that most insurance agents call themselves ‘financial advisors’ or ‘financial consultants’. Insurance agents can expand their services by taking courses and certifications to cover a broader area and assist a wider scope of clients apart from just insurance and investments. They would then be able to give some level of advice and explanations for retirement, estate planning, CPF, wills and more, as well as possibly provide introductions to specialist providers.
The table below provides a rough guide for the differences between a tied insurance agent/financial advisor and an independent financial advisor (IFA). Ultimately, you should always ask your insurance agent or financial advisor what products and services they focus on and specialise in and assess whether that aligns with what you are looking for.
This article aims to clarify the differences between “pure” insurance agents and financial advisors and demonstrate how you can find the correct financial expert with MoneyFitt. By delving into the responsibilities, areas of expertise, and potential conflicts of interest associated with each role, we will equip you with the knowledge necessary to confidently navigate the financial realm.
Financial advisors are professionals who act as intermediaries between insurance companies or other licensed financial institutions, as well as policyholders/investors (you).
They are called tied agents if they are representatives of a specific insurance company such as AIA or Prudential. Many still refer to themselves as insurance agents given their core or original specialisation and they are primarily focused on promoting and selling the products offered by the insurance company that they represent, such as life, health, hospital, and accident coverage and investment-linked policies (ILPs).
Financial advisors are typically compensated through commissions, which are earned based on the products they sell to clients. This commission-based structure can potentially incentivise some agents to prioritise the sale of certain (higher commission) products over others, or policies with higher-than-necessary coverage levels (and hence higher premiums), potentially leading to recommendations that may not entirely align with the client's best interests. However, the MAS strictly regulates them and the companies they represent, so any unethical practices are not tolerated.
When speaking with them, it's important to be aware that insurance agents and financial advisors earn higher commissions through policies involving investments (ILPs) than through conventional or more simple life insurance policies, even though the commissions for ILPs are usually one-time. The commissions for policies like hospitalisation and personal accident are yearly renewable policies, so agents/advisors receive the same commission rate upon annual renewal. The bulk of the commissions for insurance policies for whole life and term policies are usually in the first year and not much in the subsequent years.
Investing is a critical part of financial planning, and one should consider carefully whether to invest through ILPs or other investment products and services. Investments through insurance companies come in different variations, but these policies must involve some insurance coverage for legal and regulatory reasons, unlike pure investment products offered by non-insurers such as banks and other investment providers. You can read more about how to begin investing here.
An example of how a commission works: an insurance agent earns mainly a one time 25% commission on the client’s yearly premium for a multi-year investment linked policy in the first year of a minimum investment period of, for example, 15 years. If the client decides to invest $4,800 in the investment plan yearly, the agent will get $1,200 for that policy sold. It may feel awkward at first, but try to ask any agent offering you a policy or investment plan what commission they and their company will get from it.
The commission percentage varies for each company and policy, as does the minimum investment period, so this is just an example for illustrative purposes.
Financial advisors not tied to an affiliated financial institution are called independent financial advisors (IFAs). They are authorised to advise or sell to clients products from at least four life insurance companies and can offer products and services apart from policies from insurance companies through various partnerships, such as with iFast (FSMOne) and Tiger Brokers.
Financial advisors, both independent and tied, also provide their clients with comprehensive financial planning and investment management services. They may hold various additional certifications and designations, such as Certified Financial Planner (CFP) or Chartered Financial Consultant (ChFC), demonstrating their training and expertise in the field.
Independent financial advisors can be compensated in different ways, such as following a fee-based model, monthly income basis, sales commissions or a mixture of these models. Sales commission earning advisors earn from the sale of financial products, while fee-based advisors are solely compensated through the fees charged for their advisory services. Some get paid through a base monthly income together with fee-based or sales commissions.
This difference in compensation structure can have implications for the potential conflicts of interest that may arise and the level of services they are willing to provide.
The best financial advisors typically take a holistic approach to their client's financial well-being, addressing a wide range of areas in addition to insurance protection, such as investment management, retirement planning, debt management, tax strategies, estate planning, and risk management. This comprehensive approach can help clients develop a cohesive financial strategy that addresses their short-term needs and long-term goals.
Tied and independent financial advisors share many similarities in their roles. Both help individuals manage financial risks and plan their financial future. Both must understand their client's financial goals, stay informed about market trends and regulatory changes, and possess strong interpersonal skills to build trust and explain complex financial concepts. Ultimately, both aim to secure their clients' financial well-being and provide peace of mind.
Besides going through mandatory Continuing Professional Development (CPD) programmes, many go on to obtain certifications such as Certified Financial Planner (CFP) or Chartered Financial Consultant (ChFC), learning tax strategies, carrying out estate planning by obtaining an Associate Estate Planning Practitioner (AEPP) certification, and more.
Use MoneyFitt to find insurance agents and financial advisors who specialise in your areas of financial need and can relate to your unique circumstances.
Our AI-driven platform intelligently matches you to a handful of advisors who meet your selection criteria, with a supportive and seamless onboarding process.
We remain by your side beyond the match, assisting users with suggested key questions to ask, summarising discussions with various advisors, and bridging the knowledge gaps between you and the insurance agent.
You can converse with professionals with the comfort of knowing your contact information is hidden until you grant permission, and, unlike other platforms, MoneyFitt does not charge users for connecting with agents and advisors, nor does it take any commission from products taken out, ensuring a transparent and hassle-free experience.
Ultimately, the decision should also be based not only on your specific needs but also on your personal comfort level and level of trust in the professional. Engage in open communication, ask questions, and ensure the individual you choose aligns with your values and financial objectives. Feel comfortable with the providers of the products and policies you are being recommended.
Learn more with ‘How to Find the Best Insurance Agent for You in Singapore’.
Start with deciding on the advice you need and the service you may be looking for and work backwards into choosing an appropriate professional. Look at what each agent specialises in and see if that aligns with what you are looking for. It’s possible that they are equally well-versed in all aspects of personal financial planning, or they may be stronger in some fields than others.
Remember, the path to managing personal finance is not one-size-fits-all. Take the time to carefully evaluate your needs, goals, and the qualifications of the professionals you consider, and it’s always a good idea to seek a second or third opinion if you're unsure. With MoneyFitt’s free-to-use financial advisor matchmaking platform, you can navigate the complexities of the financial realm and achieve the financial security and stability you deserve.
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