Mystery shoppers are often used by stores, hotels and restaurants to assess the quality of service being provided to customers. Although almost any industry could use mystery shoppers as an evaluation tool, it's unusual to see a financial regulator hire them to evaluate the quality of financial advice being given by banks and insurance companies in its jurisdiction. Yet that is exactly what the Monetary Authority of Singapore (NYSE:MAS) did this year, and with interesting results. In only 28% of the cases did banks and insurance companies make product recommendations deemed to be clearly suitable to the mystery shopper's situation.
Earlier this year, the MAS launched a Financial Advisory Industry Review (FAIR), with the end goal of improving Singapore's financial industry in a number of areas including increasing the competency of those working in the industry, lowering distribution costs, and promoting a culture of fair dealing. As part of FAIR, the MAS paid mystery shoppers to conduct a survey of Singapore financial institutions, including banks and insurance companies. The mystery shoppers posed as interested clients and then completed questionnaires regarding their experience. The questionnaires were reviewed by a panel of industry practitioners to determine the quality of the advice being given. In July, the survey results were released, and included the following:
- Fees not disclosed: 58% of the time how often fees were deducted was not disclosed, and 48% of the time the amount of fees that were charged was not disclosed.
- Lock-in periods not reasonable: 54% of the time clients were subjected to excessively long lock-in periods. This allows the bank or insurance company a longer period to deduct fees.
- Products not suitable: 46% of the time the recommended product was not appropriate for the client, and 30% of the time the recommended product was too risky for the client's situation.
Although Singapore's MAS may be unusual in its use of mystery shoppers to evaluate the marketplace, it is not alone in seeking to improve the quality of investment advice being given. Poor transparency, lack of fiduciary duty towards clients, and an uneven playing field are all too common problems seen in financial service marketplaces around the world. Currently, regulators in many countries are seeking ways to increase consumer protection, including in the U.S., U.K., Australia, Hong Kong, and Europe.
While it's very beneficial that the MAS and other regulators are working to improve the quality of financial advice, ultimately investors will still need to look out for themselves. When seeking financial advice, ask your advisor for details on how they are regulated, what standard of care they are required to follow, and fees they charge (or that are imbedded in products they sell). Take special care in the offshore markets where the conflicts of interest, lack of standardized legal care to the client, and sometimes outright fraud are even more prevalent. In the end, it's still in your best interest to take personal responsibility for your financial choices.
About Creveling & Creveling Private Wealth Advisory
Creveling & Creveling is a private wealth advisory firm specializing in helping expatriates living in Thailand and throughout Southeast Asia build and preserve their wealth. Through a unique, integrated consulting approach, Creveling & Creveling is dedicated to helping clients cut through the financial intricacies of expat life, make better decisions with their money, and take the steps necessary to provide a more secure future. For more information visit www.crevelingandcreveling.com.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Additional disclosure: Copyright © 2012 Creveling & Creveling Private Wealth Advisory, All rights reserved. The articles and writings are not recommendations or solicitations, and guest articles express the opinion of the author; which may or may not reflect the views of Creveling and Creveling.