It took me a while to gather my thoughts to piece this blogpost together. I wish to offer my own opinions on top of other pointers mentioned by others. Some of these pointers are worth mentioning of course, and I will attribute accordingly to display that I am not the origin of those thoughts.
Chan KH made a good point that the public, firms and reps need to win-win-win for any solution to be sustainable. Any combination that decimates either parties, will not be sustainable.
Fergus Tan acknowledges that human beings need to be nudged beyond just formulating a plan. Sales commissions compels the rep to nudge the prospect to take action.
Christopher Tan of Providend is smart to work on, target the market segments that will bring in the revenue for the firm – those affluent and above. Providend divested from MoneyOwl last year.
“The central problem is that the commission-based nature of the FA role provides an incentive to boost sales figures by mis-selling. Such mis-selling could take the form of not disclosing fully the risks of certain products, or over-insuring by selling too many policies to an individual, said Charoenwong.”
“If you haven’t had a good month, you are basically taking almost no money, so you’ve got no salary. It makes you desperate to want to sell stuff that is not helpful, because you just want to survive.”
“Sim said this conflict is why he left the industry:”It was my career, (against) your personal finance. That’s why I left; I couldn’t do it. How can I call myself an adviser if I’m worried about the profits I make and about managing to collect my accolades?”
“Financial statements of robos, including Stashaway and Endowus, reflect ongoing losses. For robos, it is surely a volume and scale game; the greater the inflows and assets, the greater the revenues and chance of profitability, as long as costs are reined in.” ~ Genevieve Cua of BusinessTimes.
At this stage, I wish to state that I have faith in the regulators’ rules that client monies are not co-mingled with the firms. So clients monies are still protected from the failure of any firms, if any. Running a financial advisory firm has many overheads ranging from compliance costs to marketing and any other business-related expenses.
Let not MoneyOwl wake up call be in vain. As is, the balanced score card framework already leads to the Cobra Effect without solving the baseline problems and issues stated below. Recommendations simply became more templated than ever and only served to cover asses instead of preventing future buyer remorse or focusing on better client centricity.
The Cobra Effect is a term used in policy setting and economics to describe a situation where an attempted solution to a problem makes the problem worse, often because the solution creates unintended consequences. This concept is often illustrated by a historical anecdote involving the British colonial government in India.
The story goes that during British rule in India, there were too many venomous cobras in Delhi, posing a threat to the population. To address this issue, the British government offered a bounty to Indian citizens for every dead cobra they brought in. Initially, this incentive seemed to work, as people began killing cobras and turning them in for the reward.
However, as time went on, people started to breed cobras in order to collect more rewards. When the British government realized this was happening and that they were spending money on a growing number of cobra bounties, they decided to cancel the reward program. As a result, those who were breeding cobras had no reason to keep them, so they released the snakes into the wild. This led to an even larger population of cobras in Delhi than before the reward program was initiated, making the initial problem worse.
The Cobra Effect serves as a cautionary tale for policymakers, illustrating the potential consequences of poorly thought-out policies or incentives. It highlights the importance of thoroughly analyzing the potential outcomes and unintended consequences of policy decisions before implementing them to avoid making a problem worse inadvertently.
MoneyOwl wake up call by winding down ought to be loud and clear for all who are in the industry. Thus far, the only widely known entity that is willing to throw money for social outcomes is the government. Even social enterprises must attain commercial viability and be self sustaining at some stage. Non profit does not mean no profit but simply put, profit is not the firm’s main priority and the firm still has to be profitable to pay the bills and worker salaries. For the rest of us, let us remember that the interest rate environment currently no longer supports burning cash to grow. Profit will be top priority or if not a close second.
Summary of Background Problems:
FDM is a well thought out solution because:
I am saddened by developments of the industry. MoneyOwl is really doing good work. They will not be forgotten.
If you are a consumer or knows someone who is affected by this development, please do not hesitate to reach out to me. Or if you know of advisor representatives in the dilemma mentioned, seeking to continue their practices, you can point them towards this site as well. Short of asking them to join me, that is. Perhaps it will also do a lot of good if consumers insist on the FDM method when speaking to their advisor representatives.
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