The term “insurance agent” is often used interchangeably with the terms “independent financial advisor” (IFAs), “financial advisor” (FAs), and “tied agent.”
However, these 3 types of advisors are not interchangeable; they have their own set of rules that govern their conduct – although they don’t vary too much from each other.
What is A Tied Insurance Agent?
Financial advisors tied to insurance companies are tied agents. The company they represent is the only one they can advise you on and sell to you.
For example, if you engage a Great Eastern agent, he or she can only sell you products from Great Eastern and nothing else.
Now you might probably be thinking, why should I engage a tied agent to conduct your financial planning?
Well, that’s the right question to ask.
Tied agents, although they can only sell products from their specific insurance company, have advantages of their own.
Advantages of a tied agent
Access to all products from the insurance company
Tied agents usually get full access to the range of products that the insurance companies offer. This means that if you’re looking for a specific product that you think is best for yourself, a financial advisor or an independent financial advisor might not be able to sell it to you, let alone recommend it!
The reason for this is simple, insurance companies need to retain their unique selling points and have control over the distribution of their products.
If they allow FAs and IFAs to sell the whole suite of products they carry, nobody would join the insurance company as a tied agent. This reduces their profits as they have to pay additional distribution costs to the FA firms.
Full serviceability
If you purchase a product from a tied agent, there are usually no serviceability issues. So if you’re looking to make claims, your agent can work directly with the insurance company to process and make sure you get the benefits you’re entitled to.
FAs and IFAs however, have distribution agreements with insurance companies. Should these agreements terminate or issues arise from it, the insurance company will withdraw their products. Although uncommon, it has happened before.
As you can tell, this is obviously an issue. If you’re engaging IFAs and FAs, you risk having serviceability issues such as delays in claims, or even not getting it at all!
Disadvantages of tied agents
Will try to sell you only their products
Because they only can sell products from a specific insurer, they will only try to sell you products from that insurer.
I mean… they have to right? But is that truly a bad thing?
Not necessarily. Consumers like you and I tend to believe that there is only 1 policy in each category that’s the best.
We tend to ask what’s the best investment-linked policy?
Or the best term insurance plan?
Or even the best retirement plan?
In actual fact is, there is no best policy. There’s only the best policy that suits your current and expected needs. Thinking too much into this causes analysis paralysis – something you should avoid.
But this is still a disadvantage of tied agents though.
What Is A Financial Advisor?
A financial advisor is someone who provides advice on investment and financial matters. The FA is usually able to represent multiple insurance companies without being inherently biased toward any companies.
This sounds amazing, isn’t it?
A financial advisor who’s able to provide me with advice and recommend me policies I need without having to worry about any biases towards any one company.
However, FAs are usually owned by an insurer or are a subsidiary of these insurance companies.
For example:
- Manulife Financial Advisers
- Aviva Financial Advisers
- Great Eastern Financial Advisers
These FAs can even have subsidiaries of their own. However, they’re usually obligated to tell you that they are a representative of these FAs – so you don’t have to worry about misrepresentation.
Before I cover the disadvantages, let me start off in a more positive note first.
Advantages of Financial Advisors
Access to multiple insurance companies
Well, the ability to represent multiple insurance companies is one – if not the biggest – reason why many seek out FAs.
Imagine having an FA that can get you policies from Aviva, Manulife, NTUC Income, and AXA. You can possibly get the best policies from each of these insurers, making sure that you are paying the least for the most value.
Well, this is definitely true, and a huge win for FAs in Singapore.
And because of this, you can almost consider them as inherently unbiased.
Saves you time
This advantage is pretty much linked to the previous one but deserves an entire section to itself.
With multiple insurers at the back of their palms, you don’t have to do much research on which brand’s policies are best for you, seek out representatives that you trust from each company, and meet with many agents just to get the policy you need.
That’s a lot of time saved in acquiring and securing your financial planning.
Let’s not forget that if you need to make claims, you can do it directly through your FA. With tied agents, you’ll have to communicate with different persons just to make your claims and it can get confusing pretty quick.
And when you’re in recovery mode or in distress (which you will be), keeping everything simple is something you’d thank yourself for.
Disadvantages of Financial Advisors
Possibly biased
With so many insurers, you should definitely get unbiased advice right?
It depends.
It depends on your financial advisor’s remuneration, character, and the extent of policy access they have.
We won’t talk about character because I think it’s pretty self-explanatory, but we’ll talk about how they’re remunerated.
As they will still receive commissions from policies sold, you might just be overpaying more from high-commission products.
And these higher commission policies are usually from the main insurer the FA is a subsidiary of. For example, if you engage a representative from Great Eastern Financial Advisers, they are usually paid more if they sell more Great Eastern products.
The same goes for the other FAs.
The default trust that you have can easily be taken advantage of if you don’t know what you’re doing.
Although not applicable to all FAs, we thought it’s something you should still know.
Don’t actually have full access to all products from insurers
Wait wait, they have access to multiple insurers but can’t get all the products offered by each company?
Yes, not surprising actually.
As previously mentioned, insurers should keep their unique selling points and have control of how their products are distributed.
Nobody would join the insurance company as a tied agent if they allowed FAs and IFAs to sell the full suite of products they carry. As a result, they have to pay the FA firms additional distribution costs.
An additional thing to take note of is that just because someone tells you they are an FA, doesn’t mean they have access to multiple insurers.
I mean yes, they have access to multiple insurers.
But depending on which FA they’re from, their access might be limited.
For instance, FAs like Manulife Financial Advisers and Aviva Financial Advisers have a lot of varying policies from different insurers in Singapore.
Insurers like Manulife, Aviva, Tokio Marine, China Life, China Taiping, NTUC Income, AXA, and other general insurance providers.
With policies like whole life plans, term plans, and critical illness plans.
While some other FAs might only have certain endowment plans or general insurance from other general insurers.
This comes down to the distribution deals obtained and even the interests of the parent company.
What Is An Independent Financial Advisor?
An independent financial advisor is a person who provides advice on investment, insurance, and other related matters. The term “independent” means that the advisor does not have any direct or indirect relationship with an insurer or company offering products to consumers.
In Singapore, the Monetary Authority of Singapore (MAS) severely limits the use of the term “independent”.
In fact, according to MAS, you can only call yourself “independent” if:
(i) It does not receive any commission or other benefit from a product provider which may create product bias and does not pay any commission to or confer other benefits upon its representatives which may create product bias;
(ii) It operates free from any direct or indirect restriction relating to any investment product which is recommended; and
(iii) It operates without any conflict of interest created by any connection to or association with any product provider.
It’s pretty strict.
But if you’re an actual IFA, there are many pros to it.
Advantages of Independent Financial Advisors
Access to multiple insurance companies
Similar to FA companies, IFAs have access to multiple insurance companies as well. You get the time-saving and stress-free benefits to this too.
However, similar to FAs, they might not actually have the full suite of products offered by each insurer.
Unbiased advice
As they do not receive any form of commission or incentive from any insurer or company, there are no product biases involved to whatever is recommended.
This means you can expect advice that’s probably the best for you.
Disadvantages of Independent Financial Advisors
Fee-based advice
Might not be a disadvantage if you’re a high-net-worth individual or are willing to pay for advice, but to most Singaporeans, this is something out of reach.
Expect to pay a 4-figure sum for their advice and a fee for managing your assets yearly if you’re investing through them.
Might not be the best advice
Although they are supposed to provide unbiased advice, netizens have voiced their unhappiness with the advice provided by IFAs – even making claims that the advice given is not worth the fees you pay for.
So although IFAs might be an attractive option for you to consider, you’d still have to do your due diligence to make sure you’re getting the best advice for your case scenario.
So what’s the best option?
Honestly, I don’t think there’s the best option. The different types of “insurance agents” mentioned above all have their own pros and cons.
Given that you now know the differences between them, you should consider what you’re comfortable with and what are you willing to trade off.
Are you willing to spend the additional time to meet multiple tied agents?
Would you prefer to spend lesser time and engage FAs with wider policy selection?
Or would you rather pay the fees required for an IFA?
Ultimately the decision is up to you. Whatever you choose, you will still need to do your own due diligence as this is your future.
If you’re looking for FAs with a wide policy selection, talk to one of our financial advisors. Although the companies they represent favour certain insurers, the advice given is “independent”.
This means that they are willing to sacrifice higher-paying commission policies so that you only get the ones best for your needs. Reach out here.
