Singapore Financial Advisers Flout Competition Law and Cheat Consumers out of Cheaper Insurance

Section 34 of Singapore’s Competition Act “prohibits…concerted practices, which have as their object or effect the appreciable prevention, restriction or distortion of competition within Singapore”.

This didn’t stop Singapore financial advisers from banding together last year to crush a competitor that dared to give consumers cheaper, more transparent insurance.

Fundsupermart Shakes Up the Life Insurance Industry

Singapore’s leading do-it-yourself fund platform, Fundsupermart, is well-known for modernizing the unit trust distribution system and driving down costs for consumers. The company enables anyone to buy and sell hundreds of different funds without being forced to pay upfront commissions to unneeded financial advisers. 

On April 30 last year, Fundsupermart attempted to do for life insurance what it had done for unit trusts.

Initially, Fundsupermart would offer consumers a selection of products from three different insurers, and it would rebate 50% of all commissions. The savings passed on to consumers was enormous.

“On a posting on its website, the company said consumers could save $2,000 on a $1 million term plan. The savings for a $1 million whole life plan could be more than $20,000.” [Source]

More impressive than the savings was the transparency. For the first time, many consumers could easily compare the features and prices of competing insurers’ products, and they could also plainly see that the commission for selling whole life insurance was literally ten times higher than the commission for selling term life—even though selling either product requires the same amount of time and work.

Term Life vs Whole Life

Normally, the size of insurance commissions are deliberately hidden from consumers, embedded within complex fee structures that are difficult for most people to understand. This allows insurers to use massive commissions to incentive advisers to flog the most lucrative, low-value products (such as whole life and investment-linked policies) while hindering consumers from realizing that they are being misadvised, manipulated, and milked

Fundsupermart’s unprecedented transparency and super-competitive pricing threatened to undermine the insurance industry’s way of doing business.

The Industry Strikes Back

Fundsupermart’s game-changing insurance platform did not last long. According to a series of articles in the Straits Times:

“four days after launching it on April 30, Fundsupermart took down the offer, and has stopped selling insurance products since. The original posting on the website was also removed.

The reason? The move had sparked off unhappiness among industry players who saw it as a price war tactic.”

“The chief executive of iFast Financial, which owns Fundsupermart, Mr Lim Chung Chun, cut straight to the bone when asked why he took the offer down.

He told The Straits Times that a sizeable number of players wanted to keep ‘the status quo’.” [Source]

Opponents included the IFA industry’s largest representative body:

“The Association of Financial Advisers (Singapore) said in an e-mail statement that when the advertisement was published on Fundsupermart’s website, the association expressed its members’ concern to Fundsupermart, “noting that the tone and language used in its postings could be detrimental to the reputation and professionalism of other financial advisers”.

The industry body, representing nearly half of the financial advisory firms here, added: “We are glad that it has taken our views into consideration and has decided to withdraw the advertisement.” [Source]

This large alliance of financial advisers was able to strong-arm Fundsupermart out of the insurance business by threatening to choke off its unit trust business:

“Fundsupermart…derives a large part of its business from financial advisers who help their clients to buy unit trusts from Fundsupermart’s site.

Should the disgruntled financial advisers choose to go to competing portals, a huge chunk of Fundsupermart’s business would be lost.

That’s one reason why Fundsupermart gave in to the demands of independent financial advisers who believed that Fundsupermart was trying to eat into their lunch – selling insurance products at a cheaper rate and halving commissions too.” [Source]

Mr. Lim vaguely confirmed this in a statement to customers published on the Fundsupermart website:

A sizeable number of players essentially want to protect the status quo, especially if they have a limited number of products, or just insurance products, to sell.

When Fundsupermart put up its online insurance offering, iFAST started to get very adverse reactions from certain segments of the insurance industry. While we had expected some negative reactions, the actual reactions were far stronger and far more emotional than anticipated. The emotional reaction from just a segment of the industry snowballed into a major issue in the wealth management industry. As the leading platform, iFAST is acutely aware that the emotional reactions may translate into some substantial business disruptions for many companies, including ours.

We decided that given the emotional response from certain parts of the insurance industry, and given the non-readiness of a number of industry players, it is best that we stop our online insurance offering. I apologise to Fundsupermart customers for disappointing some of them.

The scandal was disappointing not just to Fundsupermart customers, but to all Singaporeans, who were robbed of the benefits of transparency and healthy free market competition, which should have forced the industry to become more efficient, and thus made insurance prices lower for everyone.

One Year Later

Insurance fees and commissions remain artificially inflated, and the industry is still unfairly profiting at the expense of Singaporeans. 

Regulators don’t seem to be doing anything, and the media has apparently forgotten.

Concerned citizens should be asking, “What, if anything, has the Competition Commission of Singapore (CCS) done to stop unethical anti-competitive practices in the insurance industry?”

The CCS can be contacted at (ccs_feedback@ccs.gov.sg).

Further Reading

Response from iFAST CEO on recent Forum Letters published in The Straits Times  (Fundsupermart – May 21, 2013)

The ‘price war’ that never took off (Straits Times – June 18, 2013)

Online insurance offer axed after gripes (Straits Times – March 15, 2013)

Fundsupermart’s insurance rebates: All policy inquiries will be seen to (Straits Times – May 24, 2013)

Fundsupermart sells insurance now! Rebates 50% of commission back to you (Investment Moats – May 1, 2013)

Explain why online insurance offer was axed (Straits Times – May 15, 2013)

LIFE INSURANCE BUYERS DEPRIVED OF HUGE SAVINGS! (The Real Singapore – May 17, 2013)

FAQs About Fundsupermart’s Insurance Commission Rebate (Fundsupermart – April 16, 2013)

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