The Life Insurance Association Singapore (LIA Singapore) has issued industry guidelines on sign-on incentives in the recruitment of financial advisory (FA) representatives. The LIA's guidelines will apply to LIA members as well as their related FA firm(s).
Taking immediate effect, the guidelines have been co-created with the MAS. They are aligned with MAS’s proposed measures, set out in a paper for public consultation, to address the risks posed by the use of sign-on incentives in the recruitment of financial advisory representatives, LIA Singapore says in a statement.
There are four measures highlighted in the guidelines.
Measures 1 and 2 apply to all representatives who are offered sign-on incentives tied to sales targets or a transition package. Measures 3 and 4 will apply when the insurer or its related FA firm conducts mass recruitment. “Mass recruitment” is defined as the movement of 30 or more representatives from the same FA firm within a 60-day rolling period.
The four measures are:
- Measure 1: Sales targets to be set at a reasonable level Sales targets for the first year should not be higher than the representative’s average of his annual achieved sales in the preceding three years. Any increase in subsequent years’ sales targets should be set at a reasonable level, having regard to factors including, but not limited to, the following:
a) Representative’s past sales performance
b) Representative’s compliance track record (e.g. Balanced Scorecard grades)
c) Representative’s years of financial advisory experience
d) Representative’s past persistency ratios
e) Sales targets of representative’s peers.
- Measure 2: Payment of sign-on incentives to be spread over a minimum period of six years The first year payment is capped at 50% of the representative’s average annual remuneration in the last three years, and the remaining payments are based on a level percentage.
- Measure 3: Pegging sign on incentives to the persistency of policies serviced by the representative at the previous firm At the end of two years following the representative’s migration, the previous firm should share the persistency of the representative’s “ring-fenced policies” (ie. block of regular premium life policies, and accident and health policies) with the hiring firm. The persistency will be calculated on a case-count basis. Depending on the persistency of the ring-fenced policies, the hiring firm is required to adjust the representative’s entitlement to sign-on incentives.
- Measure 4: Enhanced monitoring of representatives for at least two years The insurer or related FA firm is to engage an independent external party to conduct a pre-transaction survey of all (100%) transactions involving representatives that receive sign-on incentives pegged to sales targets. In addition, the representatives are to be subjected to the requirements that are imposed on “Selected Representative” under the BSC framework, i.e. subject to the higher sampling size of 10% for post-transaction documentation review.
In line with the Insurance Act, all costs, direct or indirect, that pertain to such acquisition of FA representatives should not be borne by the insurance fund.