SINGAPORE - The financial advisory and investing industry could be in for a shake-up as customers get more demanding, especially if the economy slows, said observers.

Financial advisers will have to offer more value-added services rather than focus mainly on transactional services, said industry players, as the announced closures of GrabInvest and financial advisory firm MoneyOwl throw the sector into the spotlight.

Earlier this week, The Business Times reported that Grab is shutting its GrabInvest services in Singapore, describing the business as not being “commercially viable”.

The AutoInvest service allows users to invest a small amount of money automatically each time they use Grab’s services. Earn+, launched in May 2022, lets users put money into their GrabPay Wallet and earn interest of up to 2.5 per cent a year.

Both are part of GrabFin – Grab’s financial services outside of digital banks. GrabFin also has payment and insurance services. 

Then there was MoneyOwl, which announced in August 2023 that it will be shutting operations.

As a social enterprise, it aimed to offer financial planning at a low cost with salaried financial advisers not driven by commissions. Its four main services were financial planning, investment services, wills and insurance. It, too, said the business was not commercially viable.

Back in 2020, robo-adviser Smartly also closed, citing intense competition.

While most advisers focus mainly on investments and portfolio services, Singapore’s financial advisory sector has grown in the past two decades, with three main groups of financial product distribution channels – tied agents, independent financial advisers and banks. 

Tied agents are individuals restricted to distributing products from the insurance company that they represent. Independent financial advisers generally represent a wider range of financial providers, including insurance companies and fund management companies. For banks, they combine their core banking services with insurance offerings from their partnered insurance companies.

Growth in financial adviser numbers

The number of independent financial advisers has grown from a few hundred in the early 2000s to over 5,000 currently, said PhillipCapital’s executive director for wealth management and talent acquisition Lisa Lee. She added that this figure excludes about 15,000 financial advisers in insurance firms.

Providend chief executive officer Christopher Tan, whose firm focuses on wealth advisory, estimates that there are about 20 better-known financial advisory firms active in the space. 

Over the years, the number of advisory firms has grown. Mr Alfred Chia, CEO of independent financial advisory firm SingCapital, puts the growth down to increasing awareness of the importance of financial planning, regulatory changes that have made it easier to enter the industry, and the growing complexity of financial products and services.

Consumers gain as there is more choice of players, with the potential for lower fees. Those who tap banks and insurers get the benefit of working with an established brand and their extensive distribution networks.

With the rise of digitalisation, there is now also the option of robo-advisers and online platforms that can offer low-cost advisory services to tech-savvy consumers.

Commission v fee-based 

PhillipCapital’s Ms Lee said that currently, financial professionals are either fee-based or commission-based, with most of the sector operating on the latter model. 

She attributed this to the “largely cultural behaviour of Asian investors”, who prefer to pay for just the products and services they want.

She added that a lack of awareness and/or acceptance of paying financial planning fees also plays a part in the low take-up rate for “fee for advice” in the current market environment.

The fee-based model, either full fee-based or a combination of fee plus commission, seems to appeal to consumers who belong to the affluent category, Ms Lee said.

Providend’s Mr Tan shares the same view that “it is the more affluent whose life and financial situations are complex enough for them to better derive value from fee-only advisers”.

“For younger people and clients with less wealth, because their financial situations are much simpler, there is really no need for them to pay a fee for advice,” he added.

“But the challenge is then for the commission-based financial adviser to tangibly show how they are able to mitigate that inherent conflict of interest.”

One financial consultant noted that if fees are not kept low, there could be a risk that customers with simpler financial planning needs may end up paying more, or are not able to afford any financial advice, which could lead to Singaporeans being underserved.

Competition

The competitive financial services industry here offers many investing options, encourages competitive pricing and innovation, all of which benefit the customer.

For those looking to park excess cash, with interest rates rising in recent times, there has been a range of choices including T-bills, Singapore Savings Bonds and fixed deposits, which are straightforward for the individual to access.

Still, SingCapital’s Mr Chia noted that financial advisers can play a part for those who want more in-depth advice covering long-term financial goals.

But in some cases, said Providend’s Mr Tan, financial advisory firms do not have the economies of scale to survive. The market may be too small to support many digital/robo-advisers.

He added: “I expect more consolidation to come and only those who can contain their cost while achieving growth will survive and thrive.”

Mr Chia noted that the Monetary Authority of Singapore has been actively regulating the financial advisory industry to enhance transparency, professionalism and consumer protection.

With more competition in the industry, players will need to differentiate themselves by providing specialised expertise, unbiased advice and personalised service to attract and retain clients, he added.