Sales charge for CPF Investment Scheme to be removed from Oct 2019
TODAY file photo
SINGAPORE — From October next year, insurance and investment products on the Central Provident Fund Investment Scheme (CPFIS) will no longer entail a sales charge, which spurs financial advisers to sell products and earn more in commissions.
The charge of up to 3 per cent will be phased out gradually: The cap will be reduced to 1.5 per cent from October, before being removed next October.
The move aims to reduce the cost of investing and remove the incentive for financial advisers to push products to clients, said Second Manpower Minister Josephine Teo on Monday (March 5).
Some unit trusts are already available via other platforms such as Fundsupermart.com without a sales fee, she noted.
Under the CPFIS, members can invest their CPF savings in their Ordinary Accounts (above the first S$20,000) and Special Accounts (above the first S$40,000), which may generate higher returns – but at greater risk – than CPF interest rates.
The sales charge has an “unintended consequence” of incentivising financial advisers, to the detriment of CPF members’ interests — Mrs Teo said.
Right now, financial advisers are also allowed to charge CPFIS members with wrap accounts a yearly “wrap fee” of up to 1 per cent of the amount of funds they manage. This fee covers advisory services and the costs of maintaining the account.
As the CPFIS is targeted at those with the time and knowledge to invest, they are not expected to rely on advisory services, which are usually factored into the fee. The 1-per-cent cap on the wrap fee will, therefore, be lowered to 0.7 per cent from October. It will be further reduced to 0.4 per cent from October next year – similar to fees charged by online investment platforms in the cash market, said Mrs Teo.
The changes are implemented gradually to give the industry enough time to adjust, and the Government will review the cap from time to time, she said.
While the changes could affect the financial-advisory industry, the impact is not expected to be “too substantial”.
Going by estimates from the Life Insurance Association Singapore, CPFIS products made up about 15 per cent of premiums from new insurance business, with the rest from the cash market (non-CPF monies).
In a statement on Monday, the Life Insurance Association Singapore said life insurers may see a dip in the volume of transactions for CPFIS-included policies.
Life insurers may review their continued participation in the CPFIS, the association said. “For instance, life insurers could market CPFIS-included products online without financial advice, to cater to knowledgeable self-directed consumers.”
The industry will work with the CPF Board on the changes and continue to offer products that help investors to meet their objectives, it said.
Presently, nine life insurers take part in the CPFIS, including AIA Singapore, Aviva and AXA Insurance.
Meanwhile, from October, CPF members setting up a CPFIS account will have to complete a self-awareness questionnaire to help them decide if the scheme is suitable for them. It will give feedback on members’ level of basic financial knowledge and remind them of other options to grow their CPF savings, such as CPF interest rates.
Members can still decide to invest in CPFIS regardless of the feedback given.
The minister said that not all members who take part in CPFIS have investment expertise. In a poll carried out on behalf of the CPF Advisory Panel in 2015, more than half the CPFIS investors surveyed said they had limited investment knowledge.
Between October 2014 and September 2016, nearly three in 10 members who invested their Ordinary Account savings incurred losses. Another 22 per cent saw returns equal to, or less than, the CPF Ordinary Account interest rate of 2.5 per cent yearly. This means slightly more than half of those with a CPFIS-Ordinary Account would have fared better leaving their CPF balances alone, said Mrs Teo.
