The sales charge under the Central Provident Fund Investment Scheme (CPFIS) will be removed, said Second Minister for Manpower Josephine Teo in Parliament on Monday (5 March).
Speaking during the Committee of Supply debate, the 49-year-old pointed out that financial advisors are currently allowed to impose a sales charge of up to 3 per cent for Investment-Linked Insurance Policies (ILPs) and unit trusts under the CPFIS.
This sales charge is undesirable for CPF members because it incentivises financial advisors to sell products to earn more commissions. As it stands, CPFIS investors can buy unit trusts on online platforms without incurring any sales charge.
From 1 October, the sales charge cap will be reduced to 1.5 per cent. It will then be brought down to zero from 1 October 2019.
The removal of the charge will better align the investment behaviour to target investors and reduce investment cost for CPF members, said Teo.
In line with this goal, the wrap fee for investments under the CPFIS will be lowered by in two phases to 0.4 per cent of assets under management (AUM). Currently, financial advisors are allowed to charge a wrap fee of up to 1 per cent of (AUM).
The wrap fee charged is for the creation and maintenance of investment portfolios by financial advisors for their clients.
To help CPF members know more about using their savings for investments, the CPF Board will also introduce a self-awareness questionnaire (SAQ).
The SAQ will give feedback to CPF members on their level of basic financial knowledge and reminders on other options to grow their CPF savings. It will be part of the process of opening a CPFIS account from 1 October 2018. Existing CPFIS account holders are strongly encouraged to take the SAQ.