To All EPF Members : What you ought to know before investing in unit trust.

What I am about to post will affect about 5.3 million Malaysians.

YES, I am raising some areas to take note for members withdrawing EPF for unit trust investments.

It is very common for Malaysians to withdraw their EPF savings for investing into unit trusts today, especially with the current market condition that provide opportunity to potentially earn higher returns compared to EPF dividends over the long term. It is also a good way to diversify some of your savings to other investment vehicles.

Today I believe there should be about 60% of EPF contributors withdrawing from EPF to invest into unit trusts; and I dare say ALMOST 100% of these investors put their money through tied unit trust agents who are mainly their family members, friends or relatives in the industry representing different unit trust companies. Most of the tied unit trust agents in the industry are part-timer and have limited investment knowledge. Therefore they normally don’t stay long in the industry.

From my experience most EPF members invest through a number of different agents, they will then start to put together somewhat of a portfolio from various unit trust fund houses. Effective 1 February 2008, the amount eligible for EPF members’ investment withdrawal is 20% of Account 1 after deducting basic savings amount which varies according to members’ age. Members are eligible to make withdrawals every 3 months to invest into EPF approved funds. (More info at KWSP website: http://www.kwsp.gov.my/index.php?ch=p2members&pg=en_p2members_wdrawtype&ac=2660 )

Most of what I mentioned above is nothing new. However, as a financial planner, I discovered THREE main issues investors ought to be aware of:

1. Most EPF members are UNABLE to manage their unit trusts investments portfolio.

2. Who will be responsible to MONITOR, LOCATE and REDEEM all the investments should the member passes on or have migrated to another country?

3. Who is responsible to provide the service when the agent resign or got terminated?

Now, let me decipher and explain my concerns. Why do I mention that investors are unable to manage their EPF investments?

· Insufficient information on EPF statement for tracking.

When a member withdraws for unit trust investments, the statement from EPF will just show as “Pengeluaran Pelaburan – Unit Amanah”. It do not show which unit trust company the money is placed with. If a member redeem the investment, the statement will just show “Pemulihan IPD” again do not show from which unit trust company. How is the member going to manage his or her unit trust investment without detailed information or summary of all his withdrawal or redemption from the respective fund houses?

· Not all members monitor or track their unit trust investment in the EPF account.

If a member invested through multiple agents over the years, it would be extremely difficult to track or monitor the investment especially when the servicing agent resign or got terminated. In most cases the members have to do it themselves and provided they have the information.

Through time, investors will lose track on their investments. Investors are unable to track how much was withdrawn for investment (especially for investors who withdrew once every 3 months to top up), their gains or losses when redeem and most importantly, NO CONSOLIDATION of their entire unit trust investment with different fund houses. However, investors are able to check with EPF through an extremely time consuming exercise.

What you do not know, you cannot manage! And if you cannot manage, you are taking a high risk of losing your financial objectives. Therefore, I would want to suggest to EPF to provide a detailed summary of EPF member’s investments into unit trust. The other area I would like to bring up to EPF is to have their statements in dual language (or choice of language) to benefit both local and expatriates contributing to EPF.

Next, I want to post you this question; that who will be responsible to LOCATE and REDEEM all the investments should the member die? Try reflecting the questions below to yourself and do you have the answers?

· Do your nominees know how much you have invested in unit trust over the years from EPF withdrawal? (especially when your EPF statement do not provide a summary to show how much is withdrawn and to which unit trust companies)

· Let’s assume your nominees are aware of all your investments, do the nominees have authority to redeem your money without a letter of probate or letter of administration?

· What will happen to the unit trust investment when your nominee do not know and have just taken the amount shown in the EPF statement and account is closed?

· Does the redemption money need to go back to EPF when account closed?

· What if your nominee is a minor and have to wait until age 18 before he or she can withdraw the money? Who then can redeem the unit trust investment?

· When the nominees are adult and minor then what would be the current practice based on the above situation?

If you do not have the answer, I suggest you look into it immediately. I have witnessed many cases where beneficiary suffered and went through heart breaking moments not only due to the loss of a loved one but also unable to access to their funds. There are also cases where the beneficiary claimed the money from EPF and later discovered that the deceased still have a bulk of money invested in unit trust using the EPF fund. There is also a case of client who migrated and later realized that she has invested in unit trust with her EPF fund but couldn’t remember which fund houses as she do not have any records and EPF couldn’t help her either. I have to practically write to all fund houses in Malaysia to check whether she has investment account with them. Some replied and I managed to help her redeemed and put it back to EPF. Imagine what if she is no longer around.

Since money is the second most important area in your life after health, I am sure nobody like to lose their hard earned retirement money through ignorance. However, without consolidation and a professional managing your money, financial leakage will take place.

A person who is cautious with their money will always begin with the end in mind. When you begin with the end in mind, you will have a personal direction to be financially organized, which will help accomplish your goals more quickly and easily!

Competent financial planners – the way towards professional acceptance

Today I would like to take some time to share some insight on our financial planning industry in Malaysia. For TRUE financial planners who have been in the industry for some time like myself, you would be aware that there are still many challenges that is limiting the growth of the industry.

It was about 7 years ago when the first license (Securities Industrial Act, commonly known as SIA) was introduced to regulate financial planning by Securities Commissions of Malaysia (which was later converted to Capital Market Service License, CMSL) and subsequently followed by the Financial Advisors (FA) license by Bank Negara Malaysia in 2006. Taking into consideration the number of years spent to liberalize this industry, we are still far behind and not growing to the desired level compared to our neighboring countries such as Singapore and Hong Kong.

The main reason is due to unclear definitions used by agents and bankers which confuse the public. From our point of view, we are seeing different standards being applied to agents, bankers and financial planners in this industry.

Therefore, I would like to share an article by Mr. Bose Dasan, an experienced licensed practitioner and a board member of the Financial Planning Association of Malaysia (FPAM), which I find that he have put a clear explanation on the current outlook of our industry.

I urge all to take a good read at this article below and this will also be available on FPAM’s 4E journal magazine......

Article by: KP BOSE DASAN CFP

Competent financial planners – the way towards professional acceptance

Introduction

We live in exciting times but it is getting every bit challenging. The profession of financial planning is trying to fit in, into various scenarios in the financial services environment. Financial services have always been there but the traditional approaches are changing by the minute. The problem arises when individuals and institutions try to hold on to their old ways and turfs and try very hard to thwart the progress of new ideas and processes. It will be difficult to present an organized, methodical, and empirical analysis of the situation especially since it is a very challenging task and secondly I must confess, I do not possess the intellectual might to present such a comprehensive analysis.

Management gurus will try to find a chart or diagram like a triangle or circle to present their approach and say this is the situation and this is the way out. I have no such tool, but financial planners can always start with the client.

What does the client want?

He perhaps wants to know, “are you the right person to talk to about his personal finances.” Let us say we successfully crossed that hurdle and the Professional CFP certification had helped. He was curious as to whether there was a license involved to practice financial planning. Bang! We are thrown into some murky waters. The Securities Commission has through its 2007 Capital Markets Services Act made financial planning a regulated, licensed activity. Thus I had to show him my CMS Representative License from the Securities Commission. As a CMSRL representative I had to also let him know my principal company through which I am licensed.

He was assured that I was not just an agent selling insurances or unit trusts. The client was happy there was a differentiation. He now has the hope and expectation that I can deliver a deeper and more meaningful or perhaps comprehensive solution. I quickly had to ask him if he was just looking to buy insurance or unit trusts. He said perhaps but I want my situation analyzed first and want to know what is appropriate for me. This is the first match between the planner and the client.

Clients are generally aware that they need insurance or that they would like to put some money into a good performing unit trust. Many may not be looking for a comprehensive financial planner. But this client wanted his financial position analyzed first and also wanted to know what was the most appropriate products for him to achieve some of his goals. He was also hoping that I could advice him on better ways to manage his personal finance and to find ways to improve his cash flow. He also slipped in the question if I was an independent financial planner with choices of financial products available. I gasped as to how to answer him. Yes as an independent financial planning firm my company had a variety of products from various vendors and manufacturers to choose from. It even has some prominent market players in insurance and investments but not all of them are represented. But I assured him that we had a fairly large range of products to choose from. My honesty appealed to him.

An issue here will be: are agents correctly distinguished from licensed financial planners. All agents sit for an exam to pre-qualify them to handle insurance or investment products. That is the depth of their academic requirement but it must be said in all honesty that the financial institutions have good training programs and have a system of nurturing agents through their multi-level agency supervision. Some institutions equip their agents with materials and software to help them present their products in the best light to their clients. Therefore, tens of thousands of agents are out there under the supervision of financial institutions handling their proprietary products. They interest their clients in a variety of ways but principally appealing to their need to insure or invest for some general goal or objective. How different is this approach to that of a financial planner. To make matters even more serious there are only few hundreds of licensed financial planners as compared to tens of thousands of agents, to cover the marketplace.

In this context it would be good to look at the definition under the CMSA 2007 as regards financial planning. As per CMSA 2007, Schedule 2, Part 2: “financial planning” means analyzing the financial circumstances of another person and providing a plan to meet that other person’s financial needs and objectives, including any investment plan in securities, whether or not a fee is charged in relation thereto.”

This definition implies that to analyze the financial circumstances of another person and to come up with a plan you need an SC license. It does not matter if you charge a fee or not. Therefore a clear distinction between a financial planner and an agent is that the financial planner makes it a point to analyze the financial circumstances of a client and comes up with a plan;, written or otherwise to help client achieve his financial need or objective. An agent can be assumed to be interested in representing his company’s product and perhaps go straight into the product presentation without analyzing his financial circumstances. It can be assumed that the product meets a general need like risk or investment and there is no attempt to provide a plan. This is where it hits a snag. Good agents to do a good job want to analyze client circumstances and want to offer a plan of investment albeit with their company’s proprietary products. Are these agents then in the CMSA territory? Such is the confusion in the marketplace. It is perhaps good that SC has not hauled up anybody for violating the CMSA provisions, which I believe it can if it wants to truly enforce this definition. The penalty for violating this provision is RM five million or five years or both.

That being the scenario you can now understand my humble apology that I do not have the intellectual might to decipher what ails in our current legal situation and what can be done to simplify things. To make matters more interesting there are many agents who have the professional certification, CFP and who are still tied to a particular company. Then there are those who are qualified CFPs who are just keen to promote products without analyzing the financial circumstances of the client and coming out with a written plan. There are many CFP qualified relationship managers who work for banks and provide private banking services under the auspices of the bank and perhaps outside the ambit of the CMSA. Therefore there are many things that need to be ironed out before we can see a clear passage for financial planners.

To add a spanner to the works the insurance fraternity have coined the professional term “financial adviser” as their own and now you need a license to call yourself a financial adviser.

“Financial advisory business” means any or all of the following services:

a) analyzing the financial planning needs of a person relating to insurance products

b) recommending the appropriate insurance products

c) sourcing insurance products from a licensed insurer

d) arranging of contracts in respect of insurance products

e) other financial services as prescribed by the Central Bank.

You can now imagine the plight of a practitioner. To handle multiple insurance products you need this financial adviser license. Fortunately both regulatory agencies have made things easier by coordinating the requirements for both licenses. However the fact still remains that you need two licenses and compliance with two regulatory agencies to practice financial planning. To me this is a magnificent example of “Malaysia Boleh”.

A social economist might be interested to find out what is going on in the Malaysian financial services environment given this dichotomy between insurance and investment and the attempt to license the less than a thousand financial planners but to allow the freedom to the tens of thousands of agents to ply their trade. What is the big picture and what is the goal of the regulators. I suppose financial institutions do wield some clout. We may have to let things evolve or decay as no one has a clue as to where the law and practice of financial planning is going and what the final outcome is going to be.

The new initiatives by the Economic Planning Unit under the leadership of the prime minister have drawn plans to build wealth management as one of the key areas for the new economic transformation program. Who will promote wealth management and its human capital development? We can’t even come to terms with whether a wealth manager is free of any restriction from being licensed as a financial planner or financial adviser. Do wealth managers need a license?

Of course the client is not interested in the trail of discussion that I have taken the reader through. He wants a good job done for him. He needs to be impressed by what the planner can do for him. He wants the assurance that all or any product recommended will do its stated job and help him achieve his objectives. He wants the planner to monitor the performance of his strategies and see that the client is on track to achieving his goals.

Therefore there is a public face to all the things being discussed here. The public do not want to be confused. They can with some certainty identify a doctor or a lawyer but he needs to be sure about his financial planner or adviser who is going to handle his personal finance and add value to his wealth. Perhaps it is worth noting that doctors and lawyers go through a period of post qualification training called internship or chambering. The financial planning profession does not have this structure. Perhaps this is an opportune time to thrash out the bigger picture and take the industry firmly forward towards 2020 to meet the government’s economic transformation initiative and achieve high income and developed country status.

While the laws are being straightened out the licensed financial planners can start the ball rolling by improving their competency level. By achieving higher competency he can win the client’s trust and patronage. His efficacy and efficiency will spiral a word of mouth promotional blitz and in the future it can be assumed that most affluent clients will only want to talk to qualified and licensed financial planners.

In this regard I urge all planners and advisers to read the document prepared by the Financial Planning Standards Board as regards the accepted competency levels and the practical knowledge and skill sets expected of a CFP professional. Passing the exams is only one of the four pillars. Experience, ethics and continuing education are important pre-requisites to remain relevant to the financial planning industry. Let us rise to the challenge of bringing economic transformation through expert wealth management by CFP professionals.

Future Outlook for Financial Planners

For the past decade, the financial planner profession had seen tremendous growth. Economic distress, fast paced lifestyle changes, unpredictable future demographics forecasts, unemployment and raising health care costs are some of the main reasons individuals gave up on conducting their personal financial planning and engage a professional advisor to assist them. The recent recession, in particular, had led more people to seek professional help with their finances, from managing retirement to risk protection and savings accounts to tax strategies and estate planning.

The global financial crisis, especially, had also resonated many mums and dads to look further into the future, fueling demand for planning services. This is what financial planning had been all about; PLANNING for the future to achieve certainty on our financial objectives!As most of us have a limited inflow of income, therefore, it is important that we don’t make mistakes in our key financial decisions that will be a setback to our financial objectives.With the demands of career and family today, dare me to ask how many of us actually have the discipline to keep detailed files and records of our finances and routinely monitor our investments? Financial planners are able to relieve you of all those administrative details and are experts at providing directions and solutions in your financial road map.

According to the Bureau of Labor Statistics (BLS), www.bls.gov, they reported that through 2016, the profession of financial planners is expected to grow significantly faster that any other occupations and had been listed to be the top 10 growth occupation. The factors that are driving the demand of financial planners are:

- The increasing longevity of people today due to the advancement of medical evolution, resulting for the need of professional retirement planning to ensure sufficient asset accumulation.
- A solid plan to safe and accumulate for children education.
- The growing sophistication of financial products resulting mis-selling scandals and failure to meet investment targets, therefore, advisory is crucial to understand the different products available to suit different clients’ needs

Since the introduction of the Financial Adviser license by Bank Negara Malaysia in 2005, there are 17 licensed firms set up housing 169 licensed Financial Advisor Representatives nationwide as of December 2010. Year on year, I am witnessing the growth of licensed representatives transitioning from agents to provide professional advisory to clients. Globalization and the liberalization of financial services is one of the main factors causing this evolution. Clients today are better informed through technology and have higher expectation from their service providers (agents, bankers, brokers & financial planners). Instead of single need product sale, clients expects advisory to multiple needs which they wouldn’t mind paying a fee for. In that manner, financial planners can expect better remuneration from their professional expertise they offer. A survey from Money Magazine and CNN Money.com shows that a Financial Planner can earn $122,500 on average and ranks third in the top 10 best jobs list in America, considering growth, pay, stress level and other factors.

Every year, people spend more time planning for their vacations and holidays than planning for the future. But in reality, people’s lives can be more volatile than the stock market, whether it’s due to the uncertainty of work, family changes or divorces. And when that strikes, their financial planner will be their navigator!

Global Investment Opportunities for Malaysians

Have you ever thought of expanding the likes of your investments to countries like Mexico or Nigeria?

Most Malaysians are investing into limited types of investments mostly in local stocks, properties and single unit trust funds. Little did they know that an undiversified investment portfolio creates higher risk to the investors. When that particular investment devalues, they will lose the same proportion as the underlying asset.

Recently, global investment platforms have been introduced to Labuan, one of Malaysia’s Federal Territories. Labuan is a well known Offshore Financial Centre offering international financial and business services via Labuan IBFC since the 1990s. This platform offers global investment opportunities to Malaysians and grants them access to the worlds’ largest fund houses such as Blackrock Merrill Lynch, J P Morgan Asset Management, HSBC bank and many others. However, due to the level of sophistication, these investments are not widely available to the general public. Therefore, Bank Negara Malaysia specifically approved the Licensed Financial Advisers to provide these services to selected sophisticated investors.

I strongly believe that the introduction of this platform is beneficial to Malaysians as it allows investors to further diversify their assets to multiple sectors (such as agriculture, natural resources, technology, healthcare), multiple geographical regions (such as Eastern Europe, Latin America, African nations, Asia) and to reputable global fund managers (such as Blackrock Merrill Lynch, J P Morgan Asset Management, Fidelity, HSBC bank). Many of these global funds were not available to Malaysians previously. But with the recent liberalization of the financial services industry, Bank Negara have taken positive steps to allow sophisticated investors to diversify their investment portfolio using only approved investment platforms based in Labuan.

Diversification allows the clients to spread their risks through a portfolio of global funds managed by a pool of reputable global fund managers. With a well diversified investment portfolio, the risk exposure can be better managed according to the client’s risk profile. This gives the client a peace of mind even during bad economical times or recessionary periods. This is crucial because there are some financial objectives that you can’t afford to risk (such as your retirement and children education plans). These investments will be held in strong foreign currencies such a British Pounds (GBP) or US Dollars (USD) which will give clients multiple currency holdings to minimize speculations.

Through this platform, clients are now able to gain exposure to global investment funds even with a smaller retail sum. Minimum lump sum investment is now available for as low as GBP 10,000 or GBP 300 per month for regular saving with a minimum term of 10 years. Previously, reputable global investment funds were only made available to high net worth individuals through their offshore bank account with a minimum sum of at least couple of millions.

To understand more on the above global investment opportunities, you can talk to any Bank Negara Licensed Financial Adviser Representative.

Lastly, I wish you and your families a healthy start to the New Year ahead!

What is a Wrap Account?

Wrap accounts have gained much popularity since they were first introduced to Malaysian public since the beginning of 2009. Today, a wrap account is a common facility to most financial planners in assisting their clients. So, what exactly is a wrap account and how does it work?

Basically, a wrap account is a service that “wraps” all your investments into a single account. One of the biggest advantages of this account is the ability to invest into multiple funds (even from different fund houses) through a single wrap account. Although this is also achievable using the existing distribution method, but the assistance of multiple agents is required to invest into the hundreds of funds available for diversification purposes. Now, with the introduction of wrap accounts, clients only need to deal with one Licensed Financial Planner for all their Unit Trust investment needs. This is the preferred method as it is relatively hassle-free and saves precious time and money. (Currently, only Financial Planners licensed with the Securities Commission, through their CUTA license, are allowed to advise and to construct a portfolio of approved Unit Trust funds for investors using the wrap account from a platform provider.)

Another benefit of the wrap account model is the ease of contributing. Investing into various fund houses using a wrap account does not require clients to make multiple payments but rather, a single cheque would be sufficient. Due to the wrap account structure, administrative work will also be minimised as statements from different fund houses will be consolidated into one concise softcopy version. Traditionally, clients receive physical statements through mail from various fund houses. Most clients that are bombarded with these statements do not have the time to read all of them and thus, making it difficult to monitor and track the value of their investment efficiently.

Another advantage of using wrap account services is the option of unlimited free switching of funds. Free switching is not only applicable within the same fund house, but also between different fund houses. As compared to the traditional industry practice, switching of funds within the same fund house may be free, but the number of times per year is limited. Subsequently, switching funds from one fund house to another will attract sales charges ranging from 3% to 6%. Conversely, unlimited switching will give clients the advantage and flexibility in their portfolios, which can be done easily without incurring any cost through on-line instructions to your Financial Planner.

Other than that, wrap accounts also offers a lower upfront charge. Traditionally, clients will be charged up to the maximum rate for their investments, but with the wrap account structure, financial planners can practice their own discretion in deciding on the upfront fee. This greatly benefits the clients in terms of cost.

For all the above benefits, flexibility and professional advice from a Licensed Financial Planner, a minimal fee will be charged annually on the investment portfolio which is as low as 0.25% to 0.375% per quarter. This fee will be shared between the platform providers, dealer group and the Financial Planner.

Finally, transactions can be conveniently conducted online and with a wireless and paperless transaction environment. Thus, financial planners can now serve clients better and bring their business anywhere in the world.

Below is a summary table of all the benefits and advantages of using a wrap account.

	Wrap Accounts	Traditional Tied Agencies
Range of Investment Funds and Fund Houses	Wide range	One
Lower Upfront Charges	Yes, (0% - 5%)	No, (5% - 6% Equity Funds)
Cash Account Facility (With Interest)	Yes	No
Switching	Multiple free switch (intra & inter funds)	Fixed number of free switch only for intra funds
Free Switching	Yes	No
Online Transactions	Yes (Buying, redemption & switching can be done ONLINE)	No (Manual - filling forms)
Ease of Monitoring Your Investments	Consolidation of reports are available on the Internet to give immediate information 24/7	Only certain fund houses offer this facility

Next update: Global Investment Portfolio Opportunities