What Unit Trust Investors Ought To Know

Instead of writing "without fear and favor", it is with courage and honour, that I would like to express my thoughts on the Unit Trust Industry in Malaysia.

Unit Trust is an investment product that requires the person who markets it to have sufficient knowledge and a good understanding of the product. In fact, Unit Trust is an investment that can be rather complex and sophisticated and due to globalisation, more and more Unit Trust products are emerging on the market to provide diversification for the investors.

We need to know who are the people marketing Unit Trust Investment in Malaysia.
Their background is just as important as the money you are giving them to manage. Most of the people marketing Unit Trust Investment are the tied Unit Trust Consultants (UTC). They are normally tied to a Unit Trust Management Company (UMTC) or Institutional Unit Trust Advisers (IUTA) such as Banks, Asset Management Companies and Stock Broking firms. The majority that are tied to UMTC are part-timers whereas those who are tied to banks are mainly full-time employees with high sales quota to meet every month.

There are about 63,000 UTC's in the country and an estimated 84% of them are tied to UTMC while the rest are Corporate Representatives and staffs. This is equivalent to a ratio of 1 Unit Trust Consultant to service 428 people based on the current population. This is good for the Unit Trust industry as there are more intermediaries reaching out and educating the general public on Unit Trust investment which have grown by leaps and bounds over the years.
(Source: FMUTM)

Now, one would wonder what are the requirements to become a Unit Trust Consultant with such big sounding name.

In fact, there are no guidelines or control of the usage of such a designation in Malaysia. Some have even gone further to called themselves Wealth Advisers, Wealth Consultants, Wealth Planners, etc. This has led to some misperception in the marketplace and consumers are unable to distinguish the services that they are qualified or licensed to provide.

What are the requirements to become a Unit Trust Consultant?
One of the requirements to be a Unit Trust Consultant is to pass the Computerized Unit Trust Examination (CUTE). The minimum qualification to apply for CUTE is Grade 3 SPM. In my opinion, it only takes a week of study to pass the exam and in addition, CUTE is relatively hard to fail. So now, can you imagine how easy it is to be a Unit Trust Consultant?

Personally, I feel that the appropriate name should be "Unit Trust Agent" because in legal context, it is actually a principal and agent relationship.

The title of "Consultant" is very misleading to the public because in general, consultants are both independent and of high standards with professional qualifications.

That is why the people who are dealing in Unit Trust tied to a company must hold themselves out to be "Agents" instead of calling themselves consultants or advisers. This will mislead investors or consumers to think that they are highly-qualified, experienced, independent as well as legally responsible and accountable for their services.

Of course, agents are always needed in the financial services industry to cater for the majority of the people who are in the lower-middle income group. For the relatively sophisticated investors, they would prefer to be advised by professionals and would not mind the higher fees charge for their services.

Nevertheless, it took me almost 7years to be qualified as a Chartered Financial Consultant which includes passing 10 comprehensive exam papers. On top of that, a minimum experience of 3years in the financial services industry was required before I could call myself a Consultant.

A New Distribution Channel for Unit Trust Investors
A new license was launched in 2008 by the Securities Commission (SC) to allow the qualified and licensed Financial Planners to market Unit Trust as Corporate Unit Trust Advisers (CUTA) under the Capital Market Services Act of 2007 (CMSA).

CUTA is a new independent third party distribution channel that requires a license from the Security Commission (SC) to distribute securities restricted to Unit Trust. CUTA has to comply with the license regulation and guidelines as stated in CMSA to ensure their activities are carried out professionally. CUTA is also required to have a professional indemnity insurance of RM200,000 and a strong compliance process to protect the interest of the investors and its representative’s activities.

CUTA have to fulfill all the above requirements before they can distribute Unit Trust through their licensed CUTA representatives who has to fulfill very stringent requirements as stated below.

The CUTA Representatives are not tied to any UTMC. Therefore, they are not subjected to promote the specific fund from the UTMC or required to fulfill sales quota. Their main focus will be to help investors plan and construct a portfolio to achieve the pre-determined investment objective. In short, the investors' interest is their top priority as they represent them and not any UTMC or IUTA.

What are the requirements to become a Corporate Unit Trust Adviser (CUTA) Representative?
A licensed representative must be a fully qualified Certified Financial Planner (CFP), Registered Financial Planner (RFP) and Chartered Financial Consultant (ChFC) with a minimum experience of 3years in the financial services industry and must also possess a license to provide financial planning advise under the CMSA. All applications for the license is processed and stringently screened by the SC before approval is given. In addition, CUTA Representatives are also required to register as member with the Federation of Investment Managers Malaysia (FIMM).

These licensed CUTA Representatives are constantly monitored and regulated with strict compliance by SC. To maintain a high standard, any complaints on these CUTA Representatives are viewed seriously and have to be reported to SC. If found to be guilty, their license will be suspended and the CUTA company will be given warnings or fined under the CMSA.

Why Promote the Growth of CUTA?
Currently, there are only 4 CUTA companies in the country with such license and less than 100 licensed CUTA representative in the country. That's about
1 representative to 270,000 people based on the current population. This goes to show that there is a Great Blue Ocean of opportunities for more companies and qualified professionals to participate in the growth of the Financial Advisory Industry.

At the same time, it will also help to raise the professional standards of the intermediaries in the financial services industry as advocated by both Bank Negara and Securities Commission in their master plans to promote Malaysia to be an International Financial Hub.

So you can imagine that such qualified and experienced Financial Planners are hard to find the country. As such, the country does not have enough qualified and licensed planners to serve all the people on their investment and financial plannings which are so important to most families.

The question now is, how are we going to increase the number of such qualified licensed planners in the country? I believe that the government, all relevant authorities, and stakeholders should play an important role to provide the necessary support and incentive to promote this industry for the good of the people in planning for their financial future especially in the current economic environment.

What are the Current Challenges & Issues Faced by CUTA?
There are about a few thousand individually-qualified CFP, RFP and ChFC. So why aren't they applying for it? The reason is very clear because currently there is no value in transitioning to become a licensed financial planner. There are many factors currently hampering the growth of this industry and the main reason is that there is no leveled playing field in this career.

Reason being that the part-time and full-time Unit Trust Consultants are better off than the licensed full-time financial planners who are sacrificing to be qualified and are also subjected to strict compliance. If this so-called unfair practices are not being addressed, I think it would take ages for the industry to raise the professional standard of the intermediaries as being set by the regulators.

Recently, Bank Negara and Securities Commission have recognised the Interns for the Financial Planning industry. Interns are those who have passed 2 modules from any of the required professional qualification and must be working full-time under the supervision of a fully-licensed Financial Planner attached to a CUTA. This is a very positive initiative taken by the regulators to support and promote the industry in moving on to the next level.

However, I strongly feel that the Interns should be allowed to deal in Unit Trust at the same level as a tied-UTC with UTMC and banks. Likewise, they will also be required to pass the CUTE exam similar to the UTC. In fact, these Interns are better in terms of qualification as well as being monitored by their senior licensed representative not to mention that they are subject to legal responsibilities and compliance by their CUTA company.

If they can't do it (practice financial planning and deal in Unit Trust), then what is the value of being an Intern?

And if there is no value in the program, they have no reason to apply for it. Consequently, they will not be able to acquire the experience to be a competent and fully-licensed Financial Planner which the industry is lacking.

This is one of the unfair practices in the industry towards the professional firms of the licensed CUTA. The internship program is an important transition to raise the professional standard of the Financial Services Intermediaries in the country. I feel that the regulators and the authorities have to reconsider and re-evaluate the whole situation for the industry to continue growing steadily.

For a long time now, Financial Advisers like myself have been sacrificing our time and money to promote the Financial Services industry in Malaysia.

However, as much as I am passionate about this career, I am also frustrated that an age-old problem has time and again been brought up but have many times, fallen on deaf ears. I believe that there are many out there who share my frustration but are unable to voice out. Therefore, I have decided that we can no longer remain the silent minority in pursuing our belief in promoting this career for the benefit of the people in Malaysia.


Taking it one step further
With the recent introduction of a license given by the SC to allow a platform provider like iFast and Philip Capital to transect Unit Trust business online, we are gradually climbing up the ladder as these services are providing flexibility in moving from fund to fund at no cost as well as having lower sales charge, not to mention the convenience of having 24-hour worldwide access to your portfolio.

This platform offers a wide range of funds from different Unit Trust companies and consequently, it is able to provide diversification for the clients' investment portfolio. Personally, I feel that with such an innovative platform, more intermediaries should be allowed to use it for the benefit of the Unit Trust investors.

To All Unit Trust Investors
I hope I've provided a good insight for your understanding on the people who are marketing the Unit Trust Investments. I feel that the consumer have the right to know and ought to know what is happening in the Unit Trust industry in Malaysia that are not normally covered by the media.

The consumer deserves the right to determine who they want in dealing with their Unit Trust Investment that is so important to their financial future.

For your convenience, I have provided a voting poll which is located on the right side of this blog.

Make your vote count on who you want.


Note: Everything that I write in this post/blog is entirely my personal view and has nothing to do with any association or company that I might represent.
(as mentioned in the disclaimer)

New Era of Change

The world we live in is rapidly changing.

Likewise, I am embracing a new era of change in my life.


America, as one of the world's most powerful nations, has embraced change when Obama was elected as America's first black president.

CHANGE was one of the most powerful words he used to win the historic election.

Change is inevitable if we want to move forward.

In short, America wants to move forward and so they have embraced this change.


Career
I started my career in the financial services industry as an audit clerk. Soon after that, I moved on to accounting and then to insurance in 1982. As I've always believed in professionalism, I had decided to pursue a professional course in insurance. Subsequently, I qualified as an associate member of the Australian Insurance Institute in 1987.

In 1988, I realised that the insurance industry in America have gone into financial planning. Therefore, I was determined to further my knowledge by enrolling for the Chartered Financial Consultant course with the American College. It took me 7years to complete on a self-study programme and I finally graduated as our company's first Chartered Financial Consultant in 1995.

I realized that what happened in the financial services industry in America will eventually happen here. Therefore, I co-founded Standard Financial Planner Sdn Bhd (SFP) after 4years of searching for business partners. SFP was set to lead the way when financial planning was not heard of in the financial services industry in Malaysia.

I moved from being a tied agent to a licensed financial adviser in 2007 to be able to represent the clients' interest better by providing more choices to fulfill their needs.

For a business to survive, the clients' interest must be given top priority.

For the past decade, I have dedicated my time and effort in building the company to its current position as the largest financial planning company in terms of the number of licensed financial advisers by Bank Negara and Securities Commission.

After 10years working in the corporate environment and building the company, I can now live my dreams of serving the people using the financial planning practice model which I plan to start this year.

The Blogosphere
Apart from the financial services industry, I have learnt to embrace the ever-changing world of Information Technology. That was how I found my way to the blogosphere.

How amazing is it to be able to reach out to virtually billions of people within seconds as compared to 15years ago, when snail mail and flyers were the best option for most people.

Take this technology back to 20years ago and it will be the world's most powerful magic trick!

This is also another amazing change in the information technology that have changed the world of communication. Therefore, we all have to accept change in conducting our business or it will sink in the red ocean of competitive market.


Why am I doing this?

To quote our ex-PM Badawi,

If one has the opportunity to do what is good and right for the country, then one must take on the task.

Likewise, Obama would say,

Each of us can make a difference and all of us ought to try.

In the words of Mahatma Gandhi,

We must become the change we wish to see in the world.

Financial Planning
After almost a decade of misconception by both the practitioners and consumers, the current regulations are further adding to the confusion in a way that they are not helping the industry to grow.

Therefore, I hope that the regulatory bodies and all involved parties in the financial services industry could come together to have a common mission to build a strong foundation for the industry to grow healthily in the next decade.

SFP have been paving the way for the last decade and I would now like to guide the way to creating a successful and profitable role model practice for financial advisers nation-wide.

I would also like to take this opportunity to congratulate all who have contributed to this industry and wish them another successful year in taking this industry to greater heights.


Final Note
To CFP, RFP, ChFP and fellow practitioners,

Have faith and perseverance to pursue this uphill journey to bring the financial planning practice as the most sought after career not only in terms of income, but also the freedom, the job satisfaction and the fact that we are all helping people live a better life.

Cheers,
Alfred Sek