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

Fund Manager vs Financial Planner. Who requires higher qualification?

As a norm, most of us grew up thinking higher rank professionals will certainly possess higher qualifications. For example; a doctor would have higher qualification compared to a nurse, professor to have a higher qualification compared to a lecturer and so forth. However, has anyone cracked the fact between fund managers and financial planners?

Confused? Let me break it down for you. The role of a financial planner is to advise and assist clients on their personal financial matters such as planning for retirement, children’s’ education, estate distribution and others. Financial planners have the fiduciary obligation to identify and recommend the most suitable product from the market place to help clients achieve their financial objectives. On the other hand, a fund manager’s role is to manage and invest the public’s money with a sole objective to meet the expected returns based on the investment product profile. He/She is the key person who makes the call on your investment products such as unit trusts, Amanah saham bonds or even the investment portion in your investment-linked insurance policy.

.	Fund Manager	Financial Planner
Hours of Study	32 hours	240 hours
Ave Duration to Complete Pre-requisite Course	4 days	3 years
No. of Courses Required	2 Modules; Module 9 – Funds Management Regulation, Module 10 – Asset and Funds Management	6 Modules; Module 1 – Foundation in Financial Planning, Module 2 – Risk Management and Insurance Planning, Module 3 – Tax Planning, Module 4 – Investment Planning, Module 5 – Retirement Planning and Estate Planning, Module 6 – Financial Plan Construction and Professional Responsibilities
Minimum Qualifications	SPM or Equivalent	SPM or Equivalent
Minimum Requirement for CMSRL Applicants	· A degree or professional qualification from an institution recognized by the government of Malaysia · Applicants without any degree or professional qualification must have at least 5 years of relevant experience in the regulated activity	· The Certified Financial Planner (CFP) qualification and a member of the Financial Planning Association of Malaysia (FPAM); · The Charted Financial Consultant (ChFC) qualification and a member of the Malaysian Association of Chartered Financial Consultant (MAChFC); · The Registered Financial Planner (RFP) qualification and an ordinary member of the Malaysian Financial Planning Council (MFPC)
Experience Requirement	2 years of relevant experience in fund management activity	3 years in a financial planning-related position

By now, you must be asking, “why have such stringent requirement to be a financial planner in Malaysia? Why recognized only full CFP, RFP or ChFC qualification to become a financial planner? In other countries such as Singapore, Hong Kong, UK & Australia, the qualification requirement needed for financial planners are much lower in comparison to ours. They just need to sit for one or two exam set by the regulator and can be licensed to advice on those qualified areas.

You can now see why there are only 164 licensed financial planners in Malaysia in the 6 years of issuance. Comparing to our neighboring Singapore, they have licensed 3,500 financial planners in the last 8 years to serve a small population of only 5 million and they don’t have tied agent advising on investments.

Fund managers or even PHDs in finance, with their qualifications & experiences, are not qualified to apply for financial planning license in Malaysia if they do not possess the full CFP, RFP or ChFC qualification. Therefore, it’s safe to conclude that it’s tougher to be a financial planner than to be a fund manager in Malaysia.

To wrap up, both professionals (financial planners and fund managers) plays a very important role for the public. One manages the public’s hard earn money and the other provides professional advise to ensure clients’ financial objectives are met. Therefore, if both are equally important to the nation and society, why should financial planners requires higher entry qualification than a fund manager?

Keep posted on my next issue: What is a wrap account and how can it help you in your investments