4E JOURNAL Education
The official publication of the Financial Planning Association of Malaysia
PP 11977/05/2012 (029764)
Vol. 16, No. 3, 4Q 2014
How Financial Life Planning Changed My Life and My Clients’ Lives Now is the Time for Leadership at all Levels Are You Prepared, Gen-Yers? CFP Professionals and the CMSRL MFPYA: Honouring the Industry’s Best
Ismitz Matthew De Alwis Executive Director / CEO, Kenanga Investors Bhd
Strategic Alliances, Technology & Transparency www.fpam.org.my
Financial Planners are in Demand Dear Members, Another year is coming to a close. We are just about to turn a corner to celebrate Christmas and usher in a brand New Year. The year has whizzed by quickly. For financial planners and intermediaries chasing targets, this is it! The year is ending and I trust you have done your best and have already put in place your game plan for 2015, a year analysts and economists alike have anticipated to be a challenging year with the implementation of the goods and services tax (GST) and plummeting global oil prices. Challenges aside, FPAM has also mapped out its own game plan. Here is a sneak preview of some of the goodies in 2015. Continuing education (CE) courses will continue to focus on financial planning related topics and there will be practice management workgroups deliberating on case studies for those wishing to focus on financial planning. Following the very encouraging response to the various tea talks from members, we will be organising more Thursday Tea Talk sessions in the New Year. FPAM has also enhanced its existing FPAM Financial Literacy Programme so that it is more structured and developed a standard set of core slides as well which members can use when they volunteer to conduct these talks. What are the requirements? Be a current member, have a CMSRL (Capital Markets Services Representative’s License) and be an engaging speaker. Why the CMSRL? Our regulations require any individiual giving personal financial advice under the following circumstances be licensed: • • •
In a situation where a financial planner gives advice to listeners who call in during a radio or television talk show Doing a case study or review for readers of periodicals who write in Any situation where the financial planner gives either a verbal or written advice on a one-to-one basis.
However, members who are certified and not yet licensed can give talks to groups on a general basis. The same goes with writing of articles in which there is no reference to a specific client in relation to financial planning unless it is in an area which they already hold a license, for example, unit trust, share trading or insurance. I urge all FPAM members to continue upholding the good ethics of financial planning which have put us in the Tier 1 ranking in the 2012 CFP Certification Programme assessment conducted by the Financial Planning Standards Board. This means FPAM’s processes and adherence to the running of the CFP programme is within the required global standards. The recent changes in regulatory requirements for the CMSRL in financial planning and financial advisers license (FAR) has enabled FPAM to enhance and restructure its CFP programme so that it is more efficient for existing and new entrants. One only needs to sit and pass three modules with a familiarisation programme on financial plan construction (no exam for this module) to apply for the CSMRL. As for FAR, one only needs to sit and pass the modules on Foundation in Financial Planning, Insurance and Investment to apply for the license. However, one will still be required to finish off the rest of the modules and have the three years’ related experience to be credential after your name. certified and put the Clearly, licensed financial planners are in demand. For more information, you may want to refer to our October 2014 issue of 4E Journal which highlighted the studies of the FPSB/Comparator Firm Research Project 2014 on the value of the CFP mark. The study was conducted in 12 countries and participated by 12 financial planning firms comprising of 120,000 financial advisers of which 11,500 were CFP professionals. Meanwhile, do check out the article on the results of a mini-survey conducted by FPAM recently at the Securities Commission’s InvestSmart Week 2014 on the public’s willingness to pay fees for financial planning services. The response from this mini-survey supports the above FPSB Research Project on the need and relevance for good financial planners.
Publisher Financial Planning Association of Malaysia Chief Executive Officer Linnet Lee Adviser Steve L H Teoh Editor Edmond Cheah Editorial Panel Paul Khoo, Tang Wee Hen, Maznita Mokhtar Managing Editor Steven K C Poh Advertising Joann Lim Consulting Producer Leverage Media (002223158-U) Suite 10-01, 10th Floor, Block A Damansara Intan No. 1, Jalan SS20/27 47400 Petaling Jaya Selangor Daul Ehsan Printer Percetakan Skyline Sdn Bhd (135134-V) No. 35 & 37 Jalan 12/32B TSI Business Industrial Park Batu 6 1/2, Off Jalan Kepong 52100 Kuala Lumpur The 4E Journal is published twice a year by the Financial Planning Association of Malaysia. Opinions and views expressed in the 4E Journal are solely the writers’and do not necessarily reflect those of the Financial Planning Association of Malaysia. The publisher accepts no responsibility for unsolicited manuscripts, illustrations or photographs. All manuscripts and enquiries should be addressed to: The Editor, 4E Journal, c/o Financial Planning Association of Malaysia, Unit 305, Block A Phileo Damansara I Jalan 16/11, Off Jalan Damansara 46350 Petaling Jaya, Selangor. Phone: +60-3-7954 9500 Fax: +60-3-7954 9400
Let me sign off the year by congratulating members who have achieved their life goals for 2014 and for those who have not, keep on going and do not give up. I would like to take this opportunity to wish all those who are celebrating, a Merry Christmas and happy holidays to the rest and last but not least, a very Happy New Year of the Sheep!
Sharifatul Hanizah Said Ali, President [email protected]
CONTENTS October - December 2014
In this Issue INDUSTRY
How Financial Life Planning Changed My Life and My Clients’ Lives
Now is the Time for Leadership at all Levels
Success: It’s All in the Way You Communicate
The Power of LinkedIn
Are You Prepared, Gen-Yers?
InvestSmart Fest 2014: Educating the Public
CFP Professionals and the CMSRL
Melaka Chapter Activities
Penang Chapter Activities
Sabah Chapter Activities
Get the CFP CERT TM Mark Today!
MFPYA: Honouring the Industry’s Best
Of Strategic Alliances, Technology & Transparency Ismitz Matthew De Alwis is a big believer in systems and processes. His rationale is simple. They enable continuity, provide a framework for audit and efficiency as well as ensure business sustainability. The deputy CEO of Kenanga Investors Bhd knows this very well. After all, he is no stranger to the financial services industry having dabbled in it (financial and investment management) for more than 20 years.
Business Sustainability of Family Enterprises
CFP CERTIFICATION GLOBAL UPDATES
, CERTIFIED FINANCIAL PLANNER® and are certification marks owned outside the U.S. by Financial Planning Standards Board Ltd. Financial Planning Association of Malaysia is the marks licensing authority for the CFP marks in Malaysia, through agreement with FPSB. Copyright 2014 © Financial Planning Association of Malaysia. All rights reserved. PP 11977/05/2012 (029764) No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the written permission of the publisher. All information provided in this publication are for the purpose of education and keeping the members of the Financial Planning Association of Malaysia and the general public informed of news, developments and direction in the financial planning industry. No article published here is exhaustive on the respective subject it covers and is not intended to be a substitute for legal and financial advice or diminish any duty, statutory or otherwise imposed on persons by existing laws.
INDUSTRY October - December 2014
By Partha Iyengar
How Financial Life Planning Changed My Life and My Clients’ Lives
t was spring and a beautiful day at Puget Sound, Washington. For a few moments, I was intently soaking in the scene outside the window at the Clear Water Resort – small hailstones were falling gently on the lush lawns near the waterfront. The sight was breathtaking and I wanted to just stay in the moment! That was the last day of my training course in ‘Financial Life Planning’ conducted by the fabulous team of Money Quotient, Inc.
During the tea-break, I took few moments to look outside the window again and was reflecting on how I could possibly implement this awesome practice called ‘financial life planning’ for Indian youths and empower them to live their dreams. It has been little over three years since we incorporated financial life planning into our practice. Looking back, the single biggest impact ‘financial life planning’ has brought into my life is purpose – purpose to help the youth identify and prioritise their personal and financial goals (through intent listening and conversation), discover few crucial steps to change their behaviour and achieve success. Why? The answer is simply the fact that India has 500 million people below the age of 25. That is almost half the country’s population. There is a possibility of over 200 million youth who could be unemployed in India by 2020, a frightening statistic indeed! We had initially incorporated the financial life planning process (consisting of licensed tools and resources) into our practice with select affluent clients and their families through our parent organisation – Accretus Solutions India LLP. The rich conversations using the financial life planning process helped our clients and their spouses gain clarity in what they wanted to do in their lives and to go for it. We became the ‘choice architects’ in their lives. Our conversations were more focused on what is happening in their lives, what are their life goals and
less on portfolio performance. When conversations are more about them by listening to them, the clients believe that ‘we are on their side.’ And through our prudent portfolio choices and other related recommendations to managing their money, we amplify the trustworthiness factor further. Gradually, using the financial life planning process, we also started engaging their children to better understand them in terms of their career plans and passion, which helps in planning cash flows better for their education and accordingly incorporate these items into the overall financial life planning for the family. We ran the financial wellness workshops with children (teenagers) and helped them apply basic money management techniques in their day-to-day lives to achieve their personal and financial goals.
“When conversations are more about them by listening to them, the clients believe that ‘we are on their side.’”
We were surprised at the feedback (through pre-workshop and postworkshop surveys), where some of the participants had identified their goals, changed their financial behaviour and implemented their goals in a short span of 45 days. Our workshops have validated that if we could help the youth to identify and clarify their priorities in life, understand their money beliefs and patterns, focus on the goals and implement it, they will achieve success. This has motivated us to scale our business and expand it through multiple channels in India. We were rebranded as Life & Money in June 2013 (the earlier avatar was Accretus EAP – for the young employees in organisations) to service the young consumers across the country and transform their lives. With the new regulations by the Securities and Exchange Board of India (SEBI) effective from October 2013, our fee-only model has been vindicated as we were one of the early ones to launch the feeonly model in 2009. We are happy that the regulator made it mandatory (for financial planners and advisers who charge fees) to obtain a license as a registered investment advisers (RIA) to do business. We are applying for the same soon and offer additional services in the form of feeonly online advice and online financial planning for young consumers.
Two years ago, we decided to incorporate the financial life planning process for the youth segment through group workshops at a technology corporation as part of their induction programme for the new recruits every year. Earlier, we had focused on the basics of money management and financial planning.
The journey so far has been challenging but interesting. But we believe the longterm rewards are enormous and it will be a win-win situation for all stakeholders.
I had conversations with Amy Mullen at Money Quotient and she helped us develop the course content for the workshop for the 2012 programme. She brought clarity and focus to the content in terms of delivery, workbook materials and other resources. I am grateful to Money Quotient for going that extra mile when I was not sure as to how the youth would respond to our workshops which involved sharing with their peers their emotions, dreams, fears and concerns.
The writer is the founder and CEO of Life & Money, a Mumbai-based new age financial services firm for young men and women of India. Partha is passionate about financial wellness and financial life planning. He has written articles on personal finance and featured in Business Today, The Week, Economic Times, moneycontrol.com and The Journal of Financial Planning. Visit him at his website: http://yourlifeandmoney.com The 4E Journal
INDUSTRY October - December 2014
By Mark Rantall, CFP®
Now is the Time for Leadership at all Levels
ducation standards and professional conduct are the building blocks to trust in our profession. With the appropriate standards and selfregulation in place, real change can happen.
Over the past months, the FPA has contributed to various inquiries, including the Parliamentary Joint Committee (PJC) Inquiry into education standards for the financial planning profession. Designed to advance the profession of financial planning, the PJC Inquiry examines education, professional standards and ethics, and recognition of professional bodies. Our submission focused on the following: •
Unambiguous separation of product sales from professional personal advice. The regulations must call ‘product sales’ exactly what they are, rather than ‘general advice.’ Lifting educational standards so that every new financial planner has a degree, as well as relevant post graduate qualifications and experience. The internationally recognised CERTIFIED FINANCIAL PLANNER® designation sets the bar far higher than the current Regulatory Guide (RG) 146 standard (training of financial product advisers). Existing financial planners should have to meet any competency standard gaps at an approved degree level. Enshrining the term ‘financial planner’ in law to ensure that consumers can
“Education standards and professional conduct are the building blocks to trust in our profession.” 6
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trust the financial planner they find when seeking financial advice.
Reform starts with self-regulation We were critical of recent announcements that called for outcomes to be placed in the hands of a statutory advice board, as opposed to a self-regulatory body such as the Financial Planning Education Council (FPEC). This will only serve to shift the responsibility of regulation onto the government – when it should sit within the profession itself. Our belief is that the role of government and regulators is to set the minimum standards and enforce them legally. The role of our profession is to define how professionalism should look. We need long-term change that is systematic and transparent, and such change begins with internal reform.
Setting the bar high with the CFP mark You might wonder why education standards receive so much attention in our contribution to various inquiries and also the FPA 10-Point Plan. Restoration of public trust starts with setting the education bar high, along with a trusted gold standard, such as the CFP designation. We have recently invested heavily in promoting the CFP mark as the gold standard to the public, through consumer advertising and intensive promotion during Financial Planning Week. This year, Financial Planning Week resulted in over 20,000 visits to the ‘Ask an Expert’ forum and almost 7,000 people visiting ‘Find a Planner’ in search of a planner in their area. As consumers become increasingly aware of the CFP mark, it is also important
“Restoration of public trust starts with setting the education bar high, along with a trusted gold standard, such as the CFP designation.” we provide financial planners with an accessible pathway to attaining the CFP designation. The FPA is committed to working on a one-to-one basis with those who seek this world class standard.
Conduct is critical Alongside the importance of education standards and a mark of excellence, such as the CFP mark, lies professional conduct. Our profession must demonstrate to the public the ability to self-regulate and this can be achieved by adherence to the FPA Code of Professional Practice and Ethical Principle number 1: Put client interests first. We recently launched free online Code training for all FPA members, to help them familiarise themselves with the FPA Code and acquire continuing professional development (CPD) points in ethics. You can find out more on the FPA website. The public must see that our profession has the character to take action, rather than passing the responsibility of regulation onto the government. Now more than ever, we need leadership to emerge at all levels and to stand up for a profession that’s worth fighting for. The writer is chief executive officer of FPA Australia. This article is reprinted with permission from Financial Planning magazine, the official publication of FPA Australia.
INDUSTRY October - December 2014
By Rachel Stagg
Success: It’s All in the Way You Communicate
ake some time and have a think of all the businesses, financial planners and others you know. Which ones have the most success? Which ones seem to be natural communicators, great networkers, seem to know everybody? Is that you? Perhaps it is someone you used to work with or even your business partner? Or maybe it is the missing element of your business, someone who can easily develop relationships – a people magnet. I recently helped a planner start his own business, which was an extremely exciting time for him; I will call him Jack.
Jack was fortunate. He had a track record as a financial planner but he was starting out again and needed to generate revenue. Together, we brainstormed all the people he knew; business associates, friends, ex-colleagues, old university friends, in fact, almost everyone he had ever come into contact with. We invited them to his launch function. So many people turned up to support him. He was extremely humbled at the turn out. That was the start of his relationship-marketing programme. Growing your business through quality relationships is one of the most effective and efficient marketing strategies available to you and it will not break the bank. Relationship marketing is quite different from the traditional marketing you may have undertaken and would have definitely experienced. Advertising through mail outs, letters and brochures, for example, are based on the ‘push out your message’ marketing. You target a group of potential or existing clients and tell them about what you do and hope for a positive response. Relationship-based marketing relies on relationship building and communication, which leverages
your existing relationships to spread the word about what it is you actually do – your marketing message. When you are out and about building relationships and talking about what it is you do, you will find it is extremely rewarding and you never know where these conversations may lead, such as more clients and new business partnerships, to name a few.
“Growing your business through quality relationships is one of the most effective and efficient marketing strategies available to you and it will not break the bank.”
However, like any relationship, it takes time to establish them, time to foster them and a commitment because it is an ongoing marketing strategy. Remember, clients buy from you, they buy what you promise; you are the brand. So, the more you communicate, the more you build relationships, the more you will build your brand and people will learn how you can help them. Relationship-based marketing works when you are looking to attract more clients and retain existing clients. By taking a leadership role (which clients are seeking and will pay for), you can build a rewarding business. The following are some ideas of how you can use relationship-based marketing in your business. •
Attend networking events. Think about inviting current clients along, perhaps their business may benefit too. Perhaps they are looking to The 4E Journal
“When you are out and about building relationships and talking about what it is you do, you will find it is extremely rewarding and you never know where these conversations may lead, such as more clients and new business partnerships, to name a few.”
• • • • •
establish more relationships or have recently finished work and need a new role. Build more professional alliances, so you can continue to develop your proposition and add more value to your clients. Recognise loyalty with your clients, such as 10-year milestones, and celebrate and communicate these milestones. This demonstrates your ongoing ability to add value to your existing clients and could help to increase your retention rate. Get involved in community groups that interest you and are aligned to your values. Undertake joint venture marketing through professional relationships. Use social media to connect and communicate with people. Remember, it is all about relationships. Create your own networking event and invite your business clients to join in. Create your own LinkedIn group and invite clients to join in and talk about what it is they do. Even though this is still relatively new, planners are already having great success with this and it will give you the edge. Take on public speaking opportunities and get access to more people to build relationships
“Marketing communications is the voice of your brand and a way to create dialogue between you and your relationships, your clients, professional alliances and so on.” 8
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with. Do not forget to get their contact details and start educating them to the value you can deliver via an ongoing communications campaign. Relationship-based marketing allows you to communicate however you choose – online or offline – to make genuine connections. I would highly recommend though that you write it into your overall marketing strategy, so you can test and measure the outcomes. Choose a strategy that you enjoy because then it will work, rather than feeling like hard work. Marketing communications is the voice of your brand and a way to create dialogue between you and your relationships, your clients, professional alliances and so on. For example, the blog that you write, the website you design and the networking events you organise, allow clients to communicate with you too, so that they are not forgotten but more importantly, your business is not forgotten. If done properly, your marketing communications plan will deliver relevant information to your clients that is not intrusive. Clients have the option to read it, watch it, listen to it, whichever they prefer, and you get to find out which channel works. Once you do, create your marketing communications system. Suggestion: Answer these questions before you send out any communication: 1. 2. 3. 4.
Who do you want to communicate with? (Target Audience) What do you want to say to them? (Message) What do you want them to do? (Call to Action) Where will you place the communications? (Platform)
Remember, the more specific you can be with your communications, the better results you will achieve. In this world, if you are not communicating to your existing clients on a regular basis, you run the high cost of being forgotten and not being seen to be the financial expert.
5 Factors that Drive Client Retention The number of clients you have is going to dictate how easy or not it will be for you to constantly communicate your value and help them achieve their goals. Below is a list of the five most common retention drivers; things that help a client decide if they remain a client and keep paying their ongoing fee or whether they leave. 1. 2. 3. 4. 5.
Portfolio performance: Is the financial strategy you recommended meeting their expectations? Effective problem resolution: Who responds and how quickly? Frequent communication: The expectation is that you will be the financial expert, not the media. Respectful relationship: This is fundamental in relationship-based marketing. Client experience: This is all about speed, efficiency, no delays and no excuses.
The power of communication, however you choose to do it, is vital to business success. Build and nurture your relationships because they are important to your business. The writer is the managing director of SRS Coaching & Consulting in Australia. This article is reprinted with permission from Financial Planning magazine, the official publication of FPA Australia.
INDUSTRY October - December 2014
The Power of LinkedIn By Baz Gardner
s you may have gathered from reading any of my previous articles or seeing the work we have been doing via social media, I believe there is a fundamental shift coming in both how advice is given and the perception of the value of that advice by the public at large – a shift that will be driven and controlled by a new breed of ‘social advisers.’ This is being brought about by a perfect storm of both technology and changing social behaviour; however, there are some pivotal cornerstones that will facilitate the revolution that is ‘social advice.’ LinkedIn is, in my firm opinion, one such cornerstone and it is an absolute necessity for every professional to harness the opportunities that it provides. In this article, I am going to outline just a handful of the critical reasons why professional planners must tap into the power of LinkedIn.
1. Control your personal SEO (search engine optimisation) Like it or not, the majority of your potential clients and business partners are Googling you by name, and our research shows that what they find directly affects their decision on whether or not they will engage you. LinkedIn provides the easiest way for professionals to rank at the top of Google for their name.
2. Stay front-of-mind with your clients
you stand for, your work history, videos of your public speaking, articles you have written, and slide decks you have created. Do not make your LinkedIn another boring digital space. Instead, tell your story and let prospective clients know what it is about you that is different.
4. Grow your referability LinkedIn can let you see who your clients are connected to, what they are interested in (by the articles they post or interact with), and provides you with the right tools to make it easy for word-of-mouth to spread and your referrals to grow.
5. Join and create groups of your ideal clients
More and more of your clients are themselves becoming active on LinkedIn. When every interaction, comment, like or ‘article share’ has the potential to put you in front of those clients, LinkedIn can be a very powerful way for you to keep yourself ‘front-of-mind’ with your clients (and in just a few minutes a day).
Creating and participating in communities of your ideal prospective clients is easy with the LinkedIn group functionality. Interact, share information, join conversations and generally find ways to give value to entire groups of the kinds of people you would love to work with. Why network with one person at a time when you can network with thousands at any time of the day?
3. Represent your personal brand as a planner
6. Find and research your ideal clients
LinkedIn is the perfect place to represent your personal brand; who you are, what
LinkedIn provides an amazing array of tools that will allow you to search for and
then research your ideal clients. With the additional features that an upgraded account provides you with, you may never have to do anything else to look for clients again. Some of the benefits of a paid subscription include ‘Inmail’ (the ability to message people you are not connected with), greatly enhanced search features and the ability to see who is looking at your profile. Considering the relatively low cost to upgrade your account to a premium option, I would strongly suggest you look at the options to do so. If you would like to continue this train of thought, swap ideas or just observe how I myself use LinkedIn to power The Social Adviser, then shoot me an invite to connect at the following address: http://au.linkedin.com/in/bazgardner I look forward to sharing with you there. Baz Gardner, a former financial planner, has become a ‘household name’ in the financial services community over the last two years for raising professional industries into a new social age through his company, The Social Adviser. This article is reprinted with permission from Financial Planning magazine, the official publication of FPA Australia. The 4E Journal
ISLAMIC FINANCE October - December 2014
Business Sustainability of Family Enterprises By Abdul Aziz Hassan
oday, most of the businesses seen are family businesses and these businesses have been noted to account for the largest percentage of businesses in many nations (Kuratko and Richard, 2004). Davis and Harveston (1998) reported that only 30 percent of family businesses survive to the second generation, while only 10 percent to 15 percent go beyond the third generation. Lansberg (1988) identified the lack of succession planning as the main reason why up to 70 percent of the first generation family businesses did not make it to the second generation. Still, for family businesses, having a successful succession is not sufficient. It must eventually lead to business sustainability which is a function of business success and family harmony. Sustainability is, therefore, the outcome of a successful succession of a family business. Stafford, Duncan, Dane and Winter (1999) introduced the sustainable
family business (SFB) model which comprise two components – a family side and a business side – which argues that the interplay between the two sides are essential to the survival of the family enterprise. However, in SFB, it is acknowledged that while the business side is important for the firm’s survival, it is not acceptable to sacrifice the family for the good of the business. Both the family and the business must respond appropriately to external disruptions in order for the business to be sustained.
Successful Succession Succession in a family business is seen not as a one-time event, but an ongoing process which involves cultural, financial, strategic and social issues involving the family and the business. It begins even before the heirs enter the firm and proceeds through the formal nomination of the successor, the transition phase and the actual take over (Handler, 1990; Le Breton-Miller, Miller and Steier, 2004).
According to Lambrecht (2005), succession is not about a process that can be tied up in a fixed time frame. It starts much earlier and never ends. It is not a single event, but a complex process which is akin to a relay race that always takes time (Gersick, Davis, Hampton and Lansberg, 1997; Sharma, Chrisman and Chua, 2004). Whether or not the succession is realised hinges heavily on the stakeholders of the family business itself. In general, successful succession involves the effective transfer of both management and ownership. One of the fundamental missions of a family business is to pass the business to subsequent generations (Davis, 1968) and as such, a smooth succession is the keystone to survival in the family business (Cabrera-Suarez, Saa Perez and GarciaAlmeida, 2001; Shepherd and Zacharakis, 2000; Davis and Harveston, 1998). Succession is, therefore, not just about the transfer from one generation to the next generation. It is about the transfer to the future generations, referred to as The 4E Journal
inter-generational succession. Although transfer of ownership is not a criterion for succession, it has been associated with successful succession. Ownership that is not transferred during or at the same time with management succession may indicate reluctance of the owner to let go and may ultimately affect the success of ownership transfer/handover. Jasper and Goebel (1996), developed as a succession model in family-owned businesses to explain succession planning among family business owners, especially regarding the factors which motivated them to actually begin succession planning. Among the factors that were taken into account were business characteristics (gross business income, number of employees, whether it was a startup or first generation business or home based), business owner characteristics (age, education, education level, gender, number of children, marital and health status), level of engagement in financial planning (shared vision, meeting with external consultants and making a will) and attitudes about transferring ownership (treating children equally, getting children started in the business, keeping the business within the family and providing for financial security posthandover). Further, De Massis, Chua and Chrisman (2008) believe that seeking to gain an understanding of the factors that prevent intra-family succession from succeeding would help to prevent succession failure. In order for there to be effective succession, Habbershon, Williams and MacMillan (2003), suggested that the owners and managers of the family firm must have the goal of trans- generational wealth creation. A smooth succession can be defined as “the subsequent positive performance of the firm and ultimately the viability of the business” (Le BretonMiller, Miller and Sheier, 2004). In addition, family harmony can certainly contribute to level the path towards successful handover (Dyer, 1986). According to Pyromalis and Vozikis (2009), an effective succession process focuses on five critical success factors. They are: (1) the incumbent’s propensity to step
“Whether or not the succession is realised hinges heavily on the stakeholders of the family business itself.” 12
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aside, (2) the successor’s willingness to take over, (3) positive family relations and communications, (4) succession planning and (5) the successor’s appropriateness and preparation.
The Succession Process Sharma, Chrisman, Pablo and Chua (2001) define the ‘succession processes’ as the actions, events and developments that affect the transfer of managerial control from one member of the family to another. This includes the process which occurs from the time the dominant coalition in the family business forms the intention for succession to the time the incumbent relinquishes managerial control by ‘passing the baton.’ Ibrahim, Soufani and Poutzioris, (2004) however, proposed a more detailed model which states that the succession process in the family business involves three steps: firstly, to prepare the offspring for future leadership role at an early stage prior to joining the family firm; secondly, to integrate the offspring into various job positions of the family businesses; and lastly, to allow the offspring to take control of the family business. According to Le Breton-Miller, Miller and Sheier (2004), succession is the process that aims to ensure competent leadership is installed across generations. The process includes changes both at the management level (Alcorn, 1982), involving the CEO and top management
succession (Le Breton-Miller et. al., 2004) and at ownership level (Barry, 1975). To be effective, both management succession and ownership succession must happen simultaneously (Barach and Ganitsky, 1995). Handler (1990) described the process of succession as a mutual role adjustment between the members of the incumbent and those of successor generations. Mutual respect and understanding between the generations are essential to the process. The growth and development of the successor in family business follows a series of steps or milestones (Longenecker and Schoen, 1978). The successor must be fully committed to the succession process (Barach and Gantisky, 1995) to become a successful leader of the firm. Upon entering the family business, the successor becomes a student of the organisation and so learns about the processes and people involved (Churchill and Hatten, 1987). Generally, he or she then moves into a lower management position. At this point, the successor may benefit from the assistance of a mentor, coach or adviser (Handler, 1990). Over time, the successor rises in the company to a top management position, having won the approval of the incumbent generation. Finally, the successor obtains the ownership of the company. Then, after the death or retirement of the previous generation, the successor becomes the incumbent and is thus ready to repeat the cycle again (Dyck, Mauws, Starke, and Mischke, 2002).
Family Business Succession Planning For family businesses, succession planning is referred to as the “deliberate and formal process that facilitates an effective transfer of ownership and management control from one family member to another” (Sharma, Chrisman and Chua, 1997; Ward, 1987). Planning appears to be the magic formula for succession in the family businesses. Attention is, therefore, focused on a timely succession plan (Lambrecht, 2005). Succession planning is the single most lasting gift that one generation can bestow upon the next (Ayers, 1990). Existing literature on family firms have long stressed the importance of succession planning in ensuring the sustainability and success of a business
“Upon entering the family business, the successor becomes a student of the organisation and so learns about the processes and people involved.”
(Brockhaus, 2004; Morris, Williams, Allen and Avila, 1997; Ward, 1987). Owners should start succession planning as soon as the business passes the “fight for survival stage” (Lee, Jasper and Goebel, 2003). And as Motwani et. al. (2006) pointed out, succession planning should be identified as the single most important topic requiring the attention of any firm’s leadership, especially family-based enterprises, as failure in succession would lead to serious problems not only to the family involved, but also to the health of the economy in general.
Conclusion Despite all its advantages and significance, most family businesses still do not plan for proper successions (Heck and Trent, 1997). Berman, Brown and Coverly (1999) concurred that many family business owners still fail to see the importance of doing so (succession planning) and the fact that they would eventually die. Succession planning appears to be left to chance by many family-owned companies (Rue and Ibrahim, 1996). The apparent neglect of succession planning may be attributable to emotions generated by the succession process which forces business owners to face their mortality and make other family members confront the need for change (Beckhard and Dyer, 1983; Lansberg, 1988).
Succession in a family business is seen not as a one-time event, but an ongoing process which involves cultural, financial, strategic and social issues involving the family and the business. In the context of Muslim entrepreneurs who want a successful succession of their family businesses, there is an added challenge of being shariah-compliant. This can be achieved by understanding the faraid, the Islamic law of inheritance, which determines distribution of a Muslim estate at the time of his death. And if a non-Muslim entrepreneur finds the issue of ownership succession somewhat challenging, a Muslim entrepreneur has to be doubly alert to the fact that ownership succession must be dealt with during his life-time and not be left to the mercy of the probate process upon death. The writer is a lawyer specialising in family business succession and wealth preservation consultancy.
References Alcorn, P.B (1982). Success and Survival in the FamilyOwned Firm, New York : McGraw-Hill Barach, J.A, & Gantisky, J.B (1995). ‘Successful Succession in Family Business’, Family Business Review, Vol. 8, No. 2, pp.131-155. Barry, B. (1975). The Development of Organisation Structure in the Family Firm, J.Gen. Manage, 3: 42-60. Beckhard, R., Dyer, W. (1983). Managing Continuity in the Family-Owned Business, Organisational Dynamics, Summer, 5-12. Brockhaus, R.H. (2004). Family Business Succession: Suggestions for Future Research. Family Business Review, 17(3): 165-177. Cabrera-Suarez, K., De Saa-Perez, P., & GarciaAlmeida, D. (2001). The succession process from a resource and knowledge-based view of the family firm. Family Business Review, 14(1), 37-46.
Gersick, K.E., Davis, J.A., McCollom Hampton, M. & Lansberg, I. (1997). Generation to Generation: Life Cycles of the Family Business, Harvard Business School Press, ISBN 0-87684-55-X, Boston, Mass. Habbershon, T.G., Williams, M.L., & MacMillan, I. (2003). A unified systems perspective of family firm performance. Journal of Business Venturing, 18(4), 451-465. Handler, W.C. (1990), Succession in Family Firms: A Mutual Role Adjustment between Entrepreneur and Next Generation Family Members, Entrepreneurship Theory and Practice, pp. 37-49. Heck, R.K.Z., & Trent, E.S. (1997). The Prevalence of Family Business from a Household Sample. Family Business Review, 12(3), 209-224. Ibrahim, A.B., Sorfani, K., Poutziouris, P. and Lam, J. (2004). ‘Qualities of an Effective Successor: The Role of Education and Training’, Education + Training, vol. 46, no. 8/9, pp. 474-480. Kuratko, D.le. and R.M. Hodgetss (2004). “Entrepreneurship: Theory, Process and Practice”, 6th Edition, United States of America: Thomson South-Western.
Davis, P. S., & Harveston, P. D. (1998). The influence of the family on the family business succession process: A multi-generational perspective. Entrepreneurship Theory and Practice, Spring, 31-53.
Lambrecht, J. (2005). Multigenerational Transition in Family Business: A New Explanatory Model. Family Business Review, 18(4), 267-282.
Davis, S. (1968). Entrepreneurial Succession. Administrative Science Quarterly, December, 403.
Lansberg, I. S. (1988). ‘The Succession Conspiracy’, Family Business Review, Vol. 1, No. 2, pp. 119-143.
Dyer W.G. Jr. (1986). Cultural Change in Family Firms: Anticipating and Managing Business and Family Transitions. San Francisso: Jossey Bass.
Le Breton-Miller, I. Miller, D & Steier, L.P (2004). Towards an integrative model of effective FOB succession. Entrepreneurship Theory and Practice, 28 (4): 305-328.
Morris, M.H., Williams, R.O., Allen, J.A. & Avilla, R.A. (1997). Correlates of success in family business transitions. Journal of Business Venturing, Vol. 12, No. 5, (September 1997), pp. 385-401, ISSN 0883-9026. Motwani, J., Levenburg, N.M., & Schwarz, T.V. (2006). ‘Succession Planning in SMEs’, International Small Business Journal, Vol. 24, No. 5, pp. 471-495. Rue, LW & Ibrahim NA (1996). ‘The Status of Planning in Smaller Family-Owned Business’, Family Business Review, Vol. 9, No. 1, pp. 29-43. Sharma, Chrisman and Chua (2004). An Overview of the Field of Family Business Stretches: Current Status and Directions for the Future Family Business Review, 17(1). Sharma, P. (2004). An Overview of the Field of Family Business Studies: Current Status and Directions for the Future. Family Business Review, Vol. 17, No. 1, (March 2004), pp. 1-36, ISSN 0894-4865. Sharma, P., Chrisman, J. J., & Chua, J. H. (1997). Strategic Management Of The Family Business: Past Research And Future Challenges. Family Business Review, 10(1), 1-35. Sharma, P., Chrisman, J. J., Pablo, A.L. & Chua, J. H. (2001). Determinants of Initial Satisfaction with the Succession Process in Family Firms: A Conceptual Model. Entrepreneurship Theory and Practice, Vol. 25, No. 3, (Spring 2001), pp. 17-35, ISSN 1024-2587.
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INDUSTRY October - December 2014
By Catherine Khoo, CFP®
Are You Prepared, Gen-Yers?
eneration-Y (Gen-Y) is now the second largest generation after the Baby Boomers. Gen-Y is a group of people born during the 1980s and the early 1990s. Generally, Gen-Y is thought to be more family-oriented and willing to sacrifice career advancement for a better work-life balance. Gen-Y can be confident and ambitious. They are not afraid to question authority, are constantly seeking out new challenges, and desire meaningful work. They also crave attention, feedback and guidance. Gen-Y has been found to be more open-minded than their parents to controversial topics.
Gen-Y, generally thought to have the getit-now, pay-for-it-later mind-set, face a range of financial pitfalls as they embrace expensive high-tech gadgets and added credit card debt in addition to student loans. According to a National Foundation for Credit Counseling 2010 survey, only 58 percent pay monthly bills on time. Nearly 70 percent of Gen-Yers do not have a cash cushion, and 43 percent are amassing too much credit card debt, a recent MetLife poll revealed. And many of them also do not manage money very well. Their grim financial situation would be further compounded if they are also the ‘sandwich generation’ who have to care for their aging parents while supporting their own children. From the recent surveys, more and more Gen-Yers now live with their parents as they are unable to afford a house of their own as house prices have been skyrocketing. The same cannot be said of their income.
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One of my clients, David, aged 30 is a young sales executive working in a multinational company. Due to his work, he travels frequently. David is a smart and hard working person and earns well from his sales commissions on top of his monthly salary. As the eldest son in his family, he takes care of his parents who are in their sixties and two siblings. He married Connie when he was 27. Connie works as a secretary in a medium-sized company. They have two children aged three and one. Connie takes care of her parents who are in their seventies since her brother emigrated to Britain. As the family expanded over time, David and Connie struggle to cope with the cost of caring for aging parents and their own children, and not to mention their own commitments. Their aging parents need to regularly go for their treatment for their diabetes, hypertension and gout problems. On top of that, David’s mother has urinary incontinence and can very emotional and needs attention at times. Also, on behalf of his father, David gives an allowance of RM100 per month to his grandmother who lives in Taiping. Both David and Connie are physically, emotionally and financially stressed out when we first met. They wanted to find out how they could financially provide for the care of their parents with the escalating costs of medical treatment and elder care. They both feel it is not just filial piety but their duty as well to take care of their aging parents. Besides providing
care for their parents, they have also listed down their other financial goals: 1. 2. 3. 4. 5. 6.
To provide long-term care for their parents, which is estimated at RM1,000 per month. To provide funds for local tertiary education for their two children – RM50,000 per child. To upgrade their current house at a cost of RM100,000 so that more space is available for the family. Annual travelling of RM6,000 per year. To have in possession a sum of RM100,000 as capital for a small business in seven years’ time. To have a comfortable retirement income of RM10,000 per month when they are 55.
Below is their cash flow statement: Total Income Total Expenses Savings
RM 170,045 RM 146,656 RM 23,389
David and Connie’s Assets and Liabilities: Personal Use Assets EPF Investments Non-EPF Investments
Total Liabilities Net Worth
RM 611,098 RM 168,882 RM 87,505 RM 354,77 RM 512,715
From the investor questionnaire that I went through with both of them, I found
David to be an aggressive investor. Both David and his wife are tech-savvy and have been doing DIY (do-it-yourself ) investing. But the returns from their investments have, to date, not been encouraging. Based on their objectives, financial situation and risk profile, the diagram below illustrates the target portfolio allocation I have planned for them in order to optimise their investment portfolio returns.
After going through the whole financial planning process with David and Connie, the diagram above is a snapshot of their entire financial life assuming they make no changes in their current financial behaviour. The analysis indicates that there is a projected capital shortage of RM 890,986. This means that they would require this amount of additional money in the bank today to meet all their life goals or an additional savings of RM4,164 per month indexed to inflation. After reviewing their overall financial position and considering their priorities, I have identified strategies that would allow them to best meet their goals and objectives. The highlights are as follows: 1.
Employing Harry Markowitz model to achieve maximum return with the least amount of risk through balancing the trade-off between the risk and reward of various asset classes, the graph below shows the “efficient frontier” for David and Connie’s portfolio from an overall strategic perspective.
Saving more and spending less. Their current savings rate of 14 percent is acceptable but not sufficient to fund all their life goals. Parents’ elder care – both David and Connie can initiate a family meeting to bring up this issue and call for the sharing of responsibilities among their siblings. They can set up a family fund where each sibling contributes say RM200 per month for the maintenance and living expenses of their parents and grandmother.
Money spent on food can be slowly reduced from RM2,000 to RM1,500 by eating more often at home. Consider employing a maid to assist their parents when their condition needs more attention and care. The gift money of RM1,000 per month given to the parents can be reduced to RM600 and the extra could be used partly to pay for the maid. This action should only be considered after the discussion with the parents and their siblings. Discuss care options with the parents while they are still healthy. David needs to increase his life and health insurance coverage to protect him and his family against any untoward incident. He can start
“Gen-Y, generally thought to have the get-it-now, pay-for-it-later mind-set, face a range of financial pitfalls as they embrace expensive high-tech gadgets and added credit card debt in addition to student loans.” The 4E Journal
with a RM500,000 insurance plan and gradually increase the coverage when he has sufficient funds. To write a will so that their estate will be distributed according to their wishes when they are no longer around. Since they have children, they may want to consider creating a living trust, which allows them to put in place provisions for distributions in the event of their untimely demise. Improving the rate of return on their investment portfolio by adopting a more structured investment management strategy tailored to their investment objectives. They have done some investing before and have dabbled in gold and unit trust online but the returns have not been promising and they lost confidence in investing. To date, most of their assets are held in cash and fixed income, which are generating an average portfolio return of 7.79 percent. Based on their risk profiles and their optimised portfolio allocation, they can achieve a higher returns of 8.62 percent should they implement the investment strategy according to the investment plan. Reducing or eliminating one or more of their goals. With limited resources to fund all their current life goals, David and Connie have to decide their priorities. The reason: each of their decision would have a financial impact on other goals. Below are some of their options: They have to reduce their business capital to RM60,000. David has to consider delaying or eliminating the house renovation. Should the provision for the children education is their top priority, both of them may need to extend their retirement age to age 60. They may have to consider reducing their retirement income from RM10,000 to RM9,000 per month.
Refinance their current house or relocation. This is one last option that they can consider should they need more capital to fund their goals. David has been thinking of refinancing their house to free up more cash for investments. There are many factors such as cost of refinancing, additional repayment and the cost of leveraging to consider before they choose this option.
“Wealth creation and accumulation comes from developing and xx sticking to a financial plan which is tailored xx made to their specific xx circumstances. It takes discipline, but knowledge and planning xx are the best remedies for preventing the financial “With financial security as stress. passion No. 1, Gen-Yers since David’s siblings need to plan ahead for a • Alternatively, are all staying close by which future which is different facilitates taking care of their parents and children, relocation may be an from their parents. While option. They may be able to sell off Gen-Yers may see it as a their current house.The net sales proceeds of RM200,000 from the long way off, the world disposal of the house after deducting is full of changes and all costs involved could be used for investments according to their plan. uncertainties which are Again, both of them need to weigh beyond one’s control.” the pros and cons if they are seriously considering this option.
With financial security as passion No. 1, GenYers need to plan ahead for a future which is different from their parents. While GenYers may see it as a long way off, the world is full of changes and uncertainties which are beyond one’s control. As such, the only way is to plan for the future and adapt along the way. The key is to start now and with a financial road map to provide directions and clarity, Gen-Yers can take appropriate actions and positive strides towards making their life goals a reality. Financial planning is all about the process of planning our financial resources in order to meet our life goals. Planning ahead for both David and Connie will give them ample time to manoeuvre and adapt as lesser effort is needed with the longer time horizon. Time is on their side because they are still young. As such, it is worth seeking the advice from a financial planner to discuss options. Wealth creation and accumulation comes from developing and sticking to a financial plan which is tailored made to their specific circumstances. It takes discipline, but knowledge and planning are the best remedies for preventing the financial stress. There is a Malay proverb that says malang tak berbau (literally, tragedy is odourless). So David and Connie (who are in their 30s) have written their wills and set up the living trust to provide for their loved ones just in case they are no longer around. The writer has over 10 years of experience in the financial services industry as an insurance agent, unit trust consultant and professional estate planner (including Islamic estate planning) and is licensed by the Security Commission of Malaysia. She provides investment management, cash flow planning, risk management, estate planning and financial advisory services to her clients. The 4E Journal
COVER STORY October - December 2014
Strategic Alliances, Technology & Transparency I
smitz Matthew De Alwis is a big believer in systems and processes. His rationale is simple. They enable continuity, provide a framework for audit and efficiency as well as ensure business sustainability. The executive director / CEO of Kenanga Investors Bhd knows this very well. After all, he is no stranger to the financial services industry having dabbled in it (financial and investment management) for more than 20 years. De Alwis is responsible for Kenanga Investors’retail business, finance, strategic business planning, risk management and governance, business development, operations and IT functions after assuming his current position in June 2013 following the acquisition of ING Funds Bhd by Kenanga Investors. He was ING Funds’ executive director and country head since 2003 and was part of the pioneer team which was responsible for the exponential growth of the company in Malaysia. Before assuming the strategic and executive oversight of ING Funds, he was responsible for ING Funds’ nationwide
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distribution, product management and business development for retail, corporate and institutional markets. In all these areas of work, De Alwis relied on good systems and processes for the desired results. He started his career as an investment analyst with a regional research and advisory firm, where he obtained vast regional exposure in Hong Kong, Philippines, Dubai and Singapore. Upon his return to Malaysia, he joined an established local financial institution and investment management company before joining ING Funds. De Alwis, a business administration graduate from RMIT University, also holds a Master of Business Administration degree from the Asian Centre of Development Studies where he graduated with distinction. That’s not all. He is also a chartered marketer from Britain’s Chartered Institute of Marketing and a Certified Financial Planner ™ (CFP) and holds a Capital Markets Services Representative’s Licence (CMSRL) from
the Securities Commission for fund management and investment advice. To be a good financial planner, De Alwis said one needs to know the different parts of the business well. “It does not matter where you start,” he told Steven K C Poh, the managing editor of the 4E Journal when they met up recently in his office in downtown Kuala Lumpur. “You may be insurance-based, but you can certainly make the effort to know more about tax, unit trust, estate planning, debt reduction and retirement planning. Only then can you plan well for your clients.” De Alwis also said it is critical for financial planners to have strategic alliances with various area experts. “They need to realise that they do not do everything well,” he said. “Get assistance from other experts to help your clients. Do not give your clients halfbaked solutions.” To find out more about how De Alwis views the financial planning industry, check out the following excerpts of the interview.
The financial services industry (in particular, investment products) is constantly changing in line with various regulatory requirements and consumer demands. How do you view these dynamics against the backdrop of financial planning as an industry in Malaysia? In any business and especially matters relating to money, public trust and confidence is of utmost importance in building up acceptance with widespread participation and compliance. To deliver transparency and accountability, a strong prudential and compliance framework has to be in place. On this note, our view is that as long as the longer term structure weighs stability and consistency as its priority, it will benefit the industry as a whole. You want to elaborate on this a little more perhaps? Taking a closer look at the scheme of things, on a positive note, some of the effects of the change will result in increased competition, market efficiency and enhanced consumer choice. It will also spark unprecedented changes that transformed customers from passive consumers to powerful and
“In any business and especially matters relating to money, public trust and confidence is of utmost importance in building up acceptance with widespread participation and compliance. To deliver transparency and accountability, a strong prudential and compliance framework has to be in place.” sophisticated players. Simultaneously, the technological revolution of the Internet will also change the nature, scope and competitive landscape of the financial services industry. This new reality will have each financial institution essentially operating in its own market and targeting its audience with narrower services – all catering to the demands of a unique mix of customer segments. Consumers’ voices are heard in that their decisions determine what products or services are in demand. We are now seeing a flux of various products from investment, protection, and banking. Supply and demand create competition, which helps ensure that the best goods or services are provided to consumers at the lowest price possible. There is more awareness with regards to products when compared to the time before the millennium. With
greater choices now, comes the tough decision. With the recent crisis, a portfolio of correlated assets will have moved the same direction versus a diversified portfolio. Some people have seen their entire retirement funds wiped out. In Malaysia, we are moving towards a seismic demographic transition – population ageing – like the rest of the Asian countries. Consumers are starting to see the need for retirement planning and the numerous benefits derived from having a sound financial plan which includes, among other things, consumption smoothing over their lifetime, insurance against longevity risk, health care and poverty relief. Is this really happening? And how is it going to change the way financial planners do their job? Yes indeed. People are beginning to plan on a more holistic level rather than by products. This bodes extremely well for the financial planning space. Planners have to understand the individual client’s needs and expectations and provide him or her with the services especially tailored to meet specific needs and expectations. They have got to expand their horizon of knowledge and also begin to look at things from a larger and longer term perspective. How so? Taking the U.S. who has an established financial planning and advice industry as an example, after a brief decline in revenue early in the five years to 2014, the financial planning and advice industry is compounding swiftly. Industry revenue is projected to continue to increase over the next five years as capital markets improve. Additionally, as the economy recovers, consumers will feel more comfortable investing their earnings due to higher disposable incomes, thus increasing industry demand in the process.
De Alwis: Our view is that as long as the longer term structure weighs stability and consistency as its priority, it will benefit the industry as a whole.
Furthermore, the aging of the U.S. population will boost demand for financial planning services as more Americans who are nearing retirement age (the Baby Boomers) will seek professional financial advice and other related services. The 4E Journal
In the 10 years to 2019, industry value added, which measures an industry’s contribution to the economy, is forecast to grow at an annualised rate of 5.3 percent, well above the expected 2.5 percent annualised growth of the U.S. gross domestic product (GDP) during the same period. This trend indicates that the financial planning and advice industry is in a sound growth phase. The industry’s rapid expansion after the recession led to its greater contribution to overall economic growth. What are the trends you are seeing in the U.S.? Large U.S. banks and broker-dealers are increasing their share of the financial planning and advice industry as they offer their clients more wealth management services and seek to expand the crossselling of financial products. Many are expanding their activities by acquiring existing financial advisory businesses. The financial planning industry in Malaysia can only “go up” and is clearly positioned for growth in the foreseeable future. As a profession, financial planning has been in Malaysia for 15 years now. What are your thoughts on how this emerging ‘new’ profession? Can it be considered a ‘profession’ at this stage of its development? Financial planning is too common of a word nowadays. The public gets confused because the unit trust consultant, banker and insurance agent also can call themselves financial planners. Those who had bad encounters with one or more of these agents will be skeptical of financial planners. So, in your own words, how would you describe a financial planning industry? I will break it down into very layman terms – what it means to be a financial planner cum adviser in its true meaning versus tied agents who use the same term loosely and nonchalantly. The industry, in my view, comprises companies that provide financial planning, financial advice and wealth management, to individuals and business clients. Operators also offer advice, in conjunction
“People are beginning to plan on a more holistic level rather than by products. This bodes extremely well for the financial planning space. 20
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De Alwis: The financial planning industry in Malaysia can only “go up” and is clearly positioned for growth in the foreseeable future.
with other activities, such as portfolio management, protection planning and a host of other services. In its true form, the industry should not include unit trust companies, private funds manager, insurance or other companies that deliver these services, outside the context of a written financial plan. The industry’s products are business or personal financial planning, management and advice. It may also cover personal investment management and other financial/wealth-related services. Against this back drop, the main industry activities should be fee-based financial investment advice services and financial planning services. Now back to the real Malaysian scenario. As I have mentioned earlier, we have gone through a period of time where everyone claims that they are a financial planner. There are still remnants of it today, but that has been greatly reduced with enhanced regulatory requirements. Consumer needs are increasing daily, and with many still believing they do not require a financial plan as of yet, this will definitely be a profession to be in the coming years. The market is huge and the opportunities aplenty. Do you agree that Malaysian financial planners are still pretty much in their product pushing mode as opposed to playing the advisory role. How do you propose that this mindset be changed? On the distribution end, tied-agents need to embrace this mindset of gradually
moving from a product pusher to a more systematic holistic financial services provider. We are certainly not saying that being tied to a single product is wrong, but once you have acquired the clients and established yourself in the area, you would need to expand your business. You would need to be able to provide beyondyour-comfort-zone products and services to your clients and move on to provide them with more comprehensive advice and offerings. Future consumers would likely be even more demanding – characterised by the desire for immediacy, valuing simplicity and transparency and expecting a more personalised service from their service providers. I believe the pendulum is swinging from manufacturing to distribution and that client proximity and understanding would increasingly be important differentiators. Power would continue to shift towards those who control the client relationship. Clearly, there are many changes financial planners and the industry would have to adapt to moving forward. What are some of the changes that are already happening? As an industry player and as a financial planner, we need to persevere through this transition. An aging population, combined with low birth rates, low savings rates and high levels of fiscal debt are creating a growing retirement burden which is increasingly shifting from the state to the individual. All these changes will alter
the needs, requirements and behaviours of clients in the future. The clients of tomorrow are likely to be very different from the clients of today. This presents significant opportunities for the industry, but also unprecedented challenges. In a rapidly changing world, product flexibility and the ability to respond quickly to changing market needs will be critical to remain relevant as well as ensure business sustainability. What are some of your thoughts to fast track the development of financial planning as a profession in Malaysia? The industry as a whole has a key role to play in helping to demystify the world of investment, savings and financial advice. Education will be critical to help improve trust and engagement between the financial planner and his/her clients. To provide training and education to financial planners and customers is important, but equally important is also the need to maintain the industry’s growth and performance. Demographic transformation, combined with technological advancement and social shifts will significantly alter the profile, needs and requirements of investors going forward. As mentioned earlier, but allow me to reiterate; the clients of tomorrow are likely to be very
different from the clients of today, both in terms of who they are, where they live and what they need and expect from us (the financial planners and industry players). As such, client engagement strategies will need to be tailored to reflect the diversity of the client base. Also, companies across the various financial industry segments should forged alliances in product offerings and encourage the development of financial planning advisers among their tiedagency force. The cost of training and recruiting needs to make financial sense but as I have said earlier, there is a need to push established tied-agents to the next level as client dynamics are changing. In your view, what are some of the strategic initiatives that can be put in place [by the regulators and industry players (both institutional as well as individuals)] to accelerate transformation and growth in the industry? Two things – education and commitment. We need to focus on encouraging people to save for their retirement and educating them on the importance of understanding investment choices and the availability of financial products. Educating and engaging both individuals and advisers in our quest to transform the industry is very important at this nascent stage.
“In a rapidly changing world, product flexibility and the ability to respond quickly to changing market needs will be critical to remain relevant as well as ensure business sustainability.” Bank Negara’s Financial Education Assessment Framework (FEAF) is one initiative as an enabling infrastructure that supports improvements in financial education (FE) initiatives. The objective of this programme is to monitor progress of financial capability level and identify consumer vulnerability. It also supports evidence-based FE policy formulation, implementation and identifies effective FE delivery channels and mechanism for better prioritisation of resources by focusing on FE initiatives with the desired outcome and impact. We, at Kenanga Investors too, firmly believe in giving the best opportunities to everyone, regardless of financial status. We will continue to pursue a long-term public awareness programmes on the importance of savings more for retirement and will support the regulators and industry initiatives to accelerate development of the financial services industry in Malaysia. What do you think are the key ingredients that will make the industry really take off in the next few years? Simply … a concerted effort by all stakeholders beyond seminar selling through continuous educational outreach efforts in providing financial knowledge to people from all walks of life as we need to build a financial savvy generation to better plan their retirement as financial freedom is not only a dream – it can be made a reality with consistent planning, saving and investing! The entry requirements for the profession (from a certification point of view) has been restructured recently to allow more people to join the financial planning industry. What are your thoughts on the matter? How would this initiative affect the profession?
De Alwis: Financial planning is too common of a word nowadays. The public gets confused because the unit trust consultant, banker and insurance agent also can call themselves financial planners.
It is not quantity but rather quality we are seeking when it comes to human resources. We feel there is a need to strike a balance between qualification and experience. The key point here is striking a balance and not The 4E Journal
opening the floodgates that we would all end up revisiting in the years to come. Even so, minimum certification is still needed and the industry as a whole must decide what those criteria are. People who do not possess the basic qualifications, but have significant experience in the financial services industry must be allowed to enrol for a professional certification like the CFP course. What, in your opinion, should FPAM (as the premier association tasked to develop the financial planning) be undertaking to further promote financial literacy and financial planning in this country? FPAM should play an active role in further promoting financial literacy and financial planning in the country. It should be working aggressively with the relevant organisations and government agencies and have a larger role than just a perceived member’s outfit. Take an example, the need for enhanced financial literacy and capability is well entrenched in various national strategies such as the Economic Transformation Plan or ETP (2010-2020). The central bank will lead the creation of a coordinated national financial literacy programme based on a public-private partnership. Financial education is identified as an enabler to ensure that the financial services sector contribute significantly to propel Malaysia towards a high-income nation.
“Educating and engaging both individuals and advisers in our quest to transform the industry is very important at this nascent stage.” for the development of the financial planning and advice industry. As people get more educated and aware, the need for greater financial planning gives rise to many opportunities ahead. What is Kenanga Investors’ business approach? The concept of “money death” is an important issue the public. How do you ensure you do not outlive your money? How to make sure that your money does not run out before the end of your life? People basically need to know about retirement planning more than ever, especially in this day and age. At Kenanga Investors, we have an opportunity to extend our footprints to capture new and emerging opportunities. The clients of tomorrow are likely to be very different from the clients of today (as I have mentioned before), both in terms of who they are, where they live and what they need and expect from us (as service and product providers). Client engagement
strategies will need to be tailored to reflect the diversity of the investor base. Demographic transformation, combined with technological advancement and social shifts will significantly change the profile, needs and requirements of clients going forward. How are your products sold to your investors? Via the financial planning approach? We foresee our client service models undergoing significant changes in response to the evolving client profile. We are already witnessing consumers’ increasing thirst for information, demands for multiple touch points and their growing acceptance of digital solutions. Such trends are expected to accelerate, particularly for the more empowered or engaged clients. Gone are the days where investors will be satisfied with half-yearly statements. Also, tomorrow’s investor will expect 24/7 access, full transparency and the ability to self-report, review and re-balance investments via a wide range of channels, including extensive use of mobile technologies. But I am not suggesting that all investors will use these fast-emerging platforms or advocating that a standard retail investor re-balances his/her portfolio on an overly regular basis. However, I do foresee that to be successful, Kenanga Investors will need to be equipped to service more demanding client types, while
After all, a better financially informed and savvy populace would eventually augur well for the economic well-being of the nation as a whole. Yes indeed. Under the ETP’s Financial Sector Blueprint (2011-2020), there are recommendations to promote financial capability as an essential life skill from an early age through the integration of FE into the formal curriculum and adopt life events approach to the development and delivery of the programmes and encourage greater collaboration among stakeholders. The other recommendations include strengthening the enabling infrastructure by providing comprehensive access to FE information and introducing a mechanism to gauge the financial capability of consumers and enhancing the effectiveness of the implementation of FE initiatives. Financial literacy initiative forms part of an effective consumer protection framework to ensure that consumers get fair deals and supports the overall financial inclusion agenda. To the industry, taking it on a positive note bodes well
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De Alwis: We, at Kenanga Investors too, firmly believe in giving the best opportunities to everyone, regardless of financial status.
This transition is not impossible. It is similar to the one advisers went through when they moved away from being paid for stock implementation with the rise of online discount brokerages. Advisers who continue to lag behind in the implementation of technology or add little or no value at all beyond the raw implementation of an investment portfolio may find it increasingly difficult to grow and compete at a reasonable price. However, those who adopt the tools, technology and techniques of the robo-advisers and build on top of them with financial planning services and technology-augmented relationships will find themselves well-positioned to not only survive but thrive. How would you, as one of the movers and shakers at Kenanga, contribute to the development and growth of the Malaysian financial planning industry?
De Alwis: At Kenanga Investors, we have an opportunity to extend our footprints to capture new and emerging opportunities.
continuing to satisfy the expectations of conventional clients, who will remain satisfied with minimum interaction. Basically, 21st Century investors will demand for more technology and more transparency. So is technology advancement a real threat to traditional advisers? We believe most investors – young and old – still appreciate the value of a human interaction. This may be the main and probably the last bastion of competitive advantage for traditional advisers. Think about automated customer service systems, for example. Imagine if the “0” button were no longer an option and you could not get through to a customer service representative or operator … ever. Instead, your only option is to “speak” to the automated system – which apparently did not hear you say “yes” or “no” on your first two attempts! In certain practice areas, like customer service, having the ability to connect with a human being instead of machines is crucial — this may also be true in the investment world. Do you see an online platform taking over the role of financial advisers or planners? A simple answer: No. The reason: it does not have the sophistication to provide guidance which requires a human adviser to understand – the emotions driving a client’s questions, concerns and needs. As such, the increasing success of online platforms will most probably not lead to the extinction of the traditional adviser.
In fact, human-machine collaboration will probably be the most effective way of connecting with clients. Technology, in this case “Robo-Advisers”, can help to enhance client-adviser relationships by functioning as an additional financial planning tool – an extension of the adviser. By performing certain mundane, number-crunching functions, they free up the adviser’s time to allow him/her to provide more personalised attention to each client’s unique needs. As advisers themselves evolve, the landscape of the future may look less like robo-advisers threatening human advisers and more like technology assisting in the work of an adviser – forcing traditional advisers to adapt and be more efficient in their work to move up the value chain by offering financial planning advice and cultivating deeper client-adviser relationships. This will enable traditional advisers to ensure that their costs are aligned to the value they actually deliver.
“Financial literacy initiative forms part of an effective consumer protection framework to ensure that consumers get fair deals and supports the overall financial inclusion agenda.”
At Kenanga Investors, the ‘Partnership for Growth’ philosophy is not merely to enhance the productivity and quality of our advisers and business models. The philosophy also seeks to ensure a “longevity” of the tenure of distribution partnership for our clients – a cradleto-grave type of relationship. Also, performance development through training/education, technology as well as systems and processes will remain one of the core areas for our advisers and our clients beyond just investment products. We encourage our advisers to expand their business model to encompass a larger offering of products and services and to eventually include a financial planning and advisory model to complement their value-added services to their clients. In this regard, we strive to provide all available investment products to our advisers in addition to facilitating strategic collaborations with other providers for product offerings beyond investments. What are your views on the direction that Kenanga Investors has taken to date corporately? Are there any areas in which you would want to improve or change as the company moves forward? Kenanga Investors will continue to focus on capturing new customers earlier and keep them longer by offering products tailored to a younger, less affluent and potentially less financially literate market. We therefore zoom in on educating the young, not only as potential clients, but also to encourage them to make a career out of this industry. We will need to target at key events throughout the different life stages. For instance, tertiary education, The 4E Journal
entering the workforce, starting a family, raising a family and retirement planning. As a promoter of the PRS (Private Retirement Scheme), what are your thoughts on how the young adults of this country can be reached to pay more attention to their eventual retirement? The launch of the PRS is a commendable move by the Malaysian government and I believe this initiative will be eventually embraced by all segments of the market. Pension reform can reinforce and speed up reforms in other areas. For example, it can contribute to bigger, deeper and more liquid financial markets. Introducing such a scheme has the potential of complementing financial market reforms while strengthening the legal and regulatory framework to promote good corporate governance and outreach to different age group segments. Also, incentives like tax relief will encourage further retail participation in the market. Being a fairly young nation, the retirement landscape as a whole in Malaysia is still in its infancy. Besides mandatory savings through EPF (Employees Provident Fund), there is a need for a holistic approach for retirement in a Malaysia. Generally Malaysians perform poorly with respect to income replacement rate (the ratio of retirement income to pre-retirement income). Replacement rate is a widely used measurement of the adequacy of pension benefit as a source of postretirement income. Pension experts generally recommend a replacement rate of between 66 percent and 75 percent adjusted for both longevity and inflation risks. Old-age income support will be one of Asia’s biggest social and economic challenges in the 21st century. This is largely due to a seismic demographic transition – an ageing population. In contrast to OECD (Organisation for Economic Cooperation and Development) countries, Asia does not yet have matured, well-functioning pension systems. Malaysia as a young nation is fortunate to embrace this early. But there is still much to do. In a nutshell, we need to be able to build the pathway together with our clients and advisers from diverse backgrounds. At Kenanga Investors, we want to focus on building the architecture to meet the business needs of tomorrow and provide the right level of control to address the increasingly stringent compliance requirements. Platforms will be completely redesigned in phases
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De Alwis: At Kenanga Investors, we have an opportunity to extend our footprints to capture new and emerging opportunities.
and will have the flexibility to support a much more diverse client base to deliver control as well as a more satisfying and enjoyable client experience. We believe this will be paramount to our long-term success – enabling our advisers to deliver the personalised and tailored customer experience clients increasingly expect as well as to maintain healthy, long-term client-adviser relationships. A holistic approach is the way to go. Is financial planning a service that is sold or is it a service that is bought in Malaysia? Why? At the moment, financial planning is still a service that is sold rather than bought. A study conducted on Malaysian consumers of financial products and services revealed that overall financial literacy runs parallel to education levels. Almost a third of the respondents did not do comparisonshopping when deciding on financial products and almost all respondents claim to be saving regularly and recognise the need to save. However, many are less familiar with the concept of diversification or risk spread and reduction. What are some of the key messages that can be used to promote to the young adults to get them to be serious about financial and retirement planning? Without a doubt, some of these key messages would include the need for financial literacy initiatives to ensure effective planning for sustainable retirement and the need to educate households on the minimum level of emergency funds required, as two thirds of the households are poorly prepared for income shocks with savings of less than three months. We, however, need
to also look beyond financial education in changing behaviour as cultural aspects and behavioural biases play a role in the decision making process. Financial literacy initiatives provide the necessary knowledge, skills and tools for consumers to make informed financial decisions with confidence. Having the capability to make informed financial decisions allows individuals to build/ accumulate, manage and preserve wealth, thus further strengthening their financial position. Empowered consumers can protect themselves against poor market practices and take the necessary actions when treated unfairly by financial service providers. In not so many words, you are saying knowledge is power? Increased financial competence of consumers would enable them to demand for better financial services and active consumerism has a pivotal role in driving efficiency in the financial services industry. Also, meaningful participation by consumers in the financial system supports the financial inclusion agenda that helps raise their living standards. Understanding consumer behaviour is key for policymakers and industry players/ stakeholders to design appropriate financial literacy initiatives and undertake policy interventions. Encouraging preparedness for income shock, financial distress and debt management is paramount as we move into the next phase of the industry’s development. There are still building blocks to be put in place, but financial planning will eventually become a service that is bought not sold, similar to the medical practice.
MARKET OUTLOOK October - December 2014
Staying the Course for the Long-Term By Danny Wong
aking the analogy of the hare and the tortoise, investors who stay focused on their long-term goals to achieve potentially better risk-adjusted returns will fare better than those who concentrate on short-term horizons.
The recent sell down in the Malaysian stock market resulted in a short-term downturn following a series of bad news – weak crude palm oil prices, disappointing corporate earnings, weakness in Europe and geopolitical condition in Ukraine/ Russia – all of which affected market sentiments. But not all is doom and gloom as the local market is still resilient and long-term fundamentals are not expected to change.
Market Outlook Global growth is expected to remain positive The International Monetary Funds (IMF) forecasts global growth to average 3.3 percent in 2014 – unchanged from 2013 – but expects it to rise to 3.8 percent in 2015. According to Olivier Blanchard, IMF’s economic counsellor and head of its research department, growth in advanced markets will be weaker than that of emerging and developing markets. In the U.S., growth indicators pointed to strong employment growth, improving household balance sheets, favourable financial conditions and a recovering housing market. The U.S. dollar has also strengthened substantially in the past several months – a positive sign that the Federal Reserve’s actions to maintain low interest rates policy to help stabilise the U.S. economy and financial system are bearing fruit. With this, we believe the U.S. government is likely to keep the low interest policy for some time. In Eurozone, a gradual but weak recovery is expected to unfold as the European Central Bank pledge to use further unconventional policy tools to spur European economies. Japan saw a retraction in its gross domestic product (GDP) following an increase in consumption tax. There is speculation
that Bank of Japan will announce its new quantitative easing measures soon. As such, it is safe to say that the market will have ample global liquidity. Meanwhile, emerging markets and developing economies are expected to spur global growth in the remaining period of 2014. A forecast of 4.4 percent for 2014 is expected and this is mainly due to lower domestic demand and concerns over the impact of increasing geopolitical strains in Eastern Europe. In China, growth is predicted to decline slightly in 2014-15 to 7.4 percent, as the economy transitions to a more sustainable path. Following this softer than expected growth, the Bank of China has injected 500 billion yuan (US$81 billion) into the nation’s largest banks – to each of the country’s five main, statecontrolled banks. This decision to inject capital into the banking system came as the Chinese economy, like many economies in Europe, has slowed down, although still expanding at pace that would be the envy of most countries around the world. Malaysia is Poised for Growth Malaysia’s foreign currency sovereign credit rating of “A-“ for the long-term and “A-2” for the short-term by Standard & Poors’ Ratings Services affirmed the country’s strong external balance sheet and monetary flexibility – confirming that
the policies in the country have generally been effective. Evidence of positive results include: i.
Real GDP expanded by 6.2 percent year-on-year in the first quarter of 2014 with domestic demand being the key driving force. This GDP growth is among the highest in emerging markets. Backing this up is improved private consumption made possible by rising incomes and favourable labour market conditions. ii. Fiscal performance has also improved and is anticipated to average 3 percent of GDP through 2015. The implementation of the goods and services tax (GST) in April 2015 will alleviate some pressures on public finances. iii. The overnight policy rate (OPR) was raised for the first time in three years in July 2014 to address negative real rates, but further hikes were withheld to reaffirm a ‘supportive of growth’ policy. iv. An increase in manufacturing and public infrastructure spending was also seen. Net exports picked up following better global demands and Malaysia’s output expansion is expected to average 5 percent yearon-year in 2014-15. v. On the external side, trade surplus is increasing as export growth is The 4E Journal
outpacing imports. Accordingly, the current account position remains solid with surplus expected to hover above 5 percent of GDP throughout 2015. vi. A short-term pain for long-term gain measure of subsidy rationalisation and introduction of the GST at 6 percent in 2015 will contribute towards fiscal consolidation for longterm economic stability. vii. The Economic Transformation Programme (ETP) which has generated significant investment since its launch in 2010, garnering a total committed investment of RM219.3 billion from 196 projects will continue. According to the Ministry of Finance, these projects are expected to contribute RM144 billion to gross national income (GNI) and create 437,816 new jobs. Malaysia Equity Market Outlook To date the stock market has hit a fresh record high and seen record volume in terms of shares traded. However, in terms of value, the increase in the total value of the exchange has been negligible, suggesting there has been little value creation for Bursa Malaysia – no thanks to the flood of retail investors chasing penny stocks. Nevertheless, ongoing corrections will neutralise their over-bought positions and will ease over-stretched stock valuations. Malaysia’s corporate earnings are also expected to grow despite being hit by the lacklustre performance in the oil and gas, commodity and construction sectors. Corporate earnings are also likely to rebound.
The U.S. economic rebound is likely to benefit Asian economies such as Malaysia in the second half of the year. The current account surplus and its ample domestic liquidity serve as “buffers” to potential external financial shocks to Malaysia. Additionally favourable domestic liquidity conditions will also offer opportunities for investors to profit from the Malaysian equity market. Even so, the Malaysian equity market still lags behind its regional peers due to its defensive nature as Asian markets become more stable with attractive valuations. This is partly due to the structural environment where state funds are heavy participants in the market, providing the overall stability. Projected growth numbers are expected to be lower than that of their peers in the region. Historically Asian valuations have been cheaper relative to the develop markets.
What this Means to You Look Beyond Short-Term Rome was not built in a day. The secret to building your wealth is through a combination of lump sum and disciplined method of regular investments. Remember the hare and tortoise story? Yes indeed, slow and steady wins the race. This is true given that our current income growth will likely not catch up with our spending rate. Our ever-growing needs and responsibilities will outpace our capacity to generate income. The Malaysian cost of living is also ever increasing. Notably the recent fuel price
hike being added to the already adjusted electricity and water rates and expensive education and healthcare. Compounding the problem is a longer lifespan among Malaysians and the realisation that savings in the Employees Provident Fund (EPF) is insufficient for their golden years. The low interest environment calls for investors to complement their savings with higher yielding investment vehicles for capital growth and income stream. One option is to invest in company stocks which is also known as equity investing. By investing well in equity, you will be able to create passive income from your extra funds or savings. That will lead to a more comfortable and enjoyable live, especially when you reach financial freedom through income generated from your investments. Investors who put in money systematically in the right stocks and held on to their investments patiently have been seen generating outstanding returns. Hence, it is prudent to have patience and follow a disciplined investment approach besides keeping a long-term broad picture in mind. It is important to note that investing in equity comes with its share of risks and returns. How much risk you are prepared to accept will depend on your financial objectives, risk tolerance and time horizon. The longer you remain invested, the less chance your original investment will lose value. Historical data of the Kuala Lumpur Composite Index supports this theory as illustrated in the chart. The power of compounding returns is the most important reason for investing your hard earned money early. Money left in low-yielding fixed deposit accounts needs a vehicle to outpace inflation and accelerate your wealth creation capacity. When your assets compound over a long period of time, they can give substantial boost to your wealth portfolio. Equally important is establishing the reason or purpose for investing. It is easy to say that the purpose of investing is to make your money work for you. “Why invest?” helps you stay focus on your goal and gives you a perspective of when you need the wealth. This will influence, if not determine, what type of investment vehicles to use and finally who to invest with. Like any race, planning for the win is equally important. So be ready. Now go! The writer is the CEO of Areca Capital Sdn Bhd.
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INDUSTRY October - December 2014
InvestSmart Fest 2014: Educating the Public
L-R: Datuk Dr Nik Ramlah Mahmood, deputy CEO, Securities Commission Malaysia (SC), Datuk Seri Ahmad Husni Hanadzlah, Second Finance Minister, Datuk Ranjit Ajit Singh, SC Chairman and Khairul Ridzwan Abd Kuddus, deputy general manager of Investor Affairs and Complaints, SC, launching the InvestSmart Fest at the One Utama Shopping Complex.
riven by its vision to see greater financial inclusion in Malaysia and to encourage more investor participation, the Securities Commission Malaysia (SC) organised the InvestSmart Fest 2014 which was held at the One Utama shopping mall from September 9-14. The programme reached out to various segments of the public (both potential and existing investors) to educate them with the fundamentals of making sound investment decisions. InvestSmart Fest 2014 saw 37 key capital market industry players participating as exhibitors to provide the public with greater accessibility to information in order to understand the capital market framework and its products as well
as their rights and responsibilities in order to make an informed investment decision.
the questions to ask when selecting a financial planner. Leaflets with this information were given out to visitors to the FPAM booth.
As the InvestSmart objectives were in line with FPAM’s own vision to increase the level of financial literacy among Malaysians, the SC invited FPAM to be one of the event’s exhibitors. “We seized this opportunity to participate by working with some of our members to educate the public on the various aspects of financial planning throughout the week-long event,” Linnet Lee, FPAM’s CEO told the 4E Journal.
September 10-11: The topic was on conventional and Islamic estate planning, an integral part of financial planning which is quite often overlooked due to lack of awareness or denial due to the perceived morbidity of the subject. It was interesting to note that the public who participated in the discourse were appreciative of the sharing and information.
September 9: FPAM engaged the public by introducing an overview of financial planning, what to look for and
September 12: Education and awareness on online unit trust investment planning was showcased for the unit trust savvy The 4E Journal
public who wanted to do their own investing and manage their own portfolio. September 13-14: Licenced financial planners from different financial planning firms provided information on the financial planning process and answered questions put forth to them by visitors to
their respective booths. During the event, FPAM and participating exhibitors also conducted a mini survey to gauge the public’s awareness and receptiveness towards financial planning. The objective of this exercise was to assess the public’s attitude towards the idea of
engaging a financial planner to manage their financial affairs, as well as to find out the willingness of the people to pay professional fees for these services. The survey had a total of 225 respondents. The summary of the results are as per illustrated below:
Q1: Are you aware that there are licensed financial planners in Malaysia?
Q2: Do you wish that there is someone to help you manage your finances better?
Q3: Financial planners will charge fees based on the work they do for you. Will you pay for this professional service? If No, please explain why: • • • • • • •
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Need to find out more Only if it is beneficial I’m capable of planning myself Need to know how much it costs / if I can afford it Depends They already get commissions from the products they sell. Fees are too high
• • • • • •
Because the bank provides free service Not sure if I can afford it No money No idea about financial planning Not sure, depends on the value of the service Prefer to manage on my own
“We seized this opportunity to participate by working with some of our members to educate the public on the various aspects of financial planning throughout the week-long event.”
Q4: Financial planner’s income comes from commissions, planning fees and annual review fees. Tick which service you would be willing to pay for.
While the mini survey may not necessarily be reflective of the entire Malaysian population, it is still interesting to note that 72 percent of the respondents said that they are willing to pay fees for a financial planner’s services. And for respondents who said otherwise, the main reason given was that their willingness to pay fees depended greatly on the value of the services rendered. This clearly showed that financial planners need to focus on managing client expectations and highlight the value and benefits of their financial planning services. The 4E Journal
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INDUSTRY October - December 2014
CFP Professionals and the CMSRL By Patricia Chow
inancial planning has been a licensed activity in Malaysia for a decade. Even so, there is much confusion on so many issues pertaining to the industry. Issues abound on who can call themselves financial planners, the correct designation to be used and the services that can be offered by financial planners to their clients.
This article aims to clear the confusion and dispel some of the myths relating to the industry. The first and most important question: who are allowed to call themselves financial planners in Malaysia. Are all CFP professionals financial planners? No, not all CFP professionals, according to the law, can hold themselves out as financial planners. Only CFP professionals who are licensed by the Securities Commission Malaysia (SC) can hold themselves out as financial planners. These licensed professionals need to hold either the Capital Markets Services Licence
(CMSL) or the Capital Markets Services Representative’s Licence (CMSRL) to be allowed to offer financial planning services. Now that we have the license part clarified, what is the correct designation? Certified Financial Planner? Islamic Financial Planner? Registered Financial Planner? That is just a handful of designations circulating around in the marketplace. Then throw in fancy titles like Wealth Planner, Wealth Adviser and Life Planner and one can understand why the public is confused. The industry needs to sort this out and shed some light on what is correct and proper. The SC has mandated that the correct designation to be used for license holders is Licensed Financial Planner. As such, there should no longer be any more confusion on the correct usage of the designation. This is also good for the public who have been overwhelmed by the different designations in the market.
Now that we have cleared the air on the proper designation, let us discuss what a financial planner can do. According to the Capital Markets and Services Act 2007, “financial planning means analysing 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.” Therefore, only licensed financial planners are allowed to write comprehensive financial plans in Malaysia. In addition to writing financial plans, certain financial planners also provide services and advice, recommend and sell various financial products which complement their financial plans. These products include unit trusts, insurance, wills and private retirement schemes. Financial planners who advise and sell these financial products are also required to possess the relevant licenses to do so. The CMSRL is not an all-inclusive license The 4E Journal
which permits a financial planner to advise and sell financial products without the relevant licenses.
Six-step Financial Planning Process.
CFP professionals who are licensed are a notch above their peers. The CFP certification programme equips them with the knowledge and competency to provide financial planning services in a professional and systematic manner. All CFP professionals adhere to a Code of Ethics and Professional Responsibility as well as the six-step financial planning process. As mentioned above, not all CFP professionals are financial planners. The CFP designation is a prerequisite for CMSRL application. It is not a license to practise financial planning. CFP professionals are still required to apply for the CMSRL to practise financial planning. So what do these CFP professionals do? The CFP certification programme equips CFP professionals with skills, knowledge and competency which are applicable for the various sectors within the financial services industry. CFP professionals in Malaysia are involved in various sectors such as insurance, unit trust, banking and asset management, among others. The detailed analysis of which industry CFP professionals work in is as per illustrated in the pie chart below:
CFP Professionals by Industry as at December 31, 2013
The options available to CFP professionals include:
Regardless of whether a CFP professional is a licensed financial planner, an agent or an employee of a financial institution, the most important criteria that differentiates a CFP professional from other professionals is adherence to the eight principles of the Code of Ethics and Professional Responsibility.
Single licensed agents – product specialists for a financial institution Wealth advisers – advisory selling and distributing financial products for banks and financial advisory firms Employees in financial institutions – trainers, marketing, product development, agency development
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Academia – lecturing financial planning courses
If all CFP professionals, regardless of their profession uphold these principles, the financial services industry would be heading towards the right direction. The writer is the head of education and examinations of the Financial Planning Association of Malaysia. She has been with the Association for 10 years and has seen the industry change through the years.
INDUSTRY October - December 2014
Melaka Chapter Activities
Networking and Industry Update with Financial Alliance Pte Ltd on October 16. FPAM Melaka Chapter was represented by Nicholas Chu, Choo Ah Kow, Tan Kim Book, Carl Wong, See Hock Liong and Michelle Ngow. Vincent Ee, Michael Ee and Tang Khan Loon represented Financial Alliance.
Nicholas Chu’s New Book Launching and Public Financial Education Talk organised by FPAM Melaka Chapter and the Malacca Foundry & Engineering Industries Association (MFEIA). Approximately 90 people participated in the event on October 16.
Penang Chapter Activities
Wealth Maximisation Planning Through Tax Planning workshop by former FPAM board member K P Bose Dasan on September 27. The course presented participants with valuable tax planning insights and ideas to efficiently manage taxes. Some of the ideas proffered by the workshop leader were: changing the nature of income or expenditure; contract of service vs. contract for service; debt vs. equity preference; changing the source; and changing the timing and changing the recipient.
Sabah Chapter Activities
Good and Services Tax (GST), 2014 Budget and their Impact on the Capital Market workshop by Dr Ch’ng Huck Khoon on September 30 in Sandakan, Sabah.
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CFP CERTIFICATION GLOBAL UPDATES October - December 2014
PlanPlus Announces 2014 Global Financial Planning Awards Winners
“For a small fish from a tiny pond to win such a distinguished award proves once again that if you, as the financial planner, have the passion and drive and believe in what you do, you will receive recognition and validation.”
Ontario: The 2014 PlanPlus Global Financial Planning Awards winners were recently announced during the Financial Planning Association’s Annual Conference in Seattle. Winners received an all-expense paid trip to the conference where the awards were presented. The first place winner for the Americas region is Rose Swanger, an MBA, CFP® from Knoxville, Tennessee, and the first place winner for Asia is Gavin Teoh Hock Geh, CFP® from Malaysia. Lovaii Navlakhi from India was chosen as the first runnerup for Asia. The PlanPlus Global Financial Planning awards recognise top financial planners based on their demonstration of providing outstanding financial planning advice clearly focusing on the best interests of the client. Advisers from all over the world submitted entries based on actual financial plans they had completed, with the permission of their client. Five judges adjudicated the submissions for each region, then shortlisted the entries down to the two best plans that reflected the ideals of the profession. Two finalists for each region were asked to present their plans to the judges virtually in order to determine the winners. If submissions did not meet high enough standards, winners were not declared for that region. “I am very excited about the growing success of the Awards,” said John Page, Competition Chair. “The number of
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Teoh: Every achievement grows out of the seed of determination.
registrations and submissions doubled from last year, specifically for Asia. Next year we are looking forward to having winners from all three regions. We hope to join forces with several financial planning associations around the world in order to increase awareness and to work towards developing country specific awards,” he added. Swanger is thrilled to be chosen as this year’s Americas Region winner. “My personal experience with the Awards is that it gives small boutique financial planners a unique opportunity and a voice to present their distinctive experience of interacting with everyday investors,” she said. “For that alone, I’m eternally grateful.”
“Every achievement grows out of the seed of determination,” Teoh said. “This remarkable recognition as the winner of PlanPlus Global Financial Planning Awards 2014 – Asia Region is more than just my achievement. It is also recognition of the financial planning industry in Malaysia. The competition gets stiffer and it certainly raises the standard of advisory practice. The competition promotes higher quality of advice among contestants and financial planners, and this eventually benefits consumers. I wish to see such competitions within each region and at the international level to continue for many years to come. Bravo to PlanPlus for initiating this project! I would encourage all financial planners to have the courage to enter the upcoming PlanPlus Global Financial Planning Awards in 2015.” Lynne Myles, CFP®, and part of the Americas Region judging panel said, “I was extremely impressed with the quality of this year’s entries. The competition was close. However, the sheer magnitude of the detail provided by our two winners during their live presentations impressed the judges, showing how completely dedicated they are to both clients and the industry. I can’t wait to see what next year’s competition brings!”
CFP CERTIFICATION GLOBAL UPDATES October - December 2014
FPSB Engages European Securities and Markets Authority on Intermediary and Investor Protection Issues Denver: European members of Financial Planning Standards Board (FPSB), the global standards-setting body for the financial planning profession, called on the European Securities and Markets Authority (ESMA) to support differentiation of clientcentred financial planning and financial advice from product sales and advice in its implementation of the Markets in Financial Instruments Directive II (MiFID II).
and chief executive of FPSB Ireland. “FPSB Europe’s goal is to partner with regulators to establish ethical, competency and practice norms, as well as professional oversight, for financial planners and financial advisers throughout Europe.” During the half-day meeting, FPSB representatives provided ESMA with an overview of financial planning and the global CFP certification programme and discussed the need to/ for:
At a recent meeting between FPSB Europe and ESMA’s senior policy director, Matteo Rava, participants discussed the implications of ESMA’s 1. Financial advisers to rule-making and standardsplace the interest of the setting plans for MiFID II client first, at all times acting related to financial advice Grimes: Financial planning is honestly, in utmost good and financial planning. FPSB a holistic advice process and faith and in a manner the Europe represents nearly 5,000 a professional practice, and adviser reasonably believes needs to be differentiated CFP professionals in seven from product-driven advice to be in the best interest of territories, including Austria, the client or solutions. France, Germany, Ireland, the 2. Focus on the Netherlands, Switzerland and Britain. competency, qualifications and ethics of those providing financial “Financial planning is a holistic advice services or advice and to ensure process and a professional practice, and that consumers can readily identify needs to be differentiated from productcompetent, ethical advisers driven advice or solutions,” said Paul 3. Firms and intermediaries to embrace Grimes, CFP, chairperson of FPSB Europe the principles laid out in FPSB’s
Financial Planner Duty of Care to Clients to better protect clients, and how CERTIFIED FINANCIAL PLANNER professionals working for investment firms already meet these requirements 4. Add language to the MiFID Implementing directive suitability requirements to ensure that clients clearly understand that the advice is suitable for that client based on the limited scope, but not necessarily suitable based on a comprehensive understanding of the client’s goals, needs and objectives (i.e., it is suitable investment advice, not necessarily suitable financial planning) 5. Regulators, that are traditionally product-focused, to understand the process-driven, client-focused nature of financial planning, and to recognise how professional bodies can support consumer protection through standards of ethics and professionalism 6. Firms to avoid treating compliance and complaints handling as a “boxticking” exercise, and to partner with professional bodies on adviser competency and ethics 7. Firms and intermediaries to clearly identify risks and how products might perform under varying market circumstances and effectively communicate those to clients 8. Ensure that additional costs and burdens of compliance with MiFID II are not unfairly passed to investors, which might lead them to not seek advice 9. Investment firms to act fairly, honestly and professionally in accordance with the best interests of both retail and professional clients, which in turn will guide the creation and enforcement of a firm’s remuneration policies 10. ESMA to add more clarity to the terms “independent,” “non-independent, “restricted” and “unrestricted,” which currently have the potential to confuse investors The 4E Journal
CFP CERTIFICATION GLOBAL UPDATES October - December 2014
Canadians Cite Money Worries as Greatest Source of Stress
Toronto: A national survey conducted on behalf of Financial Planning Standards Council (FPSC) has found that money is the leading source of stress among Canadians, significantly more than work, personal health and relationships. According to the survey, financial stress is driving Canadians to lose sleep, reconsider past financial decisions, argue with partners and lie to family and friends about personal finances. FPSC, Canada’s standards-setting and certification body for professional standards in financial planning, is releasing its findings in conjunction with the sixth annual Financial Planning Week from November 16-22, 2014. One of the primary goals of Financial Planning Week is to raise awareness of the importance of financial planning in the lives of Canadians. “FPSC wants Canadians to know that engaging in financial planning with a qualified professional can help enhance both their financial and emotional wellbeing,” said Cary List, the president and CEO of FPSC. “We urge everyone to source a CFP professional on our Find a Planner tool at www.fpsc.ca and discuss their situation, goals and financial needs.” Survey results show that Canadians’ experience with financial stress varies
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depending on age, gender and openness to discussing personal finance issues. The following are key findings among respondents across the country (excluding Quebecers): •
One third of Canadians believe that on average their friends are in better financial shape than they are.
A three-year longitudinal Significant numbers of study of almost 15,000 men and women lose Canadians, conducted by The sleep over financial Strategic Council on behalf of worries (51 percent of FPSC, set out to understand women; 40 percent of the correlation between men). emotional, tangible and Almost half (45 percent) quantifiable well-being and of Canadians are participation in the financial embarrassed about planning process with a their lack of control over qualified professional can finances. have on Canadians’ lives. Millennials are more List: FPSC wants Canadians to know that engaging in likely than any other The results were consistent: financial planning with a generation to lie about those who engage in qualified professional can personal finances. Thirty financial planning with help enhance both their financial and emotional three percent admit they a CERTIFIED FINANCIAL well-being. have been dishonest with PLANNER® professional friends, 25 percent with report significantly higher family and 15 percent with coworkers levels of financial and emotional well(compared to national averages of 17 being when compared to those who do percent, 14 percent and 9 percent no or limited planning. They feel their respectively). financial goals and retirement plans are Eighty seven percent of Canadians more on track; their ability to save has wish they had made better financial improved; they are more confident they decisions earlier in life. can handle the inevitable bumps in life; Four in 10 people in relationships and they report having enough money with shared finances argue regularly for splurges, vacations and living the life over finances. they want.
INDUSTRY October - December 2014
Get the CFP
Here are Six Good Reasons Why
Recognised as the Global Mark of Excellence in Financial Planning
Recognition in 26 Countries (and growing)
North America Canada United States South America Brazil Columbia Middle East Israel
Europe Austria France Germany Ireland The Netherlands Switzerland United Kingdom Turkey
Asia Pacific Australia China Chinese Taipei Hong Kong India Indonesia Japan Malaysia
New Zealand South Korea Singapore Thailand
3 One qualification, two licenses (faster, cheaper, same trusted quality) Modules
Foundation in Financial Planning & Tax Planning
Insurance Planning & Estate Planning
Investment Planning & Retirement Planning
Financial Plan Construction & Professional Responsibilities
* For more information, plase visit: www.fpam.org.my ** Please download Securities Commission Licensing Handbook www.sc.com.my/wp-content/uploads/eng/html/cmsa/Licensinghandbook.pdf
CMSRL, Financial Planning **
FAR, Financial Advisers ***
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Completion of Workshop
*** Please refer to Bank Negara Malaysia (pending updated handbook) http://www.bnm.gov.my/files/doc/revised/FA-Licensing%20Guidelines_Revised.pdf
4 CFP Professionals are More Productive and Profitable * 5 CFP Professionals Lower Compliance Risks & Complaints * 6 CFP Professionals = Satisfied Clients * *
FPSB/Comparator Firm Research Project 2014
KMDC - www.kdmc.edu.my KDU (Pg) - www.kdupg.edu.my/contact-us/kdu-education-group TARUC - www.tarc.edu.my/cpe/training/professional-programmes/p_cfp1_public.htm IFPA - www.ifpa.com.my PNBi - www.pnb.com.my
The 4E Journal
INDUSTRY October - December 2014
MFPYA: Honouring the Industry’s Best
Change in Financial Planning Landscape The number of fee-based licensed financial planners is growing in Malaysia. As at December 2010, there were 290 CMSRL (Capital Markets Services Representative License) holders when compared to 440 today, effectively a 51 percent increase over four years. The number may be small, but the growth is definitely encouraging due to challenges posed by current economic situations such as: • • • • • •
increase in the number of retirees Malaysian household debts standing at almost 87 percent of the GDP (www.thestar.com.my, March 20, 2014) a multitude of financial distractions for young adults and youths reduction in subsidies disproportionate growth in entry level workforce salary when compared to the current cost of living changing outlook towards personal money management by the younger generation
As such, Malaysia needs more licensed financial planners to help and coach the public at all levels to take charge of their personal finances.
Why the Malaysian Financial Planner of the Year Award? The award is organised by the Financial Planning Association of Malaysia (FPAM) in collaboration with the Institute of Banking and Islamic Finance Malaysia (IBFIM) and supported by Canadian-based financial planning software company PlanPlus Inc. The competition will be launched in January 2015 and kick-off on February 1, 2015. It is the first of its kind industry award in Malaysia.
The 4E Journal
Competition Details 1.
The competition is open to all financial planning/advisory certificants. The most important requirement for entry into the competition is that all participants must hold the CMSRL license. The award will recognise the top three financial planners in Malaysia. Winners of the MFPYA 2015 will receive cash prizes and trophies and will be guaranteed entry into the PlanPlus Global Financial Planning Awards 2015 competition. Financial planners must submit a real client financial plan (duly authorised by their client) which will then be reviewed by a panel of judges. Entries are judged on specific actions that were recommended to achieve the client’s specific goals and objectives as well as enhance the client’s overall well-being. It is important that competing planners are working with their clients on
a fiduciary basis – they will only recommend solutions that are in the best interests of their clients. The basis for submission of a real client financial plan is that it embodies all aspects of a good financial planner. The financial planner demonstrates his soft skills to create the awareness of the importance for the client to chart his own financial road map to live the life he desires. It further demonstrates the ability of the financial planner to build trust into the financial planner-client relationship for the engagement of services. The engagement, in itself, is also evidence of the client’s belief in the ethics of the financial planner, hence the trust through acceptance of plan, adoption of the recommendations and subsequent implementation of the plan. The ability of the financial planner to construct the plan and present it to the client is, at the same time, a testimony of his knowledge and competency in the field and his adherence to the six-step financial planning process.
Invitation to Participate MFPYA invites all CMSRL holders in financial planning to participate in this industry award. Mark your date for January 8, 2015 and check out the website www.mfpya.com.my to download the information pack to register. Then you can start your preparation by identifying the financial plan you would like to submit for the competition and get the approval from your client to do so.
BASIC UNDERSTANDING OF FINANCIAL STATEMENTS FOR INVESTMENT DECISION (A Securities Commission CPE-accredited course) Speakers: Date: Venue: Registration: Time: Fee:
James Oh January 17, 2015 / Saturday Dewan Berjaya, Bukit Kiara Equestrian & Country Resort, Jalan Bukit Kiara, 60000 Kuala Lumpur 8:30AM – 9:00AM 9:00AM – 5:00PM Early Bird Special – RM280 (FPAM Member) , RM400 (Public) by January 1, 2015 Normal – RM320 ( FPAM Member), RM450 (Public)
GST- PREPARING MALAYSIANS FOR THE FULL IMPACT OF GST (A Securities Commission CPE-accredited course) Speaker: Date: Venue: Registration: Time: Fee:
K P Bose Dasan February 14, 2015 / Saturday Dewan Berjaya, Bukit Kiara Equestrian & Country Resort, Jalan Bukit Kiara, 60000 Kuala Lumpur 8:30AM – 9:00AM 9:00AM – 5:00PM Early Bird Special – RM280 (FPAM Member) , RM400 (Public) by February 1, 2015 Normal – RM320 ( FPAM Member), RM420 (Public)
COMPANY ANALYSIS: THE STRATEGIC POSITION (A Securities Commission CPE-accredited course) Speaker: Date: Venue: Registration: Time: Fee:
Dr Ch’ng Huck Khoon March 18, 2015 / Wednesday Dewan Berjaya, Bukit Kiara Equestrian & Country Resort, Jalan Bukit Kiara, 60000 Kuala Lumpur 8:30AM – 9:00AM 9:00AM – 5:00PM Early Bird Special – RM280 (FPAM Member) , RM400 (Public) by March 1, 2015 Normal – RM320 ( FPAM Member), RM420 (Public)
BASIC UNDERSTANDING OF FINANCIAL STATEMENTS FOR INVESTMENT DECISION (A Securities Commission CPE-accredited course) Speaker: Date: Venue: Registration: Time: Fee:
James Oh April 18, 2015 / Saturday Dewan Berjaya, Bukit Kiara Equestrian & Country Resort, Jalan Bukit Kiara, 60000 Kuala Lumpur 8:30AM – 9:00AM 9:00AM – 5:00PM Early Bird Special – RM280 (FPAM Member) , RM400 (Public) by April, 2014 Normal – RM320 ( FPAM Member), RM450 (Public)
CE (FPAM) CPE (SIDC) CPD (FIMM) Programmes are subject to changes.
The 4E Journal
Whether you are a unit trust consultant, wealth protection professional or a financial executive in a bank, you owe it to yourself and your clients to have the very best
letters after your name.
Be a CFP professional.
Financial Planning Association of Malaysia Unit 305, Block A, Phileo Damansara I, Jalan 16/11, Off Jalan Damansara Seksyen 16, 46350 Petaling Jaya, Selangor Tel: +60-3-7954 9500
Fax: +60-3-7954 9400