FINANCIAL planning (FP) should be viewed as a profession where unbiased and independent advice is provided to clients covering all personal financial matters and services.
However, the FP industry in Malaysia, which is still in its infancy stage compared with their counterparts in other advanced countries, is grappling with issues such as wrong public perceptions and lack of product innovation as well as FP tools.
According to MyFP Services Sdn Bhd financial planner and managing director Robert Foo, the financial planning model follows a six-step process which involves building a relationship with the client, gathering the client’s personal data as well as financial goals, analysing the data, recommending and implementing solutions besides tracking that the client’s goals are eventually met.
“In short, it involves advice first, products second and services thereafter,” Foo concludes.
However, Foo notes that the Malaysian public tend to view FP practitioners as no more than product salespersons with FP qualifications.
“Hence, there is little trust on the advice given by many of these “professionals” although they are licensed by the Securities Commision (SC) or Bank Negara. They are perceived to be biased. At the back of their (the public) minds, financial planners are perceived to be out to make sales commission from selling as many products as possible,” Foo notes.
When the FP profession started to take root in Malaysia around 2001, the majority who took up FP qualifications were insurance and unit trust agents.
“Many of those qualified are still adopting a multi-level agency sales approach to their business and the emphasis and compensation is solely based on product sales and commission,” Foo adds.
Foo says the problem still exists due to the tied agency system where individual financial planners or analysts can only recommend products from a single provider.
To mitigate this problem, an institutionalised agency system called Corporate Unit Trust Agent was established where licensed financial planners or analysts can distribute products from multiple providers.
“But if you look at the response to this ‘innovation’, only four entities (product providers) have applied, which is not what individual financial planners want. This, in turn, hinders the development of the FP profession,” Foo adds.
Due to a lack of enforcement, scores of individuals are holding themselves out as financial planners or advisors without a licence.
“Some even have FP qualifications but are not licensed by SC or Bank Negara. Most of these are sales and product agents who want a little credibility with these professional sounding labels,” Foo notes.
Jeremy Tan, a licensed financial adviser with Standard Financial Planner Sdn Bhd, agrees that many equate financial planning with unit trust investment and insurance planning.
In reality, financial planning involves a holistic planning of one’s finances throughout the different stages of one’s life (family inclusive). This is a more wholesome approach and encompasses wealth management, its protection, distribution and wealth accumulation on an independent basis.
“Unit trust investment and insurance are among the vehicles in holistic financial planning, but they are by no means exhaustive,” Tan adds.
Another concern is the lack of accessibility to product innovations and solutions, which are available overseas, but not available to retail clients here. This limits the development of the FP industry.
Many clients recognise the options and opportunities overseas and have actually channelled a large amount of their money abroad for offshore product options.
“How do you expect the Malaysian FP practitioners to prosper? Their solutions are domestically myopic when the clients they target have already gone global?” Foo adds.
The local FP industry also lacks the tools required to provide the necessary comprehensive advice and services irrespective of whether the client’s assets have remained on Malaysian shores or gone global.
“Currently, there are almost no competitively priced and reliable tools available to these growing boutique firms to serve their globally oriented clients,” Foo says.
Coupled with the tied agency system, practitioners do not see the usefulness of such a comprehensive and globally-oriented system, Foo notes.
Financial planners agree that there need to be concerted efforts by the regulators and FP practitioners to have expos and public forums to create awareness.
“The caveat here is that it should be clearly about FP advice and not about products. Otherwise the confusion will persist,” Foo says.
Advisory practice standards should also be set to ensure that the FP practitioners provide their advice professionally. The client’s interest should be placed first.
“But standards set should not stifle the innovation and creativity of the different business models used by FP practitioners,” Foo notes.
More importantly, there is a need to open up the market for greater competition such as in the United States, Britain and Australia; this will benefit the public in the long run.
This includes making available offshore funds and products via various forms of distribution channels on a “willing buyer willing seller” basis.
“Investment and protection are two of the most important financial concerns for Malaysians and the public should get the best advice and options for their financial future,” Foo concludes.