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Saturday, 27 February 2010

Professional financial planners

 Expert advice, not pushing products, is the key

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.
"In short, it involves advice first, products second and services thereafter" ROBERT FOO
 
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.
"Their solutions are domestically myopic when the clients they target have already gone global" JEREMY TAN
 
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.

By LAALITHA HUNT, laalhunt@thestar.com.my

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That idyllic home for retirement

RETIREMENT is sometimes defined as the point in life when we stop spending the majority of our time at work and begin living life.

Once our retirement celebration is over, most of us will spend more time staying at home. It will be natural for us to retire in a familiar area close to family, friends, church, neighbours, shopping and other amenities in the neighbourhood. Hence, our dwelling place becomes exceedingly important to us.

During the early stages of retirement, those who can afford to upkeep the house and even hire a maid to take care of it, may not be under financial pressure. But if your retirement savings are depleting year after year and you are not making enough money from investment portfolios, your house can become a financial burden.

Few of us can think objectively about retirement and old age. Any decision to move or to ‘stay-put’, even after a fall or a health problem would precipitate some trauma.

Having to leave a comfortable home and adjust to unfamiliar surroundings – especially when the choice is not ours is frightening. Uprooting would mean “taking away” our sense of belonging and an immediate isolation from family and friends.

There are initiatives overseas in providing appropriate housing for elderly people within community living – a form of ‘lifetime home’ without having it identified as “old-folks’ ghettoes”. In a survey amongst the “new elderly” in Denmark, high priority was given to good housing amenities and the ability to stay in one’s own home as long as possible.

As one poignant respondent commented in the survey: “It is important to move while you still can to a place you choose before other people move you to a place they choose.”

While we wait for such amenities to be available in Malaysia, it is important to be clear minded about our “age in-place” during the golden retirement years.

Choose our dwelling place with a conscious intention of simplifying our life, controlling maintenance costs to accommodate our ageing needs and minimising disruption to our living habits. Unless our adult children can take care of all these, it is safer for us to maintain them within our affordability.

It is wise for you to start thinking about it with the following considerations. Although they may not be comprehensive, they serve as a good guide:

a. Financial Considerations 
·Housing loan obligation – housing loan period should not be stretched into your retirement. It can be financially stressful unless you have investment income to pay for it. Your retirement savings are best conserved for living expenses and not loan repayments.

·A loan-free house is a good idea if you plan to sell it in exchange for a cheaper retirement place. The extra cash from the sale will become useful for your ageing needs.

·Live in a house where cleaning and washing can to be kept at the minimum. You don’t want to be spending your retirement money, time and energy on upkeep instead of enjoying your retirement.

·Live in a house that requires low electricity consumption – energy saving lights and good air circulation can reduce lights and air conditioning. The extra money you save on electricity bills can be used to pay your groceries and important living expenses.

·Location of your house is important. One with affordable cost of living for groceries, shopping and eating out can help stretch your dollar. A place with public transport would provide the convenience, and savings on vehicle costs, petrol and parking fees. Remember that at some point in your retirement you might decide to stop driving.

b. Non-financial considerations like family and friends support, community living with leisure activities and availability of medical-assisted care. You wouldn’t want to be lonely and may prefer assisted-care at home or nearby places.

c. If you want to retire abroad, planning with lots of foresight, research and fact finding from people who have experienced retiring abroad is important. You won’t want to fall into the trap of not being able to afford it or find that you regret it because you miss your family and friends in your home country.

A comfortable house is a great source of happiness for your transition to “ageing in-place”.

If not planned properly, it could be an emotional and expensive affair for you and your family members. It is better to think through all possibilities now for a happy retirement dwelling place later!

BY Carol Yip who is a personal financial coach and also founder and CEO of Abacus for Money

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What I Learned from My Dad

When his youngest son decided to become a musician, Buffett offered moral but not financial support

magazine cover
One of my father's often-quoted tenets is that a parent, if he has the means to do so, should give his children "enough to do anything, but not enough to do nothing." A head start is fine; a free pass is often a crippling disservice. When I turned 19, I received my inheritance—proceeds from the sale of a farm, which my father converted into Berkshire Hathaway (BRK.A) stock. At the time I received them, the shares were worth roughly $90,000. It was understood that I should expect nothing more.

So—what to do with the money? I was a student at Stanford University; there were no strings attached. Fortunately, I'd had the advantage of seeing my older siblings burn through most of their cash; I didn't want to follow down that path. At the other extreme, I might have done absolutely nothing with that stock—just left it in an account and forgotten about it. If I'd picked that option, my shares would now be worth around $72 million. But I didn't make that choice, and I don't regret it for a second. People think I'm either lying or crazy when I say this, but it happens to be true, because I used my nest egg to buy something more valuable than money: I used it to buy time.

My inheritance came to me around the time I was finally committing to the pursuit of a career in music. As a pragmatic Midwesterner with a very limited nest egg, I knew that I would have to find a way to turn my creative impulses into a livelihood. But how did one do that? How would I find an audience, or clients, or a way to sell what I'd written and produced? I didn't have a clue, but it was becoming clear to me that I wasn't going to figure it out by staying in a university.

I decided to leave Stanford and use my inheritance to buy the time it would take to figure out if I could make a go of it in music.

With help from my father, I worked out a budget that would allow me to conserve my capital as long as possible. I moved to San Francisco, where I lived very frugally—small apartment, funky car. My sole extravagance was in expanding my recording equipment. I played the piano, wrote tunes, experimented with electronic sounds. Then I put a classified ad in the San Francisco Chronicle, offering to record all comers in my studio.

And I waited until a very important bit of good luck tracked me down one day in 1981, as I stood at a San Francisco curbside washing my crummy old car. A neighbor with whom I'd had nothing more than a nodding acquaintance happened by and asked what I did for a living. When I told him I was a struggling composer, he suggested I get in touch with his son-in-law, an animator who was always in need of music. I followed up, and the son-in-law did have work for me. He'd been commissioned to create 10-second "intersticials"—quick ads meant to flash a logo and establish a brand ID for a newly conceived cable channel.

I took the work. And the cable channel more than launched; it rocketed to the moon. It was called MTV. Soon many TV outlets wanted to look and sound like MTV. I no longer had to take on unpaid work.

My inheritance was relatively modest, but it was more than most young people receive to get a start in life. Having that money was a privilege, a gift I had not earned. If I'd faced the necessity of making a living from day one, I would not have been able to follow the path I chose.

Would my father have helped me get started if I'd chosen a career on Wall Street? I'm sure he would have. Would he have given me a job at Berkshire Hathaway if I'd asked for one? I suppose so. But in either of those cases, the onus would have been on me to demonstrate that I felt a true vocation for those fields, rather than simply taking the course of least resistance. My father would not have served as an enabler of my taking the easy way out. That would not have been an exercise of privilege, but of diminishment.


Adapted from Life Is What You Make It by Peter Buffett, © 2010 Peter Buffett. Reprinted by permission of Harmony Books, an imprint of the Crown Publishing Group. 

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See more links on Worren Buffett:

 1. When CEOs Have Warren Buffett in Their Boardroom 
What's it like to have America's greatest investor as your shareholder? Buffett's biographer talks to CEOs who know 

2. Buffett's winners and losers

 3. Warren Buffett Is No Steve Jobs

4. A Lesson From Warren Buffett: 

5. Buffett: Bailouts not just for CEOs








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