Role of Financial Planners in the
Development of the Investment Management Industry

Keynote Address
YBhg Datuk Ali Abdul Kadir
Chairman, Securities Commission

at the
The Star/Standard & Poor’s Investment Funds Awards Malaysia 2003

26 March 2003
JW Marriot Hotel, Kuala Lumpur


1. First of all, allow me to thank the Star Publications and Standard & Poor’s Fund Services for kindly inviting me to address a distinguished audience, and I would also like to congratulate them for undertaking a task that can certainly benefit various segments of the investing community. An effort such as this can positively contribute toward good governance practices and higher professional standards within the investment management fraternity in their aim to top the chart. It can also serve the function of promoting public awareness with regards to investment funds.

2. The investment management industry has shown steady growth over the past years. The total net asset value (NAV) of unit trust funds under management has increased from RM47.3 billion as at the end of 2001 to RM53.7 billion as at end of 2002. The NAV in 2002 formed 11.15% of the market capitalisation of the Kuala Lumpur Stock Exchange (KLSE) as compared to 10.18% in 2001. As at the end of last year, there were 79 licensed fund management companies and 38 unit trust management companies approved by the Securities Commission (SC), with more than RM75 billion of funds under management between them, of which unit trust funds constitute 71%.

3. Whilst we see positive growth in the industry, there is still room for further improvement and development. This I believe can be brought about by greater awareness and understanding on the concept of wealth management, or more commonly known as financial planning, which is a subject matter that is closely related to the development of the investment management industry and the capital market as a whole.

Financial planning is part of capital market regulatory framework

4. The financial planning profession provides value-added services and packages financial arrangements after analysing all the relevant financial and background information of the clients. This includes providing advice to the client on, among others, various capital market instruments, such as unit trusts, shares, bonds and other type of securities to meet his short, medium and long-term financial and lifestyle goals, in the attempt to successfully manage his personal financial affairs.

5. From the regulatory perspective, the provision of advice on capital market instruments requires the financial planners to be licensed by the SC as an investment adviser under the securities laws. In addition, if the activities of the financial planner also involve the management of client’s funds, then a fund manager’s licence would be necessary. In this instance, the regulatory treatment towards financial planning activities is no different from that of other capital market activities. There are safe harbour provisions that exempt certain persons from the licensing requirements but these cannot be used to undertake financial planning activities that relate to securities, as it is meant for activities that are incidental to specific businesses.

6. Consequently, being a licensed person, there are continuing obligations that financial planners must adhere to under the securities laws, such as the requirement to disclose certain interests in securities to address the possible conflict of interest, and to have reasonable basis in making any recommendations to ensure that the advice given is not driven by personal interest. These obligations are meant to ensure that the integrity of the market and investor protection is not compromised.

7. To facilitate further development of the financial planning industry, the SC is also expanding the existing regulatory requirements to enable financial planners to provide additional value to investors by allowing them to distribute the suggested products to the clients with proper safeguards, such as not being tied to any one product manufacturer and to disclose their remuneration arrangement. The financial planners must also impart their advice in a professional and ethical manner. In this regard, I would like to take this opportunity to urge all financial planning practitioners to adhere to and keep up with the securities laws and other relevant regulations, as this would enhance the credibility of the profession in the eyes of the public, boost market confidence and allow greater acceptance towards the profession.

Enhancing governance and ethical standards

Ladies and Gentlemen,

8. As you are aware, the SC has been actively promoting and supporting the initiatives to enhance the level of corporate governance in Malaysia, and this is also at the forefront of the financial planning industry. I cannot emphasise enough the importance of adherence to the professional and ethical standards in order to enhance the financial planning profession.

9. Ethics is at the core of every healthy industry, as the famous Plato once said, “Good people do not need law to tell them to act responsibly, while the bad people will find ways around the laws”. Wise investment corporations and professionals, for the sake of the industry, will support the goal of “setting a higher standard” and enforcing it, which has a far-reaching effect in enhancing corporate governance practice at various levels. Good governance practice at the financial and capital market intermediaries level will result in a positive ripple effect and flow into their investee companies even if they merely hold minority stakes.

10. At the individual level, the code of ethics and best practices promoted by the financial planning profession are consistent with the basic tenets that underlie good corporate governance, as has been expressed by various codes and best practices of corporate governance globally – fairness, transparency, accountability and responsibility. These represent values that in fact underpin all forms of good governance, regardless of whether it is applied to an individual, a profession, an institution, a market or even an economy.

11. At this point, I would like to take the opportunity to applaud the efforts made by many intermediaries in the capital market that have invested in professional education to enhance the knowledge and capability of their staff and agents. This would eventually contribute towards enhancing the standards within the profession by setting a higher benchmark for new entrants. I hope this trend would continue and many more employers would follow suit resulting in a greater pool of quality ethical financial planners much needed by the public.

Experience of other jurisdictions

12. As much as we have learned from the more mature jurisdiction in developing our own market, we also have the benefit of learning from their mistakes. Experience in the Australia for example illustrates the need to properly manage the development of the financial planning industry and avoid the type of financial planners who reaped hefty sum of remuneration regardless of the effectiveness of the financial plan drawn for their clients. The recent survey into financial planning industry standards released in Australia, reveals that their ‘advice’ was often more like ‘thinly disguised product selling’.

13. The SC will continue to closely monitor the development in other jurisdictions and incorporate the lessons learnt to ensure such situations are adequately addressed within the local financial planning regulatory environment. We certainly do not want the financial planning industry to evolve into a situation where self-interest takes precedent and the so-called financial planner merely sells product to earn more commission from the clients.

14. In this respect, the SC will ensure that financial planners, irrespective of their remuneration structure or arrangement, must always give priority to the interest of the clients and not be “tainted by salesmanship”. This is consistent with the existing regulatory principles that are being applied in the capital market.

15. In this regard, perhaps it is also timely to remind all professional financial planners as well as potential new entrants that, although financial planners are encouraged to know and understand as many products and services in the market to be able to tailor the most suitable recommendation for their clients, the recommendation should be confined to approved financial products and investments. The SC would also appreciate it if the financial planning industry can assist in educating the investors with regard to the modus operandi of numerous types of illegal schemes, which will assist the investors to avoid falling prey to such operators who are taking advantage of the investors’ ignorance, gullibility and greed. It is a shame to know that so many investors had been deceived by these operators and millions of ringgit had been lost through investments in such schemes.

Financial planning key to investment management industry

Ladies and Gentlemen,

16. Financial planner is an important link between investors and the growing array of products available for investments and savings, providing them with the discipline and professional assistance needed in taking a more holistic view of their personal financial affairs. In this regard, the SC strongly believes that the financial planning industry plays an important role in promoting further development of various segment of the capital market, such as the private pensions industry, and indeed the investment management industry.

17. The private pensions industry is still at its nascent stage but has the potential to grow with the assistance of financial planning, which in turn provides greater opportunity to the investment management industry. Financial planning essentially provides the retail sector with access to a more affordable wealth management, hitherto is currently available only to the wealthy and high net worth individuals.

18. Although there may be options considered by the fortunate few who understand the need to plan for their retirement, in most circumstances, employees would normally accept whatever scheme that has been provided for them, for example the Employees Provident Fund (EPF) or other in-house pension schemes, without having the opportunity to be properly advised on how to further supplement those schemes. In this regard, the financial planners would be able to equip them with the necessary knowledge and understanding to make informed decisions on retirement plans.

Training and education

Ladies and Gentlemen,

19. Consistent with the Capital Market Masterplan (CMP) recommendations on training and education, the Securities Industry Development Centre (SIDC), which is the SC’s training arm, in collaboration with other relevant organisations, will develop appropriate training programmes to complement those offered by professional organisations and various institutions of higher learning. This is in line with the SC’s commitment of ensuring that current market participants are fully prepared to benefit from market evolvement and also to ensure the development of a pool of high-calibre capital market professionals. In connection with this I am pleased to announce that with effect from 21 March 2003, licencees who have obtained professional qualifications – among others the Certified Financial Planner – during the course of their profession will be awarded 20 Continuing Professional Education, or better known as CPE, points for the purpose of licence renewal.

20. In order to ensure that the development of the industry meets the expectations of all stakeholders, the SC would need to leverage on the knowledge, experience and expertise of those in the industry. In this respect, we will work closely with the relevant organisations representing the common interest just as we have always done where the relevant industry bodies in the capital market are concerned. There would therefore be scope for greater consultation, collaboration and engagement between the SC and other organisations representing various segments of the capital market.


Ladies and Gentlemen,

21. As I have alluded earlier, the financial planning industry is part of the capital market and supports the various developmental efforts that are being undertaken by the SC. From the regulatory perspective, financial planning is a regulated activity under the securities laws, and efforts are being made to expand and tighten the regulatory framework to meet with changing market needs. However, the SC will ensure that the development and implementation processes are managed properly and adequately so that the end result would always and easily be associated with the provision of a complete, cohesive and comprehensive plan, and definitely not as a source of confusion.

22. As I have also mentioned earlier, the financial planning industry is one of the important link in the development of the capital market. In this respect, the SC welcomes your input and ideas as we work through the challenges that lie ahead. As has been said many times before, there is only so much the SC, as a regulatory body can do, in this instance, to develop the financial planning industry. Ultimately, the success of any developmental endeavour hinges on the combined efforts and commitment of all market participants. I hope that the strategic partnership between the industry and the SC would see us achieve our common vision for the capital market, and lay a strong foundation for its further progress thereafter.

23. Finally, I would like to take the opportunity to congratulate the recipients of the various categories of awards in advance. I hope these awards will act as an incentive to encourage greater commitment from market participants in creating a more competitive and dynamic environment for the capital market.

Thank you.