Keynote Address
by
Dato’ Seri Dr Awang Adek Haji Hussin
Chairman, Securities Commission Malaysia
at the 11th AFA Annual Conference
" Broadening Coverage and Enhancing Standards for the Financial Planning Industry"
27 July 2022
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Introduction Encik Alfred Sek, Presiden AFA Malaysia, Encik Ivan Lee, Organising Chairman, Tuan-tuan dan puan-puan, Speakers, sponsors and guests, Dato'-dato' Tuan-tuan dan puan-puan yang saya hormati sekalian, |
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| 1. |
Assalamualaikum dan selamat pagi kepada para jemputan, dan sidang hadirin yang dihormati sekalian. |
| 2. |
Terlebih dahulu, saya ingin mengucapkan terima kasih serta merakamkan penghargaan kepada Association of Financial Advisers (AFA) yang merupakan penganjur persidangan kali ke-sebelas. |
| 3. |
Saya dimaklumkan terdapat pelbagai perkongsian dan pengisian yang dibawa oleh tokoh-tokoh industri pada persidangan hari ini. Saya berharap persidangan AFA kali ini dapat memberi impak positif dalam membina industri perancangan kewangan yang lebih mampan, teguh dan professional. |
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Financial Planning – a pillar of the capital markets Ladies and gentlemen, |
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| 4. | The Financial Planning industry is an important component of the Malaysian capital market. It plays a pivotal role in empowering Malaysians to protect their financial future. |
| 5. | I take note of the industry’s encouraging growth over the years. Since 2015, the number of financial planning firms has increased by 42%, from 31 firms to 44 firms today. Meanwhile, the number of licensed representatives has grown by 145%, from 567 individuals in 2015 to almost 1,400 individuals1. The profitability of the financial planning industry, including corporate unit trust advisors, is also evident from the distribution of unit trust funds which has been encouraging with a three-year average total sales of RM1.1 billion. |
| 6. | Undoubtedly, this has improved the financial situations of many Malaysians. However, my sense is that this growth is also being propelled by the increasing complexity of financial products, and the public’s desire for assistance in dealing with this complexity. |
| 7. | Not too long ago, investors were limited to a small number of products. Today, choosing the right financial plan is no longer simple, with the breadth of choices that includes listed securities as well as unlisted corporate bonds or sukuk. Making a choice may increase the risks as it does opportunity. It should come as no surprise that investors are increasingly seeking expert advice to help them meet their financial needs. |
| 8. | Therefore, we must cultivate and attract more talent to the industry in order to provide quality financial planning services to more Malaysians. |
| 9. | Recognising this, the SC is working with the industry to implement various initiatives, such as a career fair to promote financial planning as a professional career. Further, the ongoing industry apprenticeship programme seeks to increase the appeal of financial planning firms by providing practical experience and fostering professional development to transition into financial planners. |
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The crucial role of Financial Planners Ladies and gentlemen, |
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| 10. |
Today, we are confronted with a unique set of macroeconomic and structural issues, and financial planners will be critical in helping Malaysians navigate these challenges. |
| 11. |
Allow me to provide some context. Even as we observe early recovery in many parts of the world after two years of pandemic, the world is confronted with overlapping challenges with far-reaching consequences. War, sanctions and inflationary pressures are threatening the world economy. This is on top of the longer- term concerns on climate change. |
| 12. |
Against this background, major central banks around the world are rapidly tightening monetary policy – reversing an era of easy financial conditions that have been with us since the Global Financial Crisis. This will have implications especially on segments that have benefitted from the low interest rate, ample liquidity and high valuation environment of the past decade. |
| 13. |
In Malaysia, while we continue to see a resilient recovery, our economy is highly integrated with the global economy, and our financial markets are not immune to global events. External downside risks to our economic prospects cannot be downplayed, even with our strong domestic fundamentals. |
| 14. | There are also several significant long-term domestic issues that we must address. One of them is retirement security. Even before the pandemic, Malaysia’s retirement security was a major issue. Unfortunately, COVID-19 has exacerbated the problem. The permitted special withdrawals from EPF savings to smooth over the member’s cash flow needs, have left more people with inadequate retirement savings2. |
| 15. |
This is all happening amidst the longer term structural trends of a rapidly ageing society, accelerating digitalisation, and the changing nature of work. While many Malaysians may appear financially secure today, – we must recognise the potential precarity and vulnerabilities that may confront them in the future. |
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Given the environment and prevailing circumstance, it is why we need more financial education and better financial planning. Malaysians will need assistance in managing their financial future now more than ever. |
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Strengthening investor trust and confidence Ladies and gentlemen, |
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| 17. |
Let me start by saying that trust is the single most valuable asset to a financial adviser – the trust of your current clients, future clients and your community. |
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Whenever I meet a financial adviser, I ask them, “What made you want to be in this profession?”. Having spoken to many, the most genuine response revolves around - their fascination with numbers, how these numbers affect people’s lives, and their desire to help others. Such a simple question can often reveal who you can trust and if they have your best interest at heart. |
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On an individual level, I believe trust is not the function of the quantity of time you spend with somebody, but more a function of the quality of experience. It is imperative that the industry’s professional standards are raised. This would ultimately improve trust in the profession and enable firms to reach more clients. |
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In this regard, the SC issued the ‘Guidelines on Conduct for Capital Market Intermediaries’ earlier this year, which also apply to licenced financial planners. These Guidelines aim to foster good business conduct and corporate culture centred upon the fair treatment of clients and promote trust in all intermediaries. |
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Whilst regulation can help foster the right culture, the industry must also continue to shape the right behaviours within firms to build and maintain the trust of clients. |
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Client advice should help them achieve long-term goals rather than focusing on short term gains. Furthermore, it is important that financial planners provide clients with periodic updates on their investments to ensure that they are on track to meet their financial goals. This fundamental feature distinguishes financial planners from traditional distributors, which helps build clients’ trust and confidence. |
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It should be emphasized that financial planners are entrusted with helping clients achieve their financial goals. This trust should be safeguarded by every member of the profession, as even one or two misdeeds can undermine trust in the whole profession. |
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Ladies and gentlemen, |
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| 24. |
Strengthening investor confidence is crucial, so investors feel safe participating in the capital market. |
| 25. | However, during the last two years, the SC has been concerned about the increase in scams. Between 2019 and 2021, the number of complaints and enquiries related to scams received by the SC has increased substantially. This would undoubtedly threaten to undermine investors’ confidence in the capital market. |
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Collectively, all capital market intermediaries have an important role in educating investors about the various scams out there, including their modus operandi. Nevertheless, some intermediaries, such as financial planners and advisers who have more face time with clients, should be at the forefront to ensure investors are not deceived by scams. |
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On this front, the SC is encouraged by the good work on scam awareness done by the Investor Protection Working Group, which was established as part of the 3-year Joint Action Plan. |
| 28. |
Meanwhile, the SC will continue to work closely with the industry to deter scammers and raise awareness in our capital market. For that purpose, the SC will provide licensed intermediaries and registered market players with monthly information on unlicensed activities and scams, as well as anti-scam awareness initiatives and communications. The SC encourages industry players to distribute the information to clients via online and social media platforms. |
| 29. |
In addition, industry players can also share their observations, ideas and views on scams through a dedicated email channel ([email protected]) to collectively suppress the proliferation of scams. |
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Embracing technology to service wider segments Ladies and gentlemen, |
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| 30. |
It is said that financial advice is evolving, and the new environment creates two paths for advisers – either participate in a race to the bottom, maintaining existing service levels while cutting fees, or increase the value given. Financial plans cannot operate under a one-size-fits-all approach. |
| 31. | It is therefore important that all Malaysians, not only those in the M40 and T20 segments, get access to quality advice and financial planning services. More needs to be done to provide the under-served segments of our society with access to financial planning services. |
| 32. | We noticed greater inclusivity during the pandemic, driven by digital intermediation models. For example, in 2021, digital brokers gained a retail market share of more than 5% with the total number of accounts rising by more than 50% to approximately 251,000 in 20213 . In addition, the digital investment management (DIM) segment also expanded its capital market offerings with total AUM reaching RM 1.0 billion by the end of 2021. |
| 33. | So, it’s time to embrace technology. Embrace the reality that technology is a must-have, not a nice to have. This is due in large to its ability to provide more affordable services and broader access to reach the under-served segments. |
| 34. | Also, to put it bluntly, adapt or die. Many companies succumb to a “wait and see” mentality with technology. Neither your clients nor your competition will wait for you. |
| 35. | Furthermore, technology is also likely to bring about more operational efficiencies for firms, allowing financial planners to deliver more innovative and personalised services to their clients. Put to good use, technology can help people to navigate their way through this cost-of-living crisis that we face today. |
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The SC will continue to facilitate development for the industry Ladies and gentlemen, |
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| 36. | As the Malaysian investor landscape evolves, a broader spectrum of business modalities needs to be made available. Moreover, easily accessible and holistic advisory services should be offered to complement varying levels of investor literacy and strengthen Malaysians’ ability to invest for retirement. |
| 37. | This entails enabling a greater range of capital market products, such as fixed income and target date funds, as well as products across the wider financial services sector, including annuities and reverse mortgages. Greater integration with the insurance and healthcare industries may also be necessary to enable more effective decumulation products and strategies. To this end, financial planners and advisers would need to expand the breadth of products and service offerings. |
| 38. | To facilitate this, the current regulatory framework would need to evolve. As such, the SC and BNM have initiated a joint review of the regulatory framework governing financial planners and financial advisers, intended to streamline the framework and reduce regulatory costs for intermediaries. It is hoped that this will ultimately allow financial planners and advisers to offer a wider range of financial advice. |
| 39. | In addition, initiatives to develop the financial planning industry are being carried out as part of the 3-year joint action plan. The good work done by the working groups to roll out these initiatives is encouraging. The SC would urge the industry to continue these efforts to elevate the industry by expanding the advisory scope of financial planners and enhancing professional standards. |
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Conclusion Ladies and gentlemen, |
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| 40. |
In conclusion, let us not lose sight of why we are here and what we do. Financial planning is an important industry and profession that has had a positive role in our economy. Sometimes, we have to shake the tree, whether it be with clients, or with industry standards, to help common sense prevail. But what matters is allowing people to feel better about themselves, their money and their lives. |
| 41. | Industry associations, including AFA, need to ensure that professional standards are upheld and a high level of integrity is maintained in the industry. Clients must be made aware of potential scams and be guided to avoid falling victim to them. This will help build trust in the profession and ultimately go a long way towards ensuring the industry’s long-term success. |
| 42. | As regulators, the SC will continue to play a major role in facilitating the industry’s growth, to provide consumers and investors with a more holistic and wider range of financial advisory and planning services. |
| 43. |
With that, I wish you a fruitful and engaging conference ahead. |
| Thank you | |
1 1,393 individual licensed representatives
2 As much as 40% of working adults are not covered by any formal retirement plan. According to EPF’s estimate, only 3% of Malaysians can afford to retire. (Source: CMP3).
3 2020: morre than 165,000
