Financial planning should build long-term relationships, avoid conflicts of interest

Financial planning should build long-term relationships, avoid conflicts of interest

Financial planning should build long-term relationships, avoid conflicts of interest

The International symposium held at the Securities Commissions Malaysia discussed several key issues in the financial planning profession such as building long-term relationships, avoiding conflict of interests, lack of proper advice to small investors and the transition from commission-based to fee-based billing.

The symposium, organised by the Financial Planning Association of Malaysia (FPAM), focused on global experiences in financial planning and advice with guest speakers from the US, Canada, South Africa, Ireland, United Kingdom, Australia, Brazil, Singapore, Indonesia and Malaysia.

FPAM, established in 1999, aims to promote the growth and development of the Malaysian financial planning industry. In 2000, FPAM formed an agreement with the Certified Financial Planner (CFP) Board of Standards Inc. to become the sole licensing authority for the CFP mark in Malaysia. It was later recognised by Securities Commission Malaysia (SC) in 2004 for the application of Capital Market Service Representative Licence (CMSRL) in financial planning.

The SC’s Managing Director and Chairman of Capital Markets Malaysia, Zainal Izlan Zainal Abidin, who gave the keynote address during the symposium, said that there were 643 financial planners in Malaysia, an increase of 80 per cent since 2011 and has licensed 29 financial planning firms and that financial planning is an important component for the development of the capital market and it is important that financial planners build trust through long-term relationships with their clients.

Malaysia has been recognising financial planning as a separate profession in 2004 and has introduced regulations to oversee the industry through licensing and other measures. Although the SC had realised that financial planning would benefit the consumers, not many are keen with the services of a financial planner and the problem was highlighted by Pamela Packard, President and CEO of Strategic Enterprises LLC and Chairperson of the Financial Planning Standards Board, stating that financial planning is seen as a sales service rather than a financial service from the public.

The commission and fee based services has been a widely discussed topic recently and many panellists argued about it. When the financial advisor is on a commission basis, there is a conflict of interest as the advisor may give recommendations which result in him getting more commissions hence many countries are now moving away from commission to fee-based services.

Besides, financial technology (FinTech) has been an emerging financial services sector phenomenon in recent years and it was also widely deliberated during the symposium. Though it is relatively new, many countries have adopted FinTech and it has expanded quite exponentially with the advancement of technology.

Robo advisors have been a particular interest in financial planning industry due to the lower costs or the more economic, automated and digital planning tools which might be preferred by younger, technological savvy investors or those who prefer privacy and control over their investment portfolio. The emergence of robo advisors brings the problem of a regimented solution - automatic advice that is they may not be able to analyse and provide appropriate decisions based on what is wanted or needed by the clients. Most of the guest speakers emphasised that traditional human communications is still a vital strategy in all decision makings.

Godfrey Nti, CEO of Financial Planning Institute of South Africa said that in the end it all comes down to the quality of the advice. Robo advisors merely manage client portfolios using computer algorithms and lack the personal touch and experience of certified planners.  Hence it is not advisable to be fully dependent on robo advisors.

Besides, robo advisors are not familiar with the regulations or any external obligations according to Horner. He added that one of the reasons for the rapid advancement of robo advisors was that most people are not ready for financial conversations and this needed to stop.

The competition between financial institutions and robo advising is widely increasing. Robo advisors provide lower fees and the digital transformation change in the financial services sector has become a universal subject. This may curb the issue of advice gap between customers and their financial planners.

From long-term relationships between clients and financial advisors to FinTech and commission or fee based issue, most of the panellists have the same views on the topics discussed. Overall, the key to financial planning is trust which was widely emphasised in all panel discussions and they also insisted that financial planning needs to be openly accepted by the public.

Photo: Financial Planning Association of Malaysia

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