Financial Planning: Where are we?
Face to Face with Linnet Lee, Chief Executive Officer, Financial Planning Association Malaysia
Financial planning is no longer a taboo today in our society, although there are still many people wondering what it is all about. There’ve been a lot of information out there urging us, start our financial planning early, especially retirement planning because the truth be told, we are not far off from becoming an ageing population. With lower fertility rates and medical advancements that lead to longer life expectancy, Malaysia will face the “Silver Tsunami” with fewer young people to support the elderly. Silver Tsunami is a term used to describe the enormous financial resources required to support the high proportion of senior citizens age 65 years old and above in a country. 1
A recent report on The State of Household II released by Khazanah Research Institute states that “Malaysia is expected to reach an ageing population status by the year 2035, at which point 15% of the total population will be 60 years or older” which makes a strong statement and message to us — Act now to have a worry free retirement life.
HSBC’s research shows that “53% retirees regret not having started saving earlier to improve their standard of living during retirement” and “27% working age Malaysians are not saving for their retirement. According to Linnet Lee, CEO of Financial Planning Association of Malaysia (FPAM): “Effective financial planning at an earlier age on what they want to achieve in life, how to manage personal finances, careful planning and choosing the right financial products to implement these plans is key.”
However, you have to keep track of your financial plans and adjust accordingly when necessary, because it might change over a period of time as you go through different cycles in life. Each individuals financial planning differs based on their conditioning, attitude, upbringing and lifestyle.
Interest in Retirement Planning
The “Post-War Cohort” and “The Baby Boomers” generation are the group of people who have already entered the retirement phase. For them, retirement planning is family support which basically means that their children will look after them. However, demographic changes in Malaysia have reduced the dependency on family due to the drop in fertility rates since 1960 (6 children born per woman) to 2015 (2 children born per woman).
Based on a study on Gender Differences in income Sources of the Elderly in Peninsular Malaysia age 55-75 (year 2008), most of the recipients choose family as the most importance of old age income sources.
“In my past experience working with clients in Gen X and baby boomers age group, they would have planned better in terms of investment into properties, small business and dividend yielding stocks and unit trusts.” However, Investment behaviour has changed over the years.
“Traditionally, consumers traded shares for the additional returns over and above fixed deposits, later, unit trust was added on when it was first introduced in Malaysia in 1959. Those who have specific interest may delve into collectibles such as watches, antiques, painting, currency notes and coins. Businesses are also a form of investments.”
Not only investment behaviours have changed, investment appetites has also gone through a spiral of changes with time. The current Consumer’s appetite is dependent on their knowledge and understanding of a specific field.
A table on what consumers want based on FPAM FPSB-Gfk Survey (1,000 Malaysian) on Consumer Awareness of Financial Planning Profession in 2015 shows that, Financial Planning Services of Interest rank retirement planning as No 1, followed closely by investment planning and money management:
What this indicates is that Malaysians are fully aware of the importance of retirement planning. So what is the problem? The lack of investment products especially for the aged group is solely lacking and there isn’t any specific product that is able to fulfil the needs of the ageing population specifically. A good financial plan is able to assist a consumer to plan for their retirement in a holistic manner which not only looks at their retirement monies but also ensure they have sufficient funds for their long term care.
“There are no one size fits all investment products that made specifically for the aged group.” What features does an effective investment product must have which puts the interest of the consumer first:
- A good mix of investment assets which can mitigate the risk.
- The combination of assets must be within the risk tolerance of the consumer for sustainability of the consumer in the investment plan for his retirement.
- Review and rebalance this portfolio of assets from time to time.
- Cater for the fluctuation in each asset class as well as the transition of the consumer from active working to semi-working and then to retirement.
“A good Financial Planner will be able to advise a consumer on the type of products which are suitable for their needs. They are licensed to provide advice on the features of each product and present it to the potential consumers to enable them to make informed decisions, she added.
The Financial Planner’ Role
The table of FPAM FPSB-Gfk Survey on Consumer Awareness of Financial Planning Profession in 2015, shows that there are 2 main reasons that consumers rely on Financial Planners:
- Help simplify & explain financial matters (65%)
- Come up with long term plan (64%)
As we know, money is a very personal matter and to ensure the lasting relationship between the financial planner and consumer/consumer it is based on trust. We will not tell someone that we do not trust about how much we have for them to assist in the planning.
The more complex financial products are, the less transparent risks are which is then crucial to ensure that your financial planner is looking after your interests as a consumer. Engaging the right financial planner, you must first know the difference between the types of services or advise that they offer which can be categorised as:
|Commission based advisory||Fee based advisory|
|More sales more income||More time to understand client’s needs and gather information|
|Sales service incentives from persistency bonus or trailer commissions||Better client-adviser relationship, better trust|
|Clients buy and sell more often or picking
up new products, get more commissions
|Increase uptake of financial products to suit
changes in a person’s life
Though commission based advisory still prevails against fee based advisory in the current financial landscape, but in my capacity as the CEO of FPAM, there are some initiatives undertaken to shift the current financial landscape.
“I have started initiating the shift by getting successful planners and advisers to showcase their practice and share their experiences, what needs to be done to transform oneself into a planning or advisory service, depending on the choice of the individual.”
FPAM is conducting financial literacy workshops for the public. Rationale is to start consumers early on awareness of their direction and priorities in life so that they have time to plan. More so for those who trapped in the Sandwich Generation and have elderly parents or relations dependent over and above their own children.
“Before we can talk about retirement, or any life goals for that matter, the foundation of financial education is the mind set and willingness to be disciplined in money management and sticking to budget. This will ensure there is money to save and invest.” As financial products become more complex, the complexity or hidden risks might cause the consumer to invest or buy.
According to Linnet, the only way to overcome the fears of consumers in choice of products is education. Financial education on consumer’s own needs will determine the types of products and suitability.
She emphasises that “blind faith” in trusting relations, believing that they will take care of your money may not necessary work for everyone. “If you are not clear about a product, then it is best not to touch it as it may work against you. Whoever the financial professional who approaches you with a product, do remember to ask questions until you are satisfied with the information.
“Most importantly, know what you want, where you want to go, then you will have a better idea the type of product you are looking for.”
The Future of Financial Planning
As the CEO of FPAM, Linnet strongly believe that Malaysia need more Licensed Financial Planners who are equip with relevant knowledge, and ready to help consumer with their personal financial planning experiences and skills.
However, to certify a group of quality Licensed Financial Planner in a short period of time is impossible. It takes 12 month to 18 months to certify a quality Licensed Financial Planner who is competent, skilful and experienced to coach, guide and help plan for people.
Then, It take another approximately 2 to 3 months for the Licensed Financial Planner to draw up a plan and another 6 to 12 months to implement the plan based on what the client has now. “The time is now. We need to have more Licensed Financial Planners and people need to disciplined in money management, ensure there is money.
Aged Care Group (ACG), an organisation engaged in the business of elevating and providing aged care services. Our vision is to innovate and transform the perception of ageing in Malaysia. For more information, please go to www.agedcare.com.my or contact 03 – 2142 1666.