Financial Planning: Role of financial planners broadened

This article first appeared in Wealth, The Edge Malaysia Weekly, on October 26, 2020 - November 01, 2020.
Financial Planning: Role of financial planners broadened
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Financial planners will soon be allowed to provide advisory services on investments such as stocks and bonds, instead of just recommending financial plans, insurance policies and unit trust funds.

The initiative to expand the scope of financial planners was announced by the Securities Commission Malaysia (SC) during the annual Signature Financial Planning Symposium organised by the Financial Planning Association of Malaysia on Oct 11. SC chairman Datuk Syed Zaid Albar says such an initiative will allow financial planners “to play a vital role in protecting investors against bad investment choices”.

Sources say the guidelines on how financial planners will be able to do this can be expected to be out by year-end.

“Currently, licensed financial planners can only provide higher-level advice to clients,” says Rafiq Hidayat, managing director of Wealth Vantage Advisory Sdn Bhd and a licensed financial planner.

“For instance, we can talk about asset allocation and the percentage of stocks or bonds our clients should add to their portfolio. We can also recommend insurance policies and unit trust funds. But we can’t talk to them about individual stocks or bonds.

“With the expansion of our scope, we will be able to advise clients on individual stocks and bonds. For instance, we can mention names such as Maybank or Tenaga [Nasional Bhd] and whether they should add these to their portfolio.”

While the details are still pending, financial planners have mixed views on this initiative. On the bright side, investors with no access to investment advisory services will have an extra channel to seek advice on stock or bond investments, instead of relying on rumours and speculation, says Rafiq.

“It also means that financial planners will be able to help clients screen their equity portfolio. We can look at their stock holdings and apply the basic principles of value investing to help them filter out the bad apples,” he adds.

Such an initiative could also benefit investors who prefer to invest in individual stocks or bonds instead of buying into unit trust funds. “They can approach a financial planner for a second or even a third opinion on the stocks or bonds they want to buy,” says Rafiq.

This will open up new opportunities for financial planners and financial planning firms to differentiate themselves from their competitors by offering more comprehensive services to clients. Marshall Wong, a young licensed financial planner at FA Advisory Sdn Bhd, is excited about the initiative.

“People are investing directly in the stock market and more of them have been doing so during this pandemic. Such an initiative will allow us to expand our scope of services provided to clients. For now, we can only advise and recommend unit trust funds, which have really limited our capability to advise clients,” he says.

Yap Ming Hui, founder and managing director of Whitman Independent Advisors Sdn Bhd and a licensed financial planner, is expecting a further announcement on the new initiative introduced by the regulator. “We look forward to any initiative that can broaden our scope of services. This is something new to us and we will want to know the pros and cons of extending our offerings,” he says.

Should financial planners take on an investment advisory role?

However, there are potential downsides to the initiative. Joyce Chuah, CEO of Success Concepts Sdn Bhd and a licensed financial planner, is concerned about the ability of some financial planners to give investors proper investment advice on individual stocks and bonds.

She says identifying clients’ financial goals, providing asset allocation advice and recommending unit trust funds are different from equity and bond investments. “Financial planners, in general, are not necessarily good at investing in equities and fixed income. Some of them may not even have a clear idea on what is investing and speculating.

“Some financial planners may give advice based on personal opinions rather than looking at the companies’ fundamentals. And some may be investing emotionally without noticing it themselves.”

Felix Neoh, director at Finwealth Management Sdn Bhd and a licensed financial planner, shares Chuah’s view. “The big picture advice based on one’s financial goals is long term and less time-sensitive. A person does not change his financial goals in the short term,” he points out.

“However, providing advice on individual stocks and bonds, especially stocks, is a different matter. They need to know how to look at the companies’ fundamentals and they must have access to market information. It is also a more time-sensitive matter.”

Even if financial planners have taken the required examinations and are equipped with the necessary knowledge, they may not have sufficient experience investing in the stock market, opines Neoh. “Financial planners who want to advise clients on stocks and bonds are taking on a role that is similar to that of a fund manager or research analyst. Their clients will suffer if the advice they give is not good. That is why the financial planning industry is in two minds about such an initiative.”

From the perspective of a financial planning firm, Whitman’s Yap says the key challenge is that they will be expected to commit to building a qualified investment research team. “A financial planning firm must build a strong research team to tap this opportunity. It is unlikely that a financial planner who works individually will be able to provide valuable insights for investors.”

Financial planning firms will have to provide their employees with sufficient training to provide clients with proper advice. “While the new initiative provides us with more opportunities, it could backfire as well. It is a double-edged sword,” he says.