This article first appeared in Personal Wealth, The Edge Malaysia Weekly, on October 12 - 18, 2015.

Investors would do well not to neglect their financial affairs in this challenging economic situation. Whitman Independent Advisors Sdn Bhd managing director Yap Ming Hui suggests ways to optimise your personal financial plan.

Preparation is key

INVESTORS should be alert, proactive and prepare themselves thoroughly in advance instead of reacting only when the worst happens. “If you are late at hedging and are [only] able hedge now, you will still need to do it — but you are doing it at a very costly price. It is always better and wiser to plan when you can’t even smell the risk coming,” Yap says. 

Investors should find ways to hedge against inflation and take advantage of the falling ringgit, he says, adding that retail investors should invest cautiously in investments of moderate risk, such as real estate investment trusts (REITs) and blue-chip dividend stocks, while keeping in mind the plummeting local currency. 

“Moderate-risk investments are relatively more boring than technology stocks or high-growth companies, but they are safer. And even if prices fell, you could hold on to them and still get dividends. The prices will rebound eventually,” says Yap.

He advises new investors to plan well by slowly learning the rules, investing in a step-by-step manner, gradually increasing their risk appetite and looking for solid investments with less volatility, like the moderate-risk investments mentioned, and also to include a unit trust fund in your portfolio. 

To take advantage of the falling ringgit, Yap refers to the asset allocation model, which involves setting target allocations for various asset classes, such as cash, bonds, equities, REITs, properties, and commodities. With a proper application of the asset allocation model, investors will be able to minimise their risks and reduce exposure to volatility.  

“Many of us are waiting for the window of opportunity to invest. We are not investing yet because the window is not big enough.  If we take a proactive approach, a crisis becomes an opportunity,” says Yap.   

“When is a good time to diversify? The time is now. In fact, any time is a good time. And it is best not to put all your eggs in one basket.”

The concept of diversification also applies within an asset class, says Yap. For example, instead of holding 100% cash in ringgit, one can convert 20% into US dollars, even though the exchange rate is currently very high, as one still has 80% in ringgit if the US dollar depreciates. On the other hand, the investor will gain if the greenback appreciates. 

“If you only take one direction, say, you want to hold 100% in ringgit, you will either be very happy or very unhappy. But if you diversify, [whichever direction the currency goes] you will not be fully happy, but you will not be very sad either,” says Yap.

By diversifying your portfolio, the impact that investors face will be a lot less, even in the most extreme of situations, says Yap.

When asked whether investing in property is a good idea, he says for people who have been accumulating a lot of cash and have no property exposure at all, it is recommended that they allocate 30% to 40% of their cash to property. By being cautious and doing proper research, investors can get the best deals and rebates. However, those who have already invested in property, should not to exceed the recommended allocation. Instead, they should diversify into other investments to avoid being largely affected if the property sector goes down.  

“If you have a diversified portfolio, with investments in commodities such as crude oil, palm oil, copper and other industrial yields, you will have solid investment assets that are able to weather the storm even if the US dollar weakens,” says Yap. 

Diversifying also means having exposure to foreign assets, including opening a foreign currency account locally, buying foreign stocks or putting your money in funds that invest in overseas assets, says Yap, “You can also choose a local unit trust that invests in Asia-Pacific or global equities. When you buy into that fund, the fund manager will help you buy some stocks in Hong Kong, Europe, the UK and the US. By doing so, you will have bought into different currencies and foreign assets.”

To have a better understanding of your financial position, you should start with a holistic financial plan, says Yap. The process involves gathering relevant financial information, setting life goals, examining your current resources and developing a plan to achieve your objectives, given your current situation and future goals.

“It is very important for everyone to do a holistic financial plan. You need to know whether you are okay, not okay or very not okay. And you won’t know this until you do proper holistic planning,” he says.

When undertaking holistic financial planning, as opposed to merely looking at your balance sheet and income statement, Yap recommends getting professional help as you need to factor in future value, future return on investment and certain assumptions such as the inflation rate. 

“For example, based on your financial plan, you have RM2 million, which was enough for your financial goals. However, with currency depreciation, inflation, and a drop in income, that sum may no longer be enough. Maybe you will need RM3 million. By doing holistic financial planning, you will know that you are RM1 million short,” he illustrates.

Targeting the middle class

When Yap Ming Hui started Whitman Independent Advisors Sdn Bhd 15 years ago, he catered for high-net-worth individuals and sophisticated investors. However, things changed in 2008, when he was approached by a recently widowed mother of two. She was very concerned about the future of her children if anything were to happen to her. She was also concerned about whether she had enough financial resources to support them. 

“She didn’t want to talk to insurance or unit trust agents. She wanted to speak to someone who was totally independent to give her objective advice,” says Yap.

As she did not fit the profile, Yap turned her down. But his conscience pricked him, and he decided to offer his services to the woman for free. To his surprise, he felt a kind of satisfaction that he had never felt before in his years as a financial planner. 

“That is when I discovered that the target market who really needs our services and advice is the middle class,” says Yap.

He explains that middle-class investors tend to increase their net worth by focusing only on returns, thus failing to optimise the potential of other financial assets. “[In comparison,] high-net-worth individuals suffer a lot less even if they don’t invest well because they have a [greater] cushion.”

So, in 2012, Yap started to offer an advisory service called the Money Optimisation Service to help middle-class clients grow their net worth steadily by optimising the potential of their financial assets, including cash, Employees Provident Fund savings and shares.

However, as the new service got off the ground, Yap discovered that it was very difficult to train new advisers to offer the service to clients. These new recruits, who had just obtained their Certified Financial Planner (CFP) certificates, had a long way to go before they could become full-fledged financial advisers. They had no experience and were very prone to giving the wrong advice.

“Many of the graduates — although they were bankers or ex-unit trust agents — didn’t have enough experience. So it was very difficult for me to teach them,” says Yap. 

To fill this gap, he came up with his Money Optimisation System. By using software, diagnostic tools and documents, his financial advisers are able to give their clients the best possible advice. “With this system, we are able to ensure that we give consistent quality advice to our clients,” says Yap.

So, instead of taking 15 years to acquire Yap’s experience, the CFP graduates only needed to be trained for six months to use the system. “After undergoing the intensive training, they will acquire my 15 years of experience and be able to deliver Yap Ming Hui’s advice to the client,” he says.  

To use the system, the advisers will have to input the clients’ financial information, data and diagnosis into the system. The system will then reveal gaps or opportunities to optimise the clients’ assets. From there, the advisers can assist their clients in taking the next step.

The system is not like an automated response software, and only trained professionals can assess the Money Optimisation System, says Yap. “It is not for consumers to use. It comprises software, tools and forms that are meant only for trained professionals,” he explains.

The Money Optimisation System is the first of its kind in the country, so Yap is confident the system will benefit the financial planning industry, especially in catering for the middle-class market.

He is currently training CFP graduates. He has recruited seven advisers and aims to recruit 106 by 2018.

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