Smart About Money

Recently I came across with an article from The Star newspaper, dated 5th June 2012 at Metrobiz section. It was written by Joy Lee which really taught us on how to choose a certified financial planner. I believe it will be beneficial and knowledgable article for everyone who have no ideas at all who to approach or intend to start doing financial planning for their own with the help of an advisor.

FINANCIAL planning is relatively new in Malaysia. And not many would know of the existence of financial advisors, what more their function.

But there is increasing awareness of the need for financial planning today and more consumers are looking at the option of engaging services of financial advisors.

And Yap Ming Hui, managing director of Whitman Independent Advisors, has taken it upon himself to do his part in raising awareness on the importance of independent financial advisors.

According to Yap, the main differences between an independent financial advisor and most financial advisors in Malaysia, is that independent financial advisors are not attached to any particular financial institutions and are not required to sell specific products from their firms.

For example, a financial advisor can be attached to an insurance company and mainly advises clients on the benefits of insurance products alone and at the same time may need to meet a certain sales target.

Independent financial advisors, on the other hand, provide fee-based consultation on a client’s financial position and goals, and identify the gaps to fulfil those goals.

“From there, we help the person take the right strategy, either to cut some expenses, invest more, get insurance and things like that to help that person move towards financial freedom,” said Yap.

Whitman is among the pioneers in the local independent financial advisory front.

The firm currently serves a clientele of 100 people with combined client assets under management totalling RM950mil.

About 30% of Whitman’s client base are high net-worth individuals while the remaining are middle-class earners.

High net-worth individuals are clients with more than RM2mil worth of funds to manage.

Yap, who was previously in the life insurance sector, is passionate about his field of work.

“I never saw myself as a good businessman. I can’t just sell and sell.

“I like analysing clients and coming up with solutions rather than shove products down their throats. I foresee that I can make a lot of difference. This is what I love doing,” he said.

He attended a seminar on financial planning in 1997 and learnt about the blossoming trade in Australia, which inspired him to look into the prospects of independent financial advisory in Malaysia.

He then signed up for a chartered financial consultant course and there was no looking back for Yap.

Whitman commenced business in 2000 with a start-up capital of about RM200,000. However, it was a very new industry then and business was slow.

Additionally, Yap noted that there was no infrastructure for the advisory business to flourish and they did not fully understand the business.

But things have improved since then and Whitman generated revenue of about RM1.5mil last year compared to about RM600,000 in 2009.

Half of Whitman’s revenue is generated from consultation fees while the other half is from investment commissions.

“It is a lucrative business because it is a recurring business. If you are good, clients will stay with you for years,” said Yap.

Untapped market

There are tremendous opportunities in the independent financial advisory field as the industry is only in its infancy stage.

According to Yap, less than one per cent of the population are aware of the services offered by independent financial advisors despite the fact that consumers are getting more educated these days.

However, as consumers come out of the difficult economic climate, they will be more inclined to seek out the services of financial advisors.

“I would like to believe that the market can grow quite significantly. But we need to educate consumers on why independent financial advice is important,” he said.

Most people do not find financial planning sexy but Yap said it is important to look into it in order to achieve financial freedom.

“People think they have to do it on their own. But investment products are getting very complicated these days and consumers lack the time to look into every detail,” he noted.

In developed countries such as the United States and Australia, the financial planning and advice market is estimated to be worth some US$47bil (RM150bil) and US$4bil (RM13bil) respectively.

Market research showed that the financial planning and advice industry is growing at an annual rate of 1.8% in the US.

In Malaysia, independent financial advisory is only a small subset of the financial services industry.

Yap noted that after 2009, the market was more ready for independent financial planning services as regulations and basic infrastructure were more in place.

Independent financial advisors in Malaysia will need to obtain licences from the Securities Commission and Bank Negara Malaysia.

“Competition is too small to be noticed at the moment. We are at a stage where competitors are not an issue,” said Yap.

He welcomes more players into the industry as he feels that this will help develop the market faster which in turn will benefit everyone.

There have been various public awareness programmes in place by relevant authorities to promote financial planning in Malaysia.

But Yap said a lot of the education done among consumers gets discounted by claims from various financial advisors on their services.

“This resulted in confusion among the public on what we actually do,” he said.

Another misconception about independent financial advisory is that they charge a high fee, which Yap says is not true.

Whitman charges an annual fee of RM1,800 for regular clients and an annual fee of RM5,000 for high net-worth clients, which Yap feels is affordable.

Whitman also takes a small commission for investment it makes for its clients.

One of the factors that will boost the independent financial advisory market is to enforce a compensation structure that is conducive for service-based advisory rather than product-based advisory.

Yap adds that independent financial advisors must be able to visualise a business model that prioritises clients’ financial success.

"Only then, your own business success will come about. You don't have to shortchange your clients to earn lots of profits. For too long, we have always gone on a we-win-client-lose model but we should be able to move towards a win-win model with our clients," he said.

Metrobiz, The Star, 5th June 2012

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