Not true. An IFA should help you to address the full range of personal financing issues, which include income, expenses and debt planning, insurance planning, tax planning, retirement and EPF planning, children’s university funding planning, home purchase and property investment planning, estate planning and investment planning. An IFA should do all this in an integrated and holistic manner.
The chart clearly lays out all these essential areas that require your attention in order to achieve financial freedom.
An IFA must have the competency to identify your financial goals, analyse your current financial position, identify the gaps and develop strategies to achieve your financial goals. He should also have the necessary intellectual framework, advisory model and tools to complete the task.
An adviser who specialises in only one area of financial services may not be able to foresee how his solutions will affect your other financial goals. This is key!
Not true. There are many licences offered by the SC and Bank Negara. Some financial advisers hold a licence to sell unit trust products only, whereas some hold a licence to sell life insurance products only. This group of people are not IFAs.
In Malaysia, an IFA should have three licences to qualify and hold that title. Any IFA who claims to offer financial planning services must hold a Capital Market Service Representative Licence for dealing in financial planning activities by the SC. This licence allows the IFA to provide financial planning services to an individual for a fee.
In addition, an IFA who claims to provide independent financial advisory services must hold a Financial Adviser Representative Licence by Bank Negara. This licence allows the IFA to analyse the financial planning needs of an individual and recommend the appropriate insurance products. He can source insurance products from various insurance companies.
An IFA who wants to recommend and source unit trust policies from multiple unit trust companies must hold a Corporate Unit Trust Adviser Licence provided by the SC.
IFAs who do not have all three licences will be unlikely to advise you both independently and comprehensively.
Not true. A professional qualification is only one of the factors that determine whether an individual is a competent financial adviser. In Malaysia, more than 5,000 people hold the qualifications stated above, but most of them are not practising IFAs. Nor do they provide independent financial advisory service for a fee. Take a person who holds an ACCA qualification. He may choose to work as an administrative manager and not set up practice as an accountant.
Fewer than 100 of those who completed these professional qualifications proceed to apply for the required licences from the relevant regulators to practise as an IFA. (as at 31.12.2014, BNM has licensed less than 400 Financial Adviser Representative)
Not true. It is a misconception that the middle class has relatively little wealth to manage, thus looking after one’s assets is considerably easier. The middle class people often tread a thin line between financial freedom and financial distress in view of their limited resources. In such a situation, it is critical that middle income earners obtain competent financial guidance to fully optimise their limited wealth.
The wealthy by comparison have many assets, thus managing them can be complicated, and often justifies the engagement of an IFA.
Not true. Many people think that IFAs charge tens of thousands of ringgit for their services. While some IFAs do charge such sums, there are many IFAs that ensure their services are affordable for middle income earners. In Malaysia, the fees charged by an IFA range from RM1,000 to RM20,000 a year depending on asset size.
My experience has found that a middle class family could easily lose more than RM1.5mil in making unnecessary financial mistakes. Therefore, the actual cost of making financial mistakes clearly outweighs the professional fees charged by IFAs.