AFA President Address By Alfred Sek – AFA 2013 Annual Conference

President Speech

AFA 2013 Annual Conference

Financial Advisers The Future – Rise Of The New Wave

Alfred Sek
31 October 2013

Our guest of honour, Assistant Governor of Bank Negara Malaysia, Puan Jessica Chew Cheng Lian. Pengarah Jabatan Konsumer dan Amalan Pasaran of Bank Negara Malaysia, Encik Suhaimi Ali. Officials from Bank Negara Malaysia & Securities Commission. Company CEOs, Members of the Media, Fellow Financial Advisers, Distinguish Guest, Ladies and Gentlemen.

A very happy morning

AFA is now more than a year old and we are indeed very proud to be recognised as an Association to represent all the Financial Advisers in Malaysia by both Bank Negara and Securities Commission. AFA is an Association run by the members for the members. Through AFA, we are committed and united in making FA the Future. Together, we will rise to create the New Wave in this industry, and this will be the theme for today’s conference.

In today’s financial world, change is inevitable and we have to embrace these changes to survive in this competitive market environment. People who refuse to change will be changed. For example, a 100 year-old company like Kodak, fell to bankruptcy because they refuse to change. Therefore to survive in the market place today, we have to change and we can’t be a single product sales person anymore. Even banks have changed to selling insurance and investments other than just collecting deposit to meet the need of its customers.

Changes are happening everywhere in the world, even the financial services industry in Malaysia has changed and we now have the new Financial Services Act 2013 that come into force on 30th June 2013 to regulate the financial services industry. With the introduction of the new FSA and the proposed regulatory guidelines changes, we hope this will be a timely opportunity for those financial intermediaries to change and upgrade themselves to be the future Financial Advisers.

What does it mean to be Financial Advisers?

Financial Advisers are approved by Bank Negara and Securities Commission to provide financial planning advice on a wide range of financial products and services from different product providers to meet the need of the consumers.

As financial products like insurance and unit trust are becoming more sophisticated, the industry now needs full-time qualified and experience professionals to advice the consumers.  Therefore, AFA would propose that the minimum entry requirement guidelines for approved Financial Adviser Representative be reviewed so that we can have more approved advisers nationwide to better serve the demanding needs of today’s knowledgeable consumers.

Whilst the FA business has many positives, it is the journey to scale and achieve profitability that may have taken too long relative to other opportunities. Moving forward with the full support provided by both the regulators and product providers, I strongly believe that the Financial Advisory industry can be driven to greater heights in the future.

AFA has come a long way since it was established one year ago. We have a number of fruitful meeting with the regulators and have also organised two very successful practise management series to enhance the skill and knowledge of the Financial Advisers. The exco committee has been working very hard and we will continue to work hard to make AFA a professional association that will help our members build their business. On top of that, we will also be the most effective voice to represent all Financial Advisers in Malaysia.

So Ladies and Gentlemen, now is the time to ask what can be done by you to make FA the Future. Let us work together towards building a financial advisory industry dedicated to transform lives through proper financial advice for the people of Malaysia.


AFA would not have achieved so much without the support of its members and the commitment of our Exco committees. I would like to take this opportunity to give my salute and sincere appreciation to all of them. So Ladies and Gentlemen, can you please join me in giving them a round of applause. Thank you

Before I conclude, I would like to give a special thank to our Guest of Honor Assistant Governor of Bank Negara Malaysia Puan Jessica Chew Cheng Lian, for gracing AFA conference. I would also like to express my sincere appreciation to all our speakers, special guest, generous sponsors, supporting organisations, participants, organising committees and all those who have contributed to make this conference a success.

Hope today’s conference will be another ground breaking event for AFA in making FA The Future for the Rise of The New Waves.

Thank you..

Assistant Governor’s Keynote Address at the 2nd Annual Conference of the Association of Financial Advisers

Assistant Governor’s Keynote Address at the

2nd Annual Conference of the Association of Financial Advisers

Financial Advisers The Future – Rise Of The New Wave

Puan Jessica Chew Cheng Lian
31 October 2013


It is my great pleasure to be here this morning at the 2nd annual conference of the Association of Financial Advisers (AFA). This year would be the eighth year that financial advisers have been a part of the financial landscape in Malaysia. As the industry looks to the future, I think it is useful to also look back to the motivations for developing financial advisers in Malaysia. Fundamentally, the objective was to improve the quality of advice on insurance solutions that was being provided to consumers. Before financial advisers, such advice was mainly only available in this country from tied agents and this system had certain limitations in terms of incentive structures and the breadth of products that the agent could draw on to advise consumers. A second objective, and perhaps one that has not been emphasized enough, is the expectation that financial advisers would be able to help individuals and households with a broader financial outlook. This means helping individuals and households understand how insurance fits within their broader financial management strategies to grow their savings, manage risk and meet specific financial goals.

Growth potential and opportunities

Over the last three years, the financial advisory industry saw total premiums transacted increase by an average annual growth of 21%. While this is from a low base, the industry is on a sustained growth trajectory, which suggests that financial advisers are adding value and successfully distinguishing themselves from alternative channels for the distribution of insurance offerings. We are pleased to see a further three new financial advisers added to the industry this year. The industry has only begun to scrape the surface in harnessing the potential that exists for financial advisers to make a substantial contribution in helping Malaysian households improve their financial management and prepare for income shocks.

This potential is striking. Every year, more than two million life and family takaful policies are sold, 69% of this by tied agents. More than 40% of the Malaysian population still do not have any form of insurance, and a large proportion of those who do are likely to be significantly under-insured. This is supported by a recent study commissioned by Bank Negara Malaysia which found that 79% of more than 1,000 respondents surveyed did not have enough financial buffers to sustain living expenses beyond 3 months. Malaysian of retirement age and older are particularly vulnerable. Based on statistics from the Employees Provident Fund in 2011, more than 70 percent of contributors who were 54 years old at the time had savings of only RM50,000 or less accumulated for retirement. Only 30% of these contributors were still working. With a reported average life expectancy of 75 years, many Malaysians are clearly at risk of not being able to meet their financial needs during retirement. The low level of financial literacy among Malaysians, especially in appreciating the importance of risk diversification and reduction, and how to use financial instruments effectively to achieve this, has further compounded the problem.

Taken together, these observations underscore the tremendous opportunity that exists for financial advisers to raise the game in quality of advice, and in educating Malaysian households on the effective use of insurance and takaful as a financial management tool. Financial advisers are well-placed to provide lifelong financial planning support to Malaysian individuals and households in an environment of a growing middle class segment with higher purchasing power. To do this, gaining public trust and confidence is critical. Today, I think you will agree with me that that level of trust and confidence in insurance intermediaries at large remains below where it could and should be. An important starting point has to be a mindset that puts a client’s needs at the centre of advice and product recommendations, and which is firmly focused on helping the client to achieve his financial and life goals. This implies a view to developing lasting and durable partnerships with clients, and investments to build and maintain a high level of competence among financial adviser representatives who can tailor advice and tackle a broad range of consumer needs and profiles.

Importance of sound advice

Access to sound financial advice has become even more important today as households face the challenges of managing heavier debt loads, higher costs of healthcare and education, effects of natural calamities that are occurring with greater frequency, and longer life spans. We believe that the responsibility to provide sound advice falls on all insurance intermediaries, whether you are an agent, an insurance broker, a bancassurer, or a financial adviser. This is clear in our Guidelines on Proper Advice which states among other things, that if an intermediary cannot match the needs and requirements of a customer with a life or takaful product within the intermediary’s offerings, the intermediary should not recommend any product to the consumer. However, we are also mindful that sound advice can have different shades which depend on many factors, including the competence of those providing the advice, the solutions that they are permitted or equipped to advise on, and incentive effects which may, either in perception or reality, colour that advice. Financial advisers provide an alternative channel through which consumers can obtain insurance advice, taking into account individual perspectives on these factors. The fundamental principle remains the same – that whichever the channel, and acknowledging the advantages and limitations of different channels, consumers should receive advice that is in their best interests.

Strengthened legislative framework for consumer protection

Before I turn to the Bank’s strategies and priorities for the further development of the financial advisory industry, let me briefly touch on the new legislation for financial services that marks a key milestone in strengthening the consumer protection framework Malaysia. As you are aware, the Financial Services Act and the Islamic Financial Services Act 2013 were brought into force in June this year. Under these new laws, the Bank has been given a clear mandate to foster fair, responsible and professional business conduct among financial service providers. To this end, the Bank may specify and enforce standards on the business conduct of financial service providers to ensure that financial consumers are treated fairly. The laws also specifically prohibit financial service providers from engaging in unfair or deceptive business conduct including making false, misleading or dishonest representations, and tied selling. The laws further provide for the approval of a financial ombudsman scheme for the resolution of disputes involving financial services.

A significant amount of work is currently being undertaken by the Bank on these fronts to give full effect to the law. We are close to finalising principles for treating customers fairly and guidance on prohibited conduct which will be published for consultation and feedback from the industry and other stakeholders. We will continue to raise standards on transparency to consumers, taking into account new insights from research conducted by the Bank to better understand how consumers use information to make financial decisions. We are also considering options for putting in place an effective mechanism to handle disputes involving financial intermediaries. This mechanism does not exist today outside of the advisory and complaint services provided through Bank Negara Malaysia’s LINK channel.

Changes were also introduced under the new laws to deliver a more efficient regulatory regime for insurance intermediaries. Specifically, the scope of regulatory approvals required has been substantially reduced, for example the requirements to seek the Bank’s prior approval for shareholding changes not amounting to control, and for the appointment of key personnel, financial adviser’s representatives (FAR) and auditors. Intermediaries now only need to notify the Bank and comply with minimum qualification and suitability standards. While we believe this will help you run your businesses more efficiently, our focus on preserving a high level of integrity, competence and professionalism among intermediaries has not changed and we will, as we have demonstrated over the course of the year through stronger enforcement actions, apply more intrusive supervision if we find that intermediaries have not discharged their responsibilities as expected.

A new category of financial adviser, that is the Islamic financial adviser, was introduced under the Islamic Financial Services Act 2003. This is also aligned to the objective of encouraging takaful agents to upgrade themselves to be Islamic financial advisers as the demand for financial advice grows. Similar to specialised takaful brokers introduced in 2005, Islamic financial advisers will be specialising in advising on family takaful and other Shariah-based products.


Strategic priorities to further develop the financial advisory industry

The Bank has identified a number of strategic priorities to further develop the full potential of the financial advisory industry in delivering better outcomes to consumers and increasing the level of insurance penetration in Malaysia. I should say that we benefitted significantly from our engagements with the industry on the direction that we intend to take and the key issues that need to be addressed moving forward. Today, let me mention four key priorities.

Our first priority is to ensure that financial advisers are highly competent and professional when they provide advice. We understand from our engagements with AFA that recruiting the right talent continues to be a major challenge given that financial advisory firms are competing with larger financial institutions for a limited pool of qualified individuals. The Bank will continue to work in close collaboration with AFA to increase the talent pool. This includes reviewing on a regular basis, the programmes and qualifications that meet the minimum standards for financial advisors and working with academia, training providers and accreditation bodies to broaden the qualifications recognized without compromising on quality. There is also a need to lift the competency requirements for financial advisers. The current emphasis has been largely on ensuring that financial advisers have sound product knowledge and the core competencies to understand and analyse their client’s needs. We believe there is a need for financial advisers to possess a larger body of financial and technical knowledge, that includes a deeper awareness of latest developments in the industry and opportunities available, and to be able to apply this knowledge to a client’s advantage. Other core competencies that need to be given greater emphasis include effective communication and problem solving skills.

The second priority is to identify and address the barriers that are preventing qualified parties from entering the industry, and the constraints that are limiting the ability of financial advisers to recommend the best solutions to their clients. We are close to making an announcement on revised minimum entry requirements for financial advisory business. The Bank is also currently working on measures to create a more level playing field with respect to product offerings among the insurance intermediaries. The Bank and the Securities Commission will also continue to coordinate closely in facilitating the ability of financial advisers and financial planners to provide advice on a broad range of financial solutions. In this respect, further enhancements are expected to be made to regulatory processes to improve efficiency and further ease the regulatory burden on the existing players.

The third priority is to improve the alignment between the interests of consumers and financial advisers. We believe how incentives are structured have an important role in shaping the quality of advice that a consumer receives. While there are current requirements for potential conflicts to be clearly disclosed to consumers, the effect of such disclosure in alerting consumers to consider how such conflicts may affect any advice received, and to temper their decisions appropriately, may not be adequate to resolve the inherent conflicts that are created when a financial adviser is compensated by product providers. At the same time, the vast majority of Malaysian consumers are not currently accustomed to paying directly for advice. In moving towards a better alignment of interests, there is an opportunity for fee-based business models to gain more traction, with financial advisers doing more – individually and collectively as an association – to explain how they add value through the advice that they give.

The fourth priority is to intensify our review of the quality of advice provided by financial advisers to consumers through our supervisory work programme. This will contribute towards ensuring that financial advisers stay at the “top of their game” in terms of quality of advice, and that this is sustained through effective oversight arrangements within financial advisory firms to check that the interests of clients are being well-served at all times.

At the industry level, the AFA will have a key role in elevating the stature of the industry by coordinating initiatives to create greater awareness on the role of financial advisers, educate consumers on the importance of financial advice and to promote financial advisory services. AFA can also play an important role in driving higher standards of professionalism in the industry through the development and implementation of industry codes of conduct and ethics that are focused on the interests of clients.

Well informed financial consumers

The Bank is mindful that while great emphasis has been placed on the responsibility of financial service providers and intermediaries to ensure that the products recommended to consumers are appropriate to their needs, consumers are ultimately accountable for their own financial decisions. Our best efforts to improve the quality of and accessibility to financial advice would be incomplete without at the same time, equipping consumers with the knowledge, skills and tools to make informed financial decisions. These capabilities not only allow individuals to build, manage and preserve wealth, they are essential to help consumers protect themselves against poor market practices and to take appropriate actions when treated unfairly. Therefore, enhancing financial capability among Malaysians has been and will continue to be an important agenda of the Bank. Financial advisers have an important role in this effort given your unique vantage point as an objective adviser, and through the close relationships that are cultivated with your clients. We look to the industry to provide input and support to the Bank’s ongoing work to develop financial capability programmes that are tailored to the different key life stages of individuals from their days as a student, when they enter the workforce, when they start and raise a family, and in retirement.


In closing, let me congratulate the AFA on its second annual conference and the progress that has been made in bringing the industry together under an organized platform to further advance and develop the industry. I come back to my opening comments and look forward to working with the Association to deliver the objectives that were originally set out for the industry, that is to improve the quality of advice and enhance its role in supporting the broader financial management strategies of Malaysian households and individuals to grow their savings, manage risk and meet their financial goals. Thank you.

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The 3 Most Timeless Investment Principles

Warren Buffett is widely considered one of the greatest investors of all time, but if you were to ask him whom he thinks is the greatest investor, he would probably mention one man: his teacher, Benjamin Graham. Graham was an investor and investing mentor who is generally considered the father of security analysis and value investing.

His ideas and methods on investing are well documented in his books, “Security Analysis” (1934), and “The Intelligent Investor” (1949), which are two of the most famous investing texts. These texts are often considered requisite reading material for any investor, but they aren’t easy reads. In this article, we’ll condense Graham’s main investing principles and give you a head start on understanding his winning philosophy.

Principle #1: Always Invest with a Margin of Safety
Margin of safety is the principle of buying a security at a significant discount to its intrinsic value, which is thought to not only provide high-return opportunities, but also to minimize the downside risk of an investment. In simple terms, Graham’s goal was to buy assets worth $1 for 50 cents. He did this very, very well.
To Graham, these business assets may have been valuable because of their stable earning power or simply because of their liquid cash value. It wasn’t uncommon, for example, for Graham to invest in stocks where the liquid assets on the balance sheet (net of all debt) were worth more than the total market cap of the company (also known as “net nets” to Graham followers). This means that Graham was effectively buying businesses for nothing. While he had a number of other strategies, this was the typical investment strategy for Graham.

This concept is very important for investors to note, as value investing can provide substantial profits once the market inevitably re-evaluates the stock and ups its price to fair value. It also provides protection on the downside if things don’t work out as planned and the business falters. The safety net of buying an underlying business for much less than it is worth was the central theme of Graham’s success. When chosen carefully, Graham found that a further decline in these undervalued stocks occurred infrequently.

While many of Graham’s students succeeded using their own strategies, they all shared the main idea of the “margin of safety.”

Principle #2: Expect Volatility and Profit from It
Investing in stocks means dealing with volatility. Instead of running for the exits during times of market stress, the smart investor greets downturns as chances to find great investments. Graham illustrated this with the analogy of “Mr. Market,” the imaginary business partner of each and every investor. Mr. Market offers investors a daily price quote at which he would either buy an investor out or sell his share of the business. Sometimes, he will be excited about the prospects for the business and quote a high price. Other times, he is depressed about the business’s prospects and quotes a low price.

Because the stock market has these same emotions, the lesson here is that you shouldn’t let Mr. Market’s views dictate your own emotions, or worse, lead you in your investment decisions. Instead, you should form your own estimates of the business’s value based on a sound and rational examination of the facts. Furthermore, you should only buy when the price offered makes sense and sell when the price becomes too high. Put another way, the market will fluctuate – sometimes wildly – but rather than fearing volatility, use it to your advantage to get bargains in the market or to sell out when your holdings become way overvalued.

Here are two strategies that Graham suggested to help mitigate the negative effects of market volatility:

Dollar-Cost Averaging
Dollar-cost averaging is achieved by buying equal dollar amounts of investments at regular intervals. It takes advantage of dips in the price and means that an investor doesn’t have to be concerned about buying his or her entire position at the top of the market. Dollar-cost averaging is ideal for passive investors and alleviates them of the responsibility of choosing when and at what price to buy their positions.

SEE: Take Advantage of Dollar-Cost Averaging and Dollar-Cost Averaging Pays

Investing in Stocks and Bonds
Graham recommended distributing one’s portfolio evenly between stocks and bonds as a way to preserve capital in market downturns while still achieving growth of capital through bond income. Remember, Graham’s philosophy was, first and foremost, to preserve capital, and then to try to make it grow. He suggested having 25-75% of your investments in bonds, and varying this based on market conditions. This strategy had the added advantage of keeping investors from boredom, which leads to the temptation to participate in unprofitable trading (i.e. speculating).

Principle #3: Know What Kind of Investor You Are
Graham advised that investors know their investment selves. To illustrate this, he made clear distinctions among various groups operating in the stock market.

Active Vs. Passive
Graham referred to active and passive investors as “enterprising investors” and “defensive investors.”

You only have two real choices: The first choice is to make a serious commitment in time and energy to become a good investor who equates the quality and amount of hands-on research with the expected return. If this isn’t your cup of tea, then be content to get a passive ( possibly lower) return but with much less time and work. Graham turned the academic notion of “risk = return” on its head. For him, “Work = Return.” The more work you put into your investments, the higher your return should be.

If you have neither the time nor the inclination to do quality research on your investments, then investing in an index is a good alternative. Graham said that the defensive investor could get an average return by simply buying the 30 stocks of the Dow Jones Industrial Average in equal amounts. Both Graham and Buffett said that getting even an average return – for example, equaling the return of the S&P 500 – is more of an accomplishment than it might seem. The fallacy that many people buy into, according to Graham, is that if it’s so easy to get an average return with little or no work (through indexing), then just a little more work should yield a slightly higher return. The reality is that most people who try this end up doing much worse than average.

In modern terms, the defensive investor would be an investor in index funds of both stocks and bonds. In essence, they own the entire market, benefiting from the areas that perform the best without trying to predict those areas ahead of time. In doing so, an investor is virtually guaranteed the market’s return and avoids doing worse than average by just letting the stock market’s overall results dictate long-term returns. According to Graham, beating the market is much easier said than done, and many investors still find they don’t beat the market.

Speculator Vs. Investor
Not all people in the stock market are investors. Graham believed that it was critical for people to determine whether they were investors or speculators. The difference is simple: an investor looks at a stock as part of a business and the stockholder as the owner of the business, while the speculator views himself as playing with expensive pieces of paper, with no intrinsic value. For the speculator, value is only determined by what someone will pay for the asset. To paraphrase Graham, there is intelligent speculating as well as intelligent investing – just be sure you understand which you are good at.

The Bottom Line
Graham served as the first great teacher of the investment discipline and his basic ideas are timeless and essential for long-term success. He bought into the notion of buying stocks based on the underlying value of a business and turned it into a science at a time when almost all investors viewed stocks as speculative. If you want to improve your investing skills, it doesn’t hurt to learn from the best. Graham continues to prove his worth through his disciples, such as Warren Buffett, who have made a habit of beating the market.
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Build Stable Wealth With Infrastructure

Two of the biggest problems facing investors’ portfolios these days are inflation and volatility. The cold hand of inflation can slowly eat away purchasing power, while volatility can magnify losses and hurt overall total returns. Finding solutions to grapple with these two powerful forces is a necessity for investors who are looking toward the long term.

Luckily, there’s a boring asset class that’s up to the task.

While toll-roads, pipelines and sewer treatment operations may not seem like high-growth investments, the truth is that infrastructure remains one of the best ways to build inflation- and volatility-proof wealth. There are plenty of positives as well as growth opportunities for investors who take on the sector.

Trillions in Spending Needed
Infrastructure remains a compelling long-term asset class for portfolios. Sustainable economic growth necessitates continued investment in new infrastructure facilities. As emerging nations continue to grow at breakneck speeds, their newly found higher incomes will lead to increased demand for a better quality of life. Better environmental services, high-speed communication and new transportation beyond the city centers will need to be built.

In the developed world, the opposite is true. Even in many developed nations, many major infrastructure projects were constructed just after World War II. In England, some sections of London’s sewer system are around 100 years old. The general dilapidated state of these vital economic assets requires a major overhaul in order for developed nations to remain competitive on a global scale.

Overall, building and repairing our planet’s vital infrastructures is going to cost some serious dough. CIBC World Markets estimates that total infrastructure spending over the next 20 years will need to reach nearly $35 trillion. The Organization for Economic Co-Operation and Development (OECD) pegs that number closer to $50 trillion, in order to keep pace with the world’s growing population.

However, as various governments grapple with budget and austerity woes, much of this important and needed spending has taken a backseat to matters that are more “imperative.” This is where both retail and institutional investors come in. As cash-strapped governments are forced to find new ways to slash ballooning budgets, selling public assets could mean the difference between insolvency and business as usual.

Why Buy a Toll-Road?
Adding infrastructure to a portfolio can be just what the doctor prescribed in order to overcome both inflation and volatility as well as provide some growth aspects. First, firms associated with design and construction can offer a capital gain component. After all, those big dollar amounts will first hit the companies that are doing the heavy lifting.

However, the stability of the sector is where infrastructure really shines. Payments for the use of certain assets, such as a cellular tower or highway, produce stable cash flows and revenues for owner/operators. These steady cash flows ensure that the sector has a low correlation with other asset classes and provide diversification benefits, while boosting returns and curbing risk. More importantly, these cash flows are commonly linked to measures of economic growth, such as gross domestic product and inflation. That feature is a key reason why the asset class is a great inflation fighter.

Accessing the Opportunity
Adding infrastructure investment to a portfolio can be a daunting task, as the breadth of the sector is so large. However, given the sector’s newfound popularity with investors, Wall Street has attempted to quantify the theme into several vehicles.

For those investors with large enough portfolios, private equity remains one of the best ways to tap infrastructure assets. Private equity funds from such asset managers as KKR (NYSE:KKR) and Carlyle (NYSE:CG) have launched in recent months, in order to take advantage of opportunities in the sector. These funds allow investors to access private infrastructure assets and engage in transactions not featuring publicly traded firms. Costs can be high for PE funds and there could be long capital lock-up periods, so investors going this route need to really do their homework. For the rest of us, this growing theme has spawned a variety of ETFs, closed-ended funds and traditional mutual funds.

Actively managed mutual funds such Kensington Global Infrastructure fund (KGICX) or index ETFs such as the iShares S&P Global Infrastructure ETF (ARCA:IGF), make adding the sector to a portfolio quite easy. Furthermore, investors can reap the benefits almost immediately.

Overall, lists more than six infrastructure-specific exchange traded funds and Morningstar lists 76 different utility-focused funds.

The Bottom Line
Investors who want to build long-term, stable and inflation-resistant wealth should consider infrastructure assets. While not the most exciting of investments, these assets provide exactly what a portfolio needs to navigate the current and future markets.
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AFA Malaysia: Charting New Frontier – FA The Future 2012

Charting New Frontier – AFA Malaysia

Deputy Governor's Keynote Address at the Inaugural Conference of the Association of Financial Advisers “Charting New Frontiers – Financial Advisers the Future”


Speaker : Dato’ Muhammad bin Ibrahim
Venue : Lanai Kijang, Bank Negara Malaysia
Date : 31 October 2012
Language : English


I would like to congratulate the Association and its members for your commitment, which has resulted in the successful formation of the AFA to champion and promote the interests of all licensed financial advisers in Malaysia. The formation of AFA is most timely, and marks a significant milestone in the progressive maturing of the financial advisory industry.

Since the introduction of FAs in 2005, we have seen commendable growth within the industry, with the number of licensed FAs rising from 2 to 17, and the number of licensed FA representatives increasing from 17 to 229 today. The formation of the AFA is timely as it provides a platform to encourage greater collaboration among FAs to instill greater professionalism among its members and I expect the AFA to play an  important role in coming up with clear strategies to propel the financial advisory sector towards greater progress and growth.

Developments in the Insurance and Takaful Sectors

There are some broad developments within the economy and the financial sector that will expand the opportunity for growth in the provision of independent financial advisory services.

First, the insurance and takaful sectors have seen positive and continuous growth over the last five years, with total insurance premiums transacted and takaful contributions recording an average annual growth of 4.9%, with annual growth peaking at 13% in 2010. In terms of insurance penetration, in 2011, 67 out of 100 Malaysians had some form of life insurance or family takaful coverage as compared to only 59 out of 100 Malaysians in 2006. This means there remains a large untapped segment of the population with no life insurance or family takaful protection that the profession can further develop.

Second, in terms of distribution channels, the agency force is still the dominant intermediation point for the insurance industry.   At present, the market share of financial advisers as a delivery channel is still low and therefore, the prospect of growth is tremendous.

The prominence of the agency force as a delivery channel of choice for the distribution of life insurance business is evidenced from the more than 10% growth in the number of life insurance agents enrolled between 2006 and 2011.  Consistent with the increase in the agency force, the expenditure dedicated to maintain this delivery channel also remained significant, with commissions and agency remunerations consistently accounting for more than 70% of the net investment income of the industry.

This trend reflects the attractive payouts a productive agent can potentially earn, although the industry’s commission structure is bound by the limits specified in the operating costs control guideline (OCC Guideline) issued by the Bank.

Benchmarked against selected countries within the region which do not regulate commission payment, the commission rate currently earned by Malaysian agents remains relatively high compared to the benchmarked rates of between 140% to 150%, as seen in other jurisdictions.  This excludes other agency-related benefits which are also allowable under the OCC guideline.

Some have argued that the current commission levels are too low as the commission structure has not been revised since the Guidelines were first introduced in 1996.  However, closer scrutiny shows that agency income from commissions had increased in absolute terms in line with the increase in average premiums size. The average size of new business grew by 9% per annum over the last decade while in-force premium size recorded a compounded annual growth rate of 5%. Hence, the commission income of productive agents has in fact been growing in excess of the consumer price index and national average wage inflation.

The world is constantly changing,  the transformation that is taking place in the financial sector landscape also warrants a suitable change in the regulatory framework  which the industry must be prepared to embrace and adapt to, going forward.  The OCC had served its objectives well to keep operating costs reasonable to ensure policyholders’ interests are preserved. To enhance greater efficiency and facilitate a more competitive market environment, the Bank will accord greater operational flexibility to the industry in determining amongst others, the commission structure for its agents and other intermediaries.

Based on statistics made available to the Bank, commission and agency remuneration have consistently accounted for approximately 40% of the total net premium income of life insurers since 1997.  With the proposed flexibility, individual insurers will have the ability to determine the remuneration of its intermediaries but subject to appropriate safeguards being put in place such as a more robust disclosure framework for greater transparency. These operational flexibilities will be implemented in a gradual manner, with some measures being introduced by the end of this year.  This is to minimize the risk of adverse impact on the efficient delivery of insurance products and services to consumers.

With the fundamental changes taking place around us, it is timely for insurers including intermediaries, to assess how best to improve insurance penetration going forward. There are some fundamental questions that need to be asked.  Would attracting a larger agency force be the most effective solution in this more liberalized environment? Or, should the focus perhaps be on expanding the diversity of  the intermediaries in general,  to ensure consumers have more alternatives to receive high-quality and suitable advice?

Whatever the response to these questions, what is obvious is that investing in human capital is an important common denominator, not only to enhance the existing level of expertise of intermediaries but also to attract the right people to ensure a continuous supply of talents into the profession.

It is from this perspective that an incentive package is being considered by the Bank to subsidize the costs related to minimum professional qualifications for FAs.  We hope that it will entice more agents to consider upgrading themselves to become successful FAs.

Growing Demand for Independent Financial Advisory Services

As our economy continues its track towards high income nation status, and as our society becomes more affluent and discerning, we envisage an increasing demand and preference for high-quality, independent and personalized advisory services among financially-savvy consumers.

Apart from rising levels of disposable income and financial sophistication, Malaysians are expected to live longer now than ever before. It is projected that by 2040, 17% of the Malaysian population will live beyond the age of 60 years old compared to about only 8% of the total population in 2010. This creates the need for more effective long-term financial planning on the part of consumers to ensure they have sufficient funds to see them through their golden years. In this respect, as part of the Government‘s initiative to encourage savings among Malaysians to better prepare for their retirement, the Government had announced a tax relief of RM3,000 for individuals who have bought an annuity plan for the next 10 years commencing in 2012.

An increased competition within the financial sector and evolving demographic structures has also led to the introduction of new and more complex financial products offered by financial service providers. While financial consumers now have a greater array of choice, the challenge is in choosing the most appropriate financial product commensurate to their needs.  Lessons learned from other markets  showed that  high-profile cases of mis-selling of investment-linked and pension products extols the importance of ensuring consumers are properly adviced on the key features, terms, conditions and suitability of a financial product before they enter into any financial contract.

Assisting Consumers to Make Wise Financial Choices

As FAs, you have the responsibility to educate consumers on the importance of financial planning, such as saving for the first home or a child’s future education, or buying insurance protection to safeguard against unexpected losses. FAs can assist consumers in better understanding their current and future financial needs and circumstances. FAs can provide independent and impartial advice which is tailored to the consumers risk appetite and financial needs.

Apart from educating their clients on what they should be investing in, FAs also play an important role in educating their clients on what they should not be investing in. As you are the industry’s front-liners and are actively meeting with potential customers on a daily basis, FAs can be relied on as a key source of information to prevent consumers from falling prey to financial scams.

Broad Strategies for Effective Provision of Wealth Management

In recognition of the need to further enhance the regulatory framework supporting the development of the financial advisory sector, the Bank has recommended for further streamlining of the current dual licensing regime for FAs and financial planners (FPs) in the Financial Sector Blueprint 2011-2020.  A Joint Working Group with the Securities Commission has been formed to assess the existing legislations and regulatory regime across both jurisdictions, with the aim of further reducing duplications and related costs of compliance for the benefit of industry participants.

Some of the measures that have already been introduced include the harmonization of limits on foreign shareholding and streamlining of professional qualifications and requirements on continuing professional development. The Bank will be engaging with the AFA at a later stage as part of the consultative process towards further enhancing the regulatory regime for FAs and FPs.

In line with our objective of promoting fair and responsible conduct by financial service providers, the Bank has recently reissued the Guidelines on Proper Advice Practices for Life Insurance and Family Takaful Business. The Guidelines which was previously applicable to the sales force and agents of insurers and takaful operators has now been extended to include all insurance and takaful intermediaries, including financial advisers. The Guidelines outline the minimum standards for proper advice and ethical selling practices of life insurance and family takaful products by insurance and takaful intermediaries, with the aim of ensuring consumers are provided with suitable advice to support informed decision-making.

With these Guidelines in-force, the Board of Directors of respective FAs are now required to establish the necessary processes to ensure proper monitoring of the quality of the advisory process conducted by FA representatives, and we expect FAs to deal firmly and expediently in the event of non-compliance which results in mis-selling or the provision of inappropriate advice.

I am greatly encouraged to see the continuing growth of the FA industry and today’s event marks a significant milestone for the industry as a whole. The theme of this Conference, “Charting New Frontiers – Financial Advisers the Future” is well-timed and reflective of the changes we are now experiencing as our nation progresses towards a high-income economy. Once again, I would like to congratulate AFA on its official launch and look forward to meaningful contributions from the Association in driving the financial advisory sector forward. On this note, I wish you all a successful and productive Conference.

© Bank Negara Malaysia, 2012. All rights reserved.

AFA Founding President Interview at Money Compass 105th issue

An interview between AFA Chairman, Mr Alfred Sek with Money Compass.

You can view the full details of the interview from the document below.

download pdf

click to download the file

AFA Inaugural Conference

Congratulation to the success of the AFA Official Launching event on 31st Oct 2012

President address by Alfred Sek – AFA Inaugural Conference 2012

President AFA,

at the launch ceremony of AFA   

at Lanai Kijang, Kuala Lumpur on 31 October 2012

Our guest of honour, Deputy Governor of Bank Negara Malaysia, Dato Muhammad Ibrahim. Executive Director Strategy & Development of Securities Commission, Mr Goh Ching Yin. Pengarah Jabatan Konsumer dan Amalan Pasaran of Bank Negara Malaysia, Encik Suhaimi Ali. Officials from Bank Negara Malaysia & Securities Commission. Company CEOs, Members of the Media, Fellow Financial Advisers and Practitioners, Distinguished Guest, Ladies and Gentlemen.

A Very Good Morning!

Today is a very significant and historic day for AFA as we are now the official body to represent the united voice of all Financial Advisers (FA) firms in Malaysia. AFA is an association run by the members for its members. AFA may be new in Malaysia, but it has been in existence for more than half a century in many developed countries.

With the formation of AFA, we are now entering an exciting new era to unite all the FA firms to share our expertise and resources to address the common issues and challengers together under one platform, one voice, in 1 Malaysia.

AFA Malaysia will be the association to benchmark the industry best practice model and also to spearhead the changes in the Malaysian financial planning landscape to be in line with Bank Negara Malaysia’s Financial Sector Master Plan and the Securities Commission Malaysia’s Capital Market Master Plan.

In today’s financial market, consumer confidence is the key to the growth of our financial services industry. Therefore, AFA strongly supports the regulators’ initiative on consumer protection regulation as it is crucial to have the consumer confidence in our financial market.

Therefore we feel that it is essential to have a prudent approach on such regulations applied fairly across all financial intermediaries’ distribution channel to ensure its effectiveness.

The financial planning industry in Malaysia is still at its infancy stage as compared to some other countries. At this stage of development, we hope our regulators would focus on measures that would promote the growth of the FA industry and at the same time ensure that consumer interests are not compromised.

At such, regulations can directly impact the business practices of today’s FAs.  AFA, which represents the united voice of all the FA firms in Malaysia have three very important wishes that we would like to see it happen soon.

Firstly, our wish is to work with the regulators to harmonise the existing regulations towards adopting a single licensing framework for the growth of the FA business.

Secondly, our wish is to have an effective and efficient regulatory system that minimises the regulatory burden and cost of compliance for all the FAs.

Our third wish is to have to a fair playing field for all financial services intermediaries to co-exist in the best interest of consumers.

Our goal is to work closely with the regulators to promote a sound regulatory system that allows financial advisers to fully meet the needs of consumers in today’s competitive market.

AFA’s purpose is to help our members build their business and the vision is to be the most effective voice to represent all FAs in Malaysia. Its mission is to develop professional strategies with members to make a difference in the lives of FAs. The philosophy of AFA is that we are dedicated to transform lives through proper financial advice.

AFA Objectives are:

  1. To create a professional and conducive environment for the licensed FAs.
  2. To provide an interactive platform for our members to address all practise issues, guidelines and regulations.
  3. To structure a uniform best practices standards for our members.
  4. To build a platform for all stakeholders to work together in growing the financial services industry.
  5. To protect consumers’ interest by working with other related agencies to provide education and awareness.

These are our objectives!

Financial Advisers in Malaysia are a group of passionate people, who work hard to create value and help people to achieve financial freedom.  In the process, we are able to transform lives of Malaysians through a proper financial plan. Therefore, AFA believes that in this challenging financial environment, FAs can play an important role to make a difference for the consumers in Malaysia.

With this, I strongly believe the future for Financial Advisers in Malaysia will be very bright and it will be so bright ladies & gentlemen that you may have to wear sun glasses to meet your clients.

Going forward, AFA will be committed to do it’s best to make financial advisory a profession of the highest standing with great respect from the Malaysian public.

In conclusion, I would like to give a special thank to our Guest of Honor, Deputy Governor of Bank Negara Malaysia, Dato’ Mohammad Ibrahim, for gracing today’s occasion. I would also like to express my sincere appreciation to all our speakers, special guest, generous sponsors, supporting organizations, delegates, organizing  committees, and all those who have contributed to make this conference a success.

May I also wish at the end of today’s session that all of you will have a clearer understanding on the financial planning industry. Let us work together towards charting new frontiers and making FA The Future!    Thank You.