UPDATE: 1st June 2021
Whenever I introduced myself as a Financial Planner to my friends, I will usually get, are you selling insurance?
The purpose of this article is to clear the air and to spell out the type of financial planning profession operating in the market, including those marketed as a financial planner but not licensed. I hope by the time you finish reading this article, you will be able to differentiate who is who in the market. (Finger crossed)
- Life Planner
- Financial Advisor
- Financial Advisor Representatives
- Licensed Fee-Only Financial Planner
- Licensed Fee-Based Financial Planner
- Fee Charging Licensed Financial Planner
Have you heard or seen the list above before? If yes, are you confused with all these titles?
To help you understand better and why the financial planning industry has become too complicated to understand, allow me to bring you back to history.
The Confusion Starts
In the past, the public attitude towards financial planning is much simpler. If you are looking for insurance coverage, you look for an insurance agent. If you want to write a will, you look for an estate planner, as simple as that. In tandem with the demand for holistic financial planning, financial products provider has continuously created innovative products for the general public. However, these products are too complex to be understood. If you notice, more personal financial service agents are holding multiple licenses instead of one and promoting themselves as a one-stop financial planning center.
I wonder if you can call that financial planning?
Now, they have these Professions
I was browsing my CFP Certification Module 1 textbook. In it are the ten providers of Financial Planning Services:
- Unit Trust Consultants
- Financial Planners
- Estate Planners
- Insurance Advisors
- Investment Advisors
- Real Estate Brokers
If the financial planning industry remained simpler by having everyone stick to their respective field, the industry would not have been this chaotic. In reality, every business people would like to capture all business transactions from their client by becoming a jack-of-all-trades, but can they master all of it? You will also find some law firm or accounting firm coming into the industry selling insurance and unit trust using their existing clientele.
Again, I wonder, is that even financial planning at all?
Are you confused? (I hope not)
As far as I am aware, the financial planning industry in other countries regulated by a sole authority. In Malaysia, we have two regulators, the Central Bank of Malaysia (Bank Negara Malaysia) & the Securities Commission Malaysia.
I am not sure why Malaysia has two regulators because it is beyond my comprehension. I think it has to do with the first footing, and I hope one day they will patch up and combine the Acts and regulate as one regulatory body instead of two.
The Truth Hurts
Yes, the truth always hurts. After all, it is difficult to discuss an open secret because everyone thought it is taboo, and we cannot do anything with it.
For a moment, let us forget all the titles you have heard of so far, and let get this straighten up. There are only five main types of people in the market regardless of the title they hold in the personal finance industry, and they are:
- the agent
- an agent with a CFP or RFP title but not licensed
- the Financial Advisor Representatives (FAR)
- the Licensed Fee-Based Financial Planner and
- the Licensed Fee-Only Financial Planner
For the clients, these titles are meaningless to them because they are not from this industry. However, the client can experience their service with how they talk and think when servicing their client. Let me illustrated the point in a table for you.
|Agent||Commission||Selling Financial Product||Bias|
|The Agent holds a title but not Licensed||Commission||Selling Financial Product||Bias|
|Financial Advisor Representatives||Commission||Advice & Selling Financial Product||Partially Bias|
|Fee-Based Licensed Financial Planner||Fee & Commission||Charge a Fee and Sell Financial Product||Partially Bias|
|Fee-Only Licensed Financial Planner||Fee-Only||Charge a Fee on the Work required||Unbiased|
Before you jump on me and accuse me of anything, do calm down and hear me out. Allow me to define what is bias means in my context.
What is Bias?
- When you tell a client your product is good when you know another product is better.
- When you tell your client your product suits them when your company pays you an incentive for pushing it out.
- When you claim their interest comes first when YOUR interest is (commission from product sold).
What I found more irritating is when an agent carries the CFPCERT TM or RFP title and portrays to the client that they are a licensed financial planner when you are not. (I hope no one charge a fee using this status because it is illegal)
Next, what is Partially Bias?
- This will happens when the planner claim they are unbiased but did not disclose the remuneration details.
- They charge a minimum fee to attract your attention for the same work done by other licensed financial planners before taking a cut of gain in a form of commissioned products, and
- They start promoting various commissioned products tagged with their financial firm and to help you achieve your goal (higher cost compared to other platforms).
Am I implying Fee-Only is the only Not-Biased?
All I can say is, Fee-Only Planner operates like doctors and lawyers. They collect a fee from the client to ensure their request is fulfilled and get the most from what they paid to do. You have a choice to disagree with me because like some other profession they do charge a higher fee for the same work because of the different operational cost involved.
As a client, what can you do now?
As mentioned earlier, the reason for this article is to clear up the air in the market, and I am not here to judge. I only think that our clients should know the difference and understand the facts before engaging with anyone in the personal finance industry.
As a client, if you are unsure how to categorize them. Here is a guide for you:
- Ask how are they being compensated
- Check if they are registered with FIMM (for Unit Trust) / LIAM (for Life Insurance) / PIAM (for General Insurance) because agents registered with them.
- Check out the Central Bank of Malaysia website (if they a registered as a Financial Advisers’ Representatives)
- Check out the Securities Commission Malaysia Website (to find out if they are a Licensed Financial Planner)
- The most important element is, do you trust them?
NOTE: Links are correct at the point of writing
In a Nutshell (UPDATE)
Should I have to explain the industry in summary and put them into a table? It is something you will find below:
Follow my next post to find out how the type of compensation plan practiced by a Licensed Financial Planners in Malaysia and some of the elements influencing their structure.
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