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Johannesburg - The ombud for financial advisory and intermediary services (Fais) has dismissed a complaint by a human resources practitioner that a financial adviser placed his funds into a retirement annuity without his permission.
Fais Ombud Noluntu Bam said in a determination published yesterday that it would be appropriate for the complaint to be dealt with by a court. She added that in the light of the evidence before her, it would be inappropriate and possibly unfair for her to make any finding about the conduct of Pinnacle Brokers in Rustenburg.
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The programme is undertaken by Whitman Independent Advisors, with the support of the Financial Planning Association of Malaysia (FPAM) and the Malaysian Financial Planning Council (MFPC).
This marks the first such mentoring programme by a financial advisory firm and supported by two of the industrys leading financial planning associations. It also emphasise the current need to create awareness and nurture more fee-for-service financial advisory professionals in Malaysia.
To kick-off the programme, Whitman with the support of MFPC and FPAM, is organising the 2016 Money Optimisation Summit at Sime Darby Convention Centre on July 30.
The one-day industry-driven conference aims to share the best and proven practices from leading players in South-East Asia, offer solutions on how financial services professionals can reframe the way they address the challenging demand of the Malaysian middle class, and ultimately transform and grow their businesses to the next level.
FPAM CEO Linnet Lee said in a statement on Wednesday the facilitation of a mentoring programme for aspiring financial advisors is an industry game changer.
It addresses present industry gaps such as the need for practical hands-on training and knowledge transfer which is crucial to their professional development and progression.
Such issues have prevented many of our Certified Members from providing comprehensive fee-for-service financial advice.
Echoing the sentiment, MFPC executive director Chung Kar Yin added: Financial planning was introduced in Malaysia since early 2000s, and in many ways the growth of fee-for-service financial advisory services has been slower than desired due to various challenges facing practitioners.
These challenges include the ability to deliver comprehensive financial planning solutions to clients, and addressing the perceived negative response from the Malaysian public toward paying fees for financial advice.
The lack of experience and confidence in offering holistic independent financial advisory services has resulted in the financial advisory industry being dominated by commission-led activities, where industry players are mainly focusing on selling multiple products in return for commissions instead of commanding a professional fee.
Under this programme, certified financial planning professionals such as Certified Financial Planners (CFP)and Registered Financial Planners (RFP) will be given the opportunity to be exclusively mentored by a team of senior Independent Financial Advisors (IFA) from Whitman Independent Advisors for a duration of six months.
As a proponent and pioneer of fee-for-service advisory, Whitman is prepared to take a leading role supporting the goal of our regulators and professional associations to nurture fee-for-service financial advisory practitioners and make a truly positive impact in the industry.
We are prepared to share our 16 years of experience as a successful fee-for-service financial advisory firm that has been able to stay true to the label and thrive in this nascent industry, noted Whitman Independent Advisors Sdn Bhd managing director Yap Ming Hui.
During the six-month mentoring period, CFP professionals and RFP graduates would be exposed to the experience of working with fee-paying clients using the proprietary Money Optimisation System developed by Whitman.
They would gain comprehensive hands-on training that is designed to equip them with the necessary exposure, skills and expertise to advance in their fee-for-service financial advisory profession, he said.
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IT is often said that one must dream big if you want to achieve something in life. But I must say that the bigger the dream, the likely that it will keep you up at night.
Too often in my professional career-consulting clients, I personally witnessed how having BIG dreams can make or break someones fortune. Ive learned that having ambitious dreams can be risky, dangerous even. This is due to the sentimental and emotional value attached to our personal dreams, which can manifest into irrational decision-making. Even the normally pragmatic individuals are not spared from this affliction.
It is therefore vital to be aware of what it would cost you to pursue your dreams, lest you find yourself in a financial nightmare instead.
Here are a several examples of potential financial nightmares:
My dream is to retire early so that I can enjoy better quality of life
Theres a noticeable growing trend of people aspiring to leave their full-time employment in their 40s.
This is entirely achievable if you have planned ahead to ensure that your income is still able to fund your desired lifestyle. It is when you do not have a plan on what to do once you stop working that raises the red flag.
Most people make the mistake of overestimating the ability of their accumulated assets to see them through the rest of their lives. However, the expected return on investment (ROI) on your savings and investments might be lower than projected, unplanned medical costs could emerge. If you have children studying overseas, any devaluation of the local currency could spell disaster. You could end up digging into your reserves to make up for any unexpected rise in costs.
Before you know it, your retirement nest egg begins to dwindle and what was initially projected to last you until the ripe old age of 85, is now only sufficient until you reach 70. By then it will be too late to scrounge for alternatives to make up for the shortfall.
In 2009, Mr A, aged 33 then, came to us with a dream to retire at the age of 50. At first glance, his income of RM630,000 per annum and a total net worth of almost RM2mil looked impressive (See Figure 1). However, after a detailed analysis of his entire financial situation, he was stunned to hear that if he were to stop working at age 50, his assets would only last him until age 63 when he had expected to be self-sufficient until his 80s.
Fortunately, Mr A took our advice and continued working while growing his net worth with our support. Upon his annual financial review in 2015, his net worth had doubled and if he chose to retire at age 43, his assets would last him till he reached age 82 (See Figure 2). What a big difference the additional six years of money optimisation made to his financial roadmap! Had he proceeded with his retirement dream earlier without improving on his current wealth growing strategy, he would be in a financial predicament.
My dream is to have my children attend international school in order to give them a more wholesome educational experience
More and more middle-class Malaysians are opting to give their children private education for a myriad of reasons.
I see this decision as a strictly personal choice. As parents, we want whats best for our children. It becomes a matter of concern when it is done at the expense of our own retirement security.
Given the various flexible payment schemes offered by private education institutions nowadays, tuition fees suddenly seem affordable and manageable. Some may even view it as something that could be added into the monthly expenditure without feeling much financial strain.
What you dont see is the long-term impact of diverting funds meant for long-term investment into private education fees which is very likely to exceed the million ringgit mark by the time your child graduates from university.
You will be in your 50s by then, with a few more years to retirement. You have essentially missed more than a decade of growing and compounding your nest egg. You may have given your child a dream education but as a result, your retirement plans have been compromised. Instead of comfortably retiring as you have planned, you are forced to continue working to make up for lost time.
A client of ours is doing just that. An established medical practitioner, he chose to send his two children to an international school over three decades ago, spending on average RM100,000 per annum per child comprising school fees, extra tuition and other enrichment classes. Now, in his 70s, he is still unable to retire. As shocking as it may seem, this is the reality of the situation.
My dream is to own a property overseas
It may be the latest trend to invest in properties in London, Sydney, Melbourne or in other major cities internationally for a host of reasons: to facilitate emigrating for retirement, to reap capital investment gains in a booming property market overseas, to lock in funds in a stronger currency market or even in anticipation of children pursuing education there.
I believe the majority of investors who are attracted to the above proposition are, in fact, relying on assumptions regarding the overseas property, such as attractive rental yields, ease of finding tenants and appreciation of property value.
The moment one or more of these assumptions fail to materialise, the property owner is going to find himself in a situation where he has to draw on his reserves to sustain the property in hopes of recovering his investment. Adding to that, there are a host of other costs in the form of taxes, upkeep of the property, legal fees, currency exchange issues, property managers fees and before you know it, you realise that you have bitten off more than you can chew.
A recent case in point is where a client of ours bought a property in the UK last year and at the time when payment was due, the ringgit had hit a record low. Forced to make the currency conversion anyway, he found himself paying RM500,000 more solely due to the adverse exchange rate!
If theres any take-home advice regarding property investment, it would be this sustaining the foreign property could end up eroding the value of your other assets. The once enticing dream of being a proud owner of an overseas property may turn into your worst financial nightmare.
In conclusion: Dream but with eyes wide open
People often make decisions based on their inert desire for a better quality of life for themselves and their loved ones. But these decisions could come at a huge price if one lacks the necessary planning and foresight.
There is nothing wrong with having dreams; it is what drives us to improve and better ourselves. However, from the numerous cases that we have come across, the reality is that big dreams require a comprehensive evaluation of its impact to your overall financial position.
Having proper financial advice will allow you to find the best way to achieve those dreams without compromising on your financial security. Having the right financial adviser working hand in hand with you to bring these dreams to fruition may be one of the best decisions you could ever make for yourself. At times, the financial adviser may need to bring you back down to earth to appreciate your true financial situation and perhaps propose a more realistic alternative.
It is better to put a dream on hold then to rush headlong into it and risk the consequences later on. Your dreams have the power to change your life; how the ending unfolds depend entirely on the right moves you make today.
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Apparently undeterred by its recent loss in a case seeking to enforce a Civil Investigative Demand (CID) against a college accrediting body, earlier this week the Consumer Financial Protection Bureau (CFPB) filed another district court action seeking to enforce a CID against a company that asserts that the CFPB lacks jurisdiction over its conduct JG Wentworth, LLC, which purchases structured settlements and annuity payments. See Petition to Enforce Civil Investigative Demand (Petition), CFPB v. JG Wentworth, 2:16-cv-02773-CDJ (ED Pa.). The case presents another example of the CFPB asserting a broad view of its jurisdiction and presents another opportunity for a court to clarify those limits and how they apply in the investigative context.
The Dodd-Frank Act gives the CFPB authority to issue CIDs in aid of its investigation of possible violations of Federal consumer financial law. 12 USC. § 5562(c). Those CIDs can seek the production of documents, answers to interrogatories, written reports, and oral testimony. 12 USC. § 5562(c)(1). Each CID must state the nature of the conduct constituting the alleged violation which is under investigation and the provision of law applicable to such a violation. 12 USC. § 5562(c)(2); 12 CFR. § 1080.5. This Notification of Purpose is typically extremely broad and general. If a party refuses to comply with a CID, the CFPB can petition a federal district court for its enforcement. 12 USC. § 5562(e).
Earlier this year, the federal District Court in Washington, DC dismissed a petition filed by the CFPB seeking to enforce a CID that the agency had issued to the Accrediting Council for Independent Colleges and Schools (ACICS). Slip Op., CFPB v. ACICS, No. 15-1838 (DDC. April 21, 2016). That CID had indicated that the purpose of the CFPB#39;s investigation was to determine whether any person had engaged in unlawful practices in connection with accrediting for-profit colleges in violation of the Dodd-Frank Act#39;s prohibition on unfair, deceptive and abusive acts and practices (UDAAP). It had been issued to ACICS, an accrediting body. In dismissing the CFPB#39;s petition to enforce the CID, the court found that none of the federal consumer financial laws that the CFPB is authorized to enforce address, regulate, or even tangentially implicate the accrediting process, and that the subject matter of the investigation was beyond the agency#39;s authority. Id. at 6. The district court rejected the CFPB#39;s contention that because the CFPB could investigate for-profit schools for their lending activities, it could also investigate the accreditation process of those schools, noting that such an argument is a bridge too far! Id.
Now, the CFPB has filed another CID enforcement matter involving claims not clearly within its authority. The CID issued to JG Wentworth states that the purpose of the CFPB#39;s investigation is to determine whether persons advancing funds in exchange for the rights to future payments from structured settlements or annuities have violated the UDAAP prohibition or the Truth in Lending Act (TILA). Petition, Exh. A. But JG Wentworth has argued (in seeking to administratively quash the CID) that purchasing such payment streams does not constitute a consumer financial product or service subject to the UDAAP prohibition or an extension of credit subject to TILA. Petition, Exh. D. That is, it argues that its activities constitute a purchase and sale, and not a loan. Id. It also notes that its activities are heavily regulated by other governmental bodies (just as the accreditation process is). Id.
In denying the administrative motion to quash the CID, the CFPB noted that JG Wentworth may be providing consumers with financial advisory services to assist in determining whether a structured settlement transaction is in their best interest. Petition, Exh. E. Providing financial advisory services is conduct subject to the UDAAP prohibition. The CFPB offered no other example of how the company#39;s business might subject it to that prohibition or any explanation of how TILA might apply.
It will now be for the district court to decide whether the conduct at issue is subject to the CFPB#39;s jurisdiction. Whatever the court decides, its opinion could help further clarify both the meaning of the phrase financial advisory services in the Dodd-Frank Act as well as the parameters of the CFPB#39;s investigatory authority.
Originally published on June 9, 2016
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