Financial literacy and technology are key factors, will attract young investors

 

 Building LONG TERM WEALTH with Stocks & Avoid FAKE GURUS | FIRL Podcast 36

Ng Zhu Hann of Tradeview.my shares his journey from London School of Economics, to becoming a long term stock investor and the author of Once Upon a Time Bursa. He passionately writes on his blog, Tradeview.my to educate retail investors on investing and to avoid fake gurus. He also mentions that retail investor participation is at all all time high in 2020. However, he makes the most wealth during the bear market and says dividend yields, earnings and cash flow are time tested theorem that generate wealth and not short term goals.

 

More effort needed to educate the young investing

With thousands of new and young retail investors participating in the local bourse in the last two years, more effort is needed from capital market regulators and the private sector to improve financial literacy, particularly among the youth, say market observers.
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Ng Zhu Hann, who is the CEO of Tradeview Capital and author of “Once Upon A Time In Bursa”, told StarBiz that brokerages and investment banks could not afford to neglect providing first-time retail investors with “the tools to understand the stock market”.
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“Once you lose money, or whatever savings that you have, you would never return to participate in the stock market because you may think the market is rigged against you. That is human nature,” he said.
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According to the Securities Commission’s (SC) annual report 2021 , an investor survey focused on the youth found that only 3% of youths have a high-risk appetite regarding the level of risk they were willing to take for investments.

“This may suggest that risk aversion has set in due to the pandemic,” said the SC survey.
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The Nielsen Company (M) Sdn Bhd was commissioned by the SC to conduct the survey on its behalf.
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However, on capital market products and their associated risks, the survey showed that respondents viewed investments in Amanah Saham Bumiputera (ASB) as low-risk.
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“In comparison, 70% of the respondents perceived stocks and shares to be high-risk. Overall observations suggested that respondents perceived the capital market products as high-risk and this perception was consistent across the demographic profiles,” said the SC survey.
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Ng also noted that according to Bursa Malaysia, following a similar trend in 2020, 63% or about two-thirds of the new 223,249 individual central depository system accounts opened in 2021 were by millennial investors (aged 26 to 45 years of age).
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He pointed out that many of the new millennial investors had lost money when they got caught up in the penny stock or glove stock mania in the last two years.
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“They had no prior investing experience, and lost money, and that becomes a problem. That is why more should be done in terms of investor education,” said Ng.
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Meanwhile, Rakuten Trade head of equity sales Vincent Lau noted that the regulators of the Malaysian capital markets have made many efforts to educate retail investors, in an era where investing via new and innovative digital platforms is the norm.
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“Online resources like Bursa Marketplace have been very crucial in educating new retail investors, which increased tremendously in numbers during the pandemic-related lockdowns in the last two years,” he said.
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Lau also pointed out that with the younger generation pivoting towards buying, selling and storing crypto currencies, Malaysian regulators have been staying in tune with the demands of the digital era with the approval of crypto currency platforms like MX Global, Tokenize and Luno.
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“Digital banks are also coming, and new fintech will enable and attract the younger generation to explore various investment options,” he said.
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Lau pointed out that Rakuten Trade, as an online stock trading platform, has been actively holding corporate and investment webinars.
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Ng said it was not surprising that the youth would view investments in ASB and fixed deposits as low-risk, compared with equities. 

 “If you invest in equities by yourself, without the proper understanding and knowledge, it is just like gambling, right? But I think that equities in fact, is not the most high risk asset class. 

I am seeing a very unhealthy trend of youngsters, who have never even invested in equities in their life, actually jumping into crypto currencies,” he said.
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The SC’s annual report also said RM21bil in investment in digital assets are across all registered digital asset exchanges (DAX) in 2021.
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Digital asset accounts jumped 300% to 760,000 in 2021 (from 190,000 in 2020).
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About 62% of investors in crypto currencies on the DAXs are below the age of 35, according to the SC as at end-2021.
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The regulator also observed that last year, non-fungible tokens (NFTs) became a hot trend among artists and collectors.
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Ng pointed out that unlike crypto currencies which are not regulated, there is a lot of regulation, oversight and transparency when it comes to investing in equities.
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“Compared with less developed markets, I believe Bursa ranked among the best, along with Singapore Exchange and the Hong Kong Stock Exchange, in terms of the regulators,” said Ng.
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In the SC’s annual report, the survey also showed that investment decisions of the youth were not based on fundamentals, but mainly driven by socio-economic status, family, friends, influencers as well their perceptions of the products and brands.
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It also revealed that there was also familiarity bias among the respondents, choosing to invest in products that they were already familiar with.
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Ng said while there was plenty of information available on company websites and annual reports, first-time investors may not know how to decipher or dissect the data.
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“They would go for financial investment talks and hope that the guru would teach them, which is very dangerous. The problem is there are many fake gurus today in the market, who just want to make money, and they are not even licenced,” he said.
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Ng suggested regulators could allocate more resources in disseminating financial information via social media, and also working with professional or non-profit organisations to improve financial literacy among the youth.
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“Under the Continuing Professional Development (CPD) framework, perhaps a revision can be done where CPD points can be earned by contributing pro bono, or helping society in terms of improving financial literacy,” he said.

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Healthy wealth management

THE term “wealth management” came about in the 1990s to describe a complex series of services similar to financial planning. The phrase has also been adopted by accountants, estate planners, lawyers and some finance specialists. These experts cater mostly to high-net-worth clients.

Rather than just perceiving wealth as product of a toil-and-reap process, money can be considered a tool with which you can gain profit

Instead of just spending your money, invest it wisely to get returns.

Unlike professions such as accountancy, taxation or auditing, which involve specialised fields of study where professionals are provided official certifications by governing bodies who supervise the field, wealth managers are yet to require official certifications.

However, the Investment Management Consultants Association (IMCA), the governing body that awards the CIMA certification (Certified Investment Management Analyst), began offering a certification for wealth management in 2007 known as the Certified Private Wealth Advisor (CPWA).

The certification recognises individuals who specialise in the life cycle of wealth – accumulation, preservation and protection and distribution.

They identify and analyse challenges faced by high-networth clients and how to develop specific strategies to minimise taxes, monetise and protect assets, maximise growth and transfer wealth.

What is wealth management?

Wealth management is a system that involves the effort of both experts and clients to design and adopt ideas to manage and grow the clients’ wealth.

Wealth comes in many different forms – hard cash, properties, shares, luxury items, businesses, lands and others.

Managing it, however, involves collective consultative processes that build a specific portfolio for owners. It is a slow and painstaking process that requires the clients’ trust and the consultants’ patience.

Deciding to involve a wealth manager in planning your finances is an important step.

It requires you to entrust the management of your wealth to someone else.

However, leaving your wealth to stagnate or deplete would be less desirable but this is most likely the case for most people.

What wealth managers do is enhance wealth while providing a valued experience for clients. In addition to learning about the many financial areas, those undergoing the CPWA certification study family dynamics.

This includes the study of anthropology and building relationships based on shared experience.

This is particularly important if the wealth involves a few generations of a family.

The difference between wealth managers and financial advisors is that wealth managers are a niche group of people.

They have cultivated specific tools and skills over the years and have a relatively small number of clients.

They can also apply distinctive designs and have a better skill set compared to other more common models.

Wealth as a tool

A common mistake that people make is to see income as a figure to make purchases with.

Having wealth does not necessarily translate into profitability.

Rather than just perceiving wealth as a product of a toiland-reap process, money can be considered a tool with which you can gain profit.

In this circumstance, having professional help will evolve this tool into a working design that will snowball into a self-sustaining model. The process often involves a lifestyle change for clients as well.

Even those who do not fall within the high-net-worth bracket should consider getting consultancy aid since the nature of wealth management allows it to be adaptable as a tool to manage one’s situation even when in deficit.

Behavioural issues

Humans are generally protective of their finances, therefore a new concept such as wealth management may not be easily accepted as it is still largely unexplored and remains unknown to many people.

As a result, finances are normally made stagnant or spent, not giving much return to its owners if not put in a bank or invested with little or no returns.

K. Gunesegaran, financial planner and money coach from Wealth Street Sdn Bhd, was recently a guest on BFM (a Malaysian radio station) and spoke about how to keep emotions in check when dealing with money.

He suggested that adhering to a certain behavioural portfolio regardless of the market’s response and adopting a shared behavioural framework that clients and investors can agree on and adopt in any finance management context offer a good solution to the behavioural issue surrounding wealth management.

Towards a bright future

As Malaysia readies itself for the increase urbanisation of its cultures and communities, the growth of wealth will mean more opportunities for the wealth management field to develop.

By substantiating certification and licensing as well as educating the changing demographics about wealth management, the field will gain more recognition within the finance industry.

Creating a niche market of professionals is also a better option than generalising the industry’s talent.<

For example, a wealth manager who specialises in real estate or the ICT industry would prove to be better than a general wealth manager in certain contexts.

Scouting for a niche specialist wealth manager, especially if the wealth involved is derived from or being invested into a certain industry, would then be a better approach to handling wealth.

However, as a client, the first step is to better understand how you would like to use and invest your money before seeking professional help.

The role of a wealth management consultant

Deciding to involve a wealth manager in planning your finances is an important step. It requires you to entrust the management of your wealth to someone else. However, leaving your wealth to stagnate or deplete would be less desirable but this is most likely the case for most people.

Most banks offer wealth management services catered to highnet-worth individuals. There are also private, stand-alone wealth management firms that not only act as advisors but as executors of clients’ instructions pertaining to their finances.

The biggest challenge for a wealth manager is to understand the financial needs of the clients.

It is important for clients to understand the role of wealth advisors to ensure their credibility and market value.

Experts need to convince middle-income and low-income earners of their skills, as these earners have the potential to become higherincome earners.

This creates business opportunities and expands networks, which is the perception of wealth management that the industry is aiming for.

This is important because their relationship with clients is not usually a short-term one and the advice and information given need to be accepted by clients with trust and understanding.

There is no one way to manage wealth because people’s lifestyles differ and different people require different aspects of their wealth to be managed, including tax management, risk assessments, retirement planning, portfolio management, estate planning, generational legacy, trust fund managements and specialised services for executives and small business owners.

Sources: Money & You, StarSpecial


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Financial talent crunch worsen

PETALING JAYA: The talent crunch in the local financial services sector is expected to worsen in the coming years partly driven by the Gen Y segment that currently makes up about 25% of the workforce in the banking system.

Asian Institute of Finance (AIF) chief executive officer Dr Raymond Madden said that the talent shortage could be due to the lack of understanding on how to cope with the Gen Y group.

Madden:‘At the moment this group of people (Gen Y) makes up about 40% of the current workforce in Malaysia.

“Within the next eight to nine years, we expect the Gen Y workforce in the banking system to rise to about 50% from 25% currently, which means that almost half of the people working in banks will be Gen Y employees, namely those below 30 years of age.

“At the moment this group of people (Gen Y) makes up about 40% of the current workforce in Malaysia and in many Asean countries. This number is expected to increase to 75% within a relatively short span of time,’’ he told StarBiz.

According to the Financial Sector Blueprint published in 2011, the workforce number in the financial sector stood at 144,000. It is anticipated that over the next 10 years, the sector would require a workforce of about 200,000, an increase of 56,000 from the current 144,000 employees.

Madden said among the sectors in the financial services industry that were facing talent shortage was in Islamic finance, notably in the areas of syariah expertise.

Besides this, he added, the crucial areas in the banking system facing talent shortage were in credit and risk management, corporate finance, treasury and wealth management.

He said due to the expected rise of the Gen Y workforce in the financial services in the coming years, banks and other financial services sectors needed to have a better understanding and knowledge of this group.

This group, he said, was looking at what he termed as the three E’s – engage, enrich and empower. He described Gen Y as an impatient lot as they wanted to be prominent in the organisation and would join another organisation if they did not achieve their targets.

As this group was ambitious and wanted to climb up the career ladder as quick as possible unlike their older counterparts, hence employers needed to know how to deal effectively with the Gen Y segment.

Towards this end, Madden said AIF – through its four affiliate institutions – was working closely to beef up talent in the financial services sector.

The affiliates are Institute of Bankers Malaysia (IBBM), Islamic Banking and Finance Institute Malaysia (IBFIM), The Malaysian Insurance Institute (MII) and Securities Industries Development Corp (SIDC).

For example, he said the Financial Sector Talent Enrichment Programme (FSTEP), which is run by IBBM, had played an important role in training new graduates in the financial services industry.

FSTEP is an intensive-training programme that prepares trainees for the operational aspects of finance and banking.

AIF in collaboration with UK-based Ashbridge Business School carried out a survey this year, which among others, showed that 22% of Gen Y employees in Malaysia believed it was reasonable for them to be in a management role within six months of starting work at their respective organisations.

Commenting on the survey, he said there were also inter-generation gaps that existed in the financial services industry between the Gen Y and their older managers, adding that there was a clear difference in perception of Gen Y managers and Gen Ys themselves.

The survey polled 1,200 financial services professionals, including senior human resources personnel who actively manage Gen Ys in their respective organisations.

Contributed by by Daljit Dhesi - The Star/Asia News Network

International Financial Reporting Standards gets in a sticky muddle

ACCOUNTING is a subject that most people dread, for fear of its dry and lengthy text. Nonetheless, it is of utmost importance in the business world for without it, businesses would have no proper and standardised system to run on.

Having studied the subject at high school, which then led to graduating with a bachelor's degree in accounting and finance, I have to admit that the subject was not one of my favourites. I was one of those, mentioned earlier, who feared the subject because of its lack of obvious colour.

At university, I took a paper on financial accounting principles, which included the study of financial reporting standards. Trust me, it was one where my memory skills were tested and fully put to good use.

Don't get me wrong. It's not that I didn't like the subject at all. It was probably more of a frustration because I lacked the understanding then. I only truly began to understand it when I started my working career.

The Malaysian Accounting Standards Board (MASB) enforced the International Financial Reporting Standards (IFRS) created by the International Accounting Standards Board (IASB) last year. As a result, many companies had implemented IFRS as at January 2012.

Although most have not been burdened too much by the change, several parties are dealing with issues of implementing the IFRS as doing so would result in a huge variance in financial reporting.

The implementation of IFRS has left both property developers and plantation operators in a sticky situation. Both parties' issues have to do with International Financial Reporting Interpretation Committee (IFRIC) Interpretation 15, and IFRS 13.

IFRIC Interpretation 15 deals with revenue recognition, and under this interpretation, property developers would recognise revenue only upon completion and handover of the properties to the buyers. This is different from the more common method of revenue recognition used in Malaysia, which is the sell-then-build method.

This could gravely affect the smaller developers that have less construction projects, which would take several years to complete.

Then, there's IFRS 13 which is the standard dealing with fair value measurement. If implemented, it could mean that the fair value of land for non-plantation use could be higher than the fair value of the same land with existing crops on it.

Technically, the result would be that a zero value is assigned to the agricultural crops on the land. This is due to the interaction between IFRS 13 and International Accounting Standards 41, which allows a residual approach in fair value determination of land and assets. At times, the best use for the land varies from its current use, which means that using a residual approach could result in a minimal or zero value given to the crops.

The MASB has given property developers and plantation owners until January 2014 to implement IFRIC Interpretation 15 and IFRS 13 in view of the issues that will arise if it should be implemented now.

Meanwhile, the issues have been raised to the IASB and the IFRS Interpretations Committee.

Seeing that there's still some time for a compromise to be reached, let's keep our fingers crossed that an amicable arrangement can be achieved.

By WONG WEI-SHEN
weishen.wong@thestar.com.my

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