Saturday September 26, 2009
By YEOW POOI LING
PETALING JAYA: With the growing diversity of investment products coming onstream, consumers have to continuously enhance their knowledge and capabilities to protect and reap the most from their investments.
The subprime mortgage crisis in the United States that spiralled into a global slowdown has further increased public awareness on the importance of financial literacy and there is a growing trend of investors asking more questions before parting with their capital.
According to Securities Industry Development Corp (SIDC) general manager, investor education, R. Sarimah, the number of participants attending SIDC’s programmes has doubled to some 60,000 this year from 30,000 last year. SIDC is the education and training arm of the Securities Commission (SC).
“There is growing initiative among investors to seek more information and improve their skills. They are also highly cautious of scams and pose more queries before investing,” said Sarimah.
SC assistant general manager and head of investor affairs and complaints, Sujatha Sekhar Naik, said investors should not feel uncomfortable about asking as many questions as they needed to understand a certain product. Too often in the past, people got excited about the “promised” returns and forgot to ask questions.
“To be responsible for their own investments, they should find out about the company, its financial track record, its management and how it intends to generate returns from its investments,” she said.
Investor education has been a priority for the regulator since its inception. Its Investor Education Blueprint entails strategies in the short, medium and long-term action plans to meet the education needs.
Programmes are designed to capture people at different life stages and levels of financial literacy, covering products like unit trusts, mutual funds, bonds and equities; and tackle issues like investor’s rights and responsibilities, identifying scams and choosing the right professionals, or brokers, or dealers.
“If we cover the groups consistently, we will be addressing the current and future needs,” Sujatha said, adding that the goals were to develop the public’s basic financial literacy into financial capability, so investors would have the skills and knowledge necessary to safely manage their investments.
SIDC organises various activities for different consumer segments including Kids & Cash, Teens & Cash, Cash at Campus, Money at Work, Be Money Wise (BMW) and Secrets of Savvy Investors (see table).
Sarimah said children as young as 10 could participate in the Kids & Cash programme, which was aimed at cultivating the savings culture among school children.
The children eventually move on to programmes like Teens & Cash and Cash at Campus. BMW, meanwhile, is targeted at blue collar workers, housewives and families to provide information on how they can plan their spending wisely.
Some of the challenges to investor education included penetration into rural areas; breaking down information into layman’s terms for ease of understanding and having the materials in more languages besides Bahasa Melayu and English currently, Sarimah said.
Sujatha said training and education also involved industry players as they needed to play a role and understand that investor education was imperative to their bottomline.
The industry should eventually drive investor education, as is the trend in developed markets.
“If they fail to ensure disclosure and clear information, they’d have unhappy investors who may not return to the market.” she said, adding that the industry needed to be responsible in their marketing and ensured products marketed were well understood by customers.
Financial capability, nonetheless, is not limited to investments but encompasses the skills to manage every day financial matters.
Credit Counselling and Debt Management Agency (AKPK), set up by Bank Negara in 2006, is aimed at helping individuals in managing debts like hire purchase, mortgage, personal loans and credit cards.
In an e-mail reply to StarBizWeek, a AKPK spokesman said one of the most challenging issues for Malaysians was the lack of financial planning, which led to insufficient savings for emergencies and retirement needs.
“Consumers are essentially not well equipped to use debt. They tend to be unaware of the extra charges when taking debt, practise impulse spending and taking on a debt with little productive purpose,” he said.
For example, some credit card users only paid the 5% minimum payment or paid late hence incurring additional fees, he added.
Life Insurance Association of Malaysia (Liam) also found consumers lacked understanding when it came to using life insurance as a financial planning tool.
“The low penetration rate, currently at about 41%, could be partly due to some consumers not considering the purchase of insurance as their main priority,” it said in an e-mail reply.
To improve awareness, practitioners are moving away from the traditional role of solely selling life insurance towards becoming financial planners.
“The concept of need-based selling was introduced with the implementation of the Proper Advice Practices for Life Insurance Business in July 2004.
“These are guidelines formulated by Bank Negara as a structured process to assist a prospective policy owner understand his financial needs better and how the purchase of life insurance products could help him reach his financial goals,” Liam said.
This would entail disclosure of the agent’s status, conduct of fact-finding and analysis of the financial needs and objectives of the prospective policyholder.
To ensure qualified professionals, effective Jan 1, 2005, life insurance agents who have been in the industry over a year are required to undergo 30 Continuing Professional Development.
Liam is also involved in developing financial advisers. Currently, financial advisers can represent four insurance companies in providing financial advisory services ranging from savings for education to retirement planning.