Peter England of CIMB looks at the various features, opportunities and challenges in Malaysia’s wealth management market – today and for the future.

Date: Apr 2011

Tags: Regulation, Hiring, Fees, Education

• Malaysia continues to be a product-push market, despite talk about the concepts of financial planning and wealth management
• Regulations might provide some help in changing the mindset, through greater disclosure in fees and charges – and there is more effort to raise the qualifications of people who sell wealth management products
• The shortage of skilled people is a big challenge in the market
• Many market observers misunderstand the situation in relation to 5% upfront fees for mutual fund products, as in most cases the fees are largely rebated to the client

According to Peter England in an interview, Malaysia continues to be a product-push market, despite talk about the concepts of financial planning and wealth management.

In reality, he explained, there are internal and external product manufactures coming in and selling products.

While CIMB, for example, is developing a range of financial planning tools for the mass affluent market, that is still not part of the culture because clients still chase returns, said England. And changing the situation won’t happen quickly.

Regulations might provide some help, however, through greater disclosure in fees and charges, he said. Plus, the local regulators are ramping up their efforts in terms of the qualifications of people who sell wealth management products.

On the downside, however, there are two regulators in Malaysia, covering the securities industry and the banks, rather than one regulator as in Singapore.

Further, the shortage of skilled people is a big challenge in the market, added England. The situation is also made worse by the fact that after spending time and energy training them, it is difficult to retain them as good staff get tempted by offers of higher salaries to move to other firms.

Understanding fee structures

According to England, many market observers misunderstand the situation in relation to 5% upfront fees for mutual fund products. In most cases, he explained, the fees are largely rebated to the client.

For instance, the agencies usually give back 3% to 4% to the customer, while the banks tend to give free gifts to clients after purchase.

At CIMB, for example, England said the bank is trying not to rely on upfront fees, and instead build more annuity income and ongoing management charges into its business.

In the private banking space, meanwhile, CIMB doesn’t sell mutual funds, focusing on equities, fixed income and dual currency investments – with the intention that clients buy mutual funds elsewhere and for the bank to move away from upfront commissions.

The challenge, however, is whether clients are willing to pay for advice or to pay annual fees, said England, adding that regulatory changes are most likely to make this happen.

Educating clients

According to England, the education level of clients varies greatly between private banking, priority banking and mass-market customers.

In the mass, low-affluent space, client education is weak, he said. In the priority banking segment, clients are used to the product-pushing culture, so seldom question investment decisions made by bankers. And in the private banking sector, while clients are a bit more sophisticated, it is generally only those who have access to private banks in Singapore, Europe or elsewhere who are well-educated enough to question their bankers.

However, as Malaysia liberalises further and allows more money to flow in and out of the market, more clients are getting exposure to new asset classes, added England.