Protecting investors' money

PUBLISHED : Friday, 02 November, 2007, 12:00am
UPDATED : Friday, 02 November, 2007, 12:00am

People in Hong Kong are being encouraged to take charge of their financial destinies. However, while most are aware that planning is critical, they do not have the time or the expertise to develop a plan and make the financial decisions required for long-term wealth creation and preservation.

But where do people turn to when they need to seek financial planning advice?

Besides providing clients with general financial planning services, many financial planners are also registered as investment advisers or hold insurance or securities licences that allow them to assist clients with buying different types of investment products.

The government does not regulate financial planners directly. Instead, it regulates planners by the services they provide.

For example, a planner who also provides securities transactions or advice is regulated as a stockbroker or investment adviser under the Securities and Futures Commission (SFC).

Similarly, insurance brokers are required to be licensed by the Hong Kong Confederation of Insurance Brokers or by other insurance bodies, while most products offered through banks fall under the regulatory spotlight of the Hong Kong Monetary Authority.

Depending on the type of line and qualification they hold, financial planners are restricted to providing their clients with designated financial products.

Within the industry there are three major financial professional qualifications in Hong Kong, including the certified financial planner (CFP) qualification given by the Institute of Financial Planners of Hong Kong.

About 4,000 of the 20,000 financial planning practitioners in Hong Kong have obtained one of these qualifications. Among these, 2,400 hold the CFP certification.

Matthew Williams, head of sales and marketing at ING Platform Services, Asia-Pacific, believes Hong Kong's financial planning industry is thoroughly regulated, but not over-regulated. 'As the lead regulatory body of the financial sector, the Securities and Futures Commission does a good job of protecting investors and ensures the integrity of those giving advice,' Mr Williams said.

Organisations such as the Institute of Financial Planners of Hong Kong also help to further professionalise the industry by promoting ethics and encouraging financial planners to obtain professional qualifications.

'The challenge is how long will different regulators oversee their particular area before the entire financial planning profession needs to come under one main regulator as it does in places such as Australia,' Mr Williams said. To ensure that clients are receiving the best financial planning advice, before they commit to any relationship, they should ask the adviser questions about their qualifications, experience and areas of expertise.

'Trust between client and financial planner is central to a successful financial planning relationship. The client must be able to rely on the planner's honesty, professionalism and abilities to achieve financial and life goals.

'When you know that your planner takes his or her professional obligations seriously, and places principles over personal gain, you can develop the type of partnership that is crucial to the success of any professional relationship.' Phil Neilson, chief executive at the Henley Group, said the role of the financial adviser had developed from being primarily a fund provider to one that provided guidance with long-term wealth preservation. However, more needs to be done to educate the public that financial planning is more than just buying insurance or investment products.

'Financial planning is a profession that encompasses comprehensive analysis of a person and their family's financial health, covering all relevant aspects and then makes long-term recommendations to obtain financial growth and well-being,' Mr Neilson said.

'The client should always be the focus of the financial planning process. As such, they need to set specific targets of what it is they want to achieve and when they want to achieve results.

'For example, instead of saying they want to be 'comfortable' when they retire or that they want their children to attend 'good' schools, they need to quantify what 'comfortable' and 'good' mean so that they will know when they have reached their goals.'

Derek Young, chief executive of ipac financial planning Asia, said a financial planner should offer recommendations that addressed clients' goals based on the information provided. The planner should go over the recommendations with the client so that they can make informed decisions. The planner should also listen to a client's concerns and revise the recommendations accordingly.

'Quite simply a client should not agree to any strategy or investment they don't fully understand or feel comfortable with,' Mr Young said.

Glenn Turner, chief operations officer at Altruist Financial Group, said the financial planner should clearly explain or document the services to be provided to his or her clients and define areas of responsibilities.

The planner should explain how he will be paid and by whom. For fee-based advice, the payment could depend on the depth and complexity of the advice, while commission-type payments need to be transparent.

Mr Turner said financial advisers needed to use their experience, skills and judgment to persuade clients from making rash decisions.

'If a client is looking to double his money in a few months or insists on investing all his assets in high-risk areas, the client-planner relationship is not likely to last very long and the financial planner has not really done his job,' he said.

Regulatory bodies

Securities and Futures Commission

Hong Kong Monetary Authority

Hong Kong Federation of Insurers

Hong Kong Confederation of Insurance Brokers

Mandatory Provident Fund Authority