Vol 10, No 4 - Financial Planning Association of Malaysia

4E JOURNAL
Education • Examination • Experience • Ethics
The official publication of the Financial Planning Association of Malaysia
KKDN PP 11977/05/2011 (029485) Vol. 10, No. 4, 4Q 2010
Tiew Siew Chuen
Country Head,
Consumer Banking
Standard Chartered Bank
Malaysia
A Behavioural View
of How People Make
Financial Decisions
The Concept of
Ageing-in-Place
Is it all about the
Business Model
Building Planning
Awareness in Penang
Heritage
Banking on
& Leveraging on
Relationship
ECRW Conference
2010 Highlights
www.fpam.org.my

CONTENTS
October - December 2010
In this Issue
INDUSTRY
A Behavioural View of How
People Make Financial Decisions
The Concept of Ageing-in-Place
Is it all about the Business Model
Excellence Award Ceremony
Building Planning Awareness in Penang
The Investment Plan is Your
Blue Print for Success
Melaka Chapter Networking Night
ECRW Conference 2010 Highlights
A Night with FPAM,
Smart Investor and Renault
5
21
34
39
48
48
48
49
50
China Nite
ISLAMIC FINANCE
Sub-Prime Crisis 2008:
Valuable Lessons for the Islamic Finance Industry
14
COVER STORY
Banking on Heritage &
Leveraging on Relationship
“We are operating in a whole new world where the balance
of economic strength and affluence is shifting from West to
East. If there is ever a better time, now is the opportunity for
Malaysia’s financial planning industry to gain a quantum leap
on the back of strong structural reforms by the government
and good measures implemented by Bank Negara and the
Securities Commission.”
p 28
MARKET OUTLOOK
Flavour of the Year: Asia Emerging Markets
ECONOMY
Developing Asia to Provide Growth Support
NEWS IN BRIEF
CIMB Bank’s Cambodian Foray
Pulbic Mutual Declares
Distributions for Six Funds
MAAKL Launches
Indonesia Equity Fund with BNP Paribas
CFP CERTIFICATION GLOBAL UPDATES
CE COURSES
45
25
40
40
40
41
51
, CERTIFIED FINANCIAL PLANNER® and are certification marks owned outside the U.S. by Financial Planning Standards Board Ltd. Financial Planning
Association of Malaysia is the marks licensing authority for the CFP marks in Malaysia, through agreement with FPSB.
Copyright 2010 © Financial Planning Association of Malaysia. All rights reserved. (KKDN PP 11977/05/2011) No part of this publication may be reproduced, stored in
a retrieval system or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the written permission of the
publisher. All information provided in this publication are for the purpose of education and keeping the members of the Financial Planning Association of Malaysia
and the general public informed of news, developments and direction in the financial planning industry. No article published here is exhaustive on the respective
subject it covers and is not intended to be a substitute for legal and financial advice or diminish any duty, statutory or otherwise imposed on persons by existing laws.

EDITORIAL
Editorial Board
Dear Members,
A Revitalised Vision
for a New Decade
“To establish the global CFP mark as the leading symbol of excellence for personal financial planning in Malaysia.”
The above is a mission statement that members of the Board have agreed to after an intense discussion
at a retreat workshop that also chartered the strategic direction, role and scope of the Financial Planning
Association of Malaysia (FPAM) for at least the next five years.
In drawing up FPAM’s five-year strategic plan, the Board had to take into consideration the interests of all
segments of its membership, the interests of consumers at large, the realities of the existing financial and
capital markets, the developing national and international trends as well as the need to align itself with
the direction and focus of the Financial Planning Standards Board (FPSB). As we move forward, we will be
sharing with and engaging our members with the plan, inviting feedback and suggestions especially on
the type of programmes that would best accomplish the objectives that have been set out. The outline of
the strategic plan will be posted on the website for your information.
A year has come to an end. In store for all of us in the New Year is a potentially new financial services
landscape about to be shaped by the recently launched Economic Transformation Programme (ETP). The
programme has been designed to propel Malaysia into a high-income economy and this will be done
through 12 National Key Economic Areas (NKEAs). The financial services sector has been identified as a key
NKEA and it is expected to form the bedrock of this high-income economy.
The government believes that lack of economies of scale, poor liquidity, lack of diversity, low levels of
financial knowledge are significant problems for this sector. Among the recommendations to strengthen
this sector: to improve education on the importance of financial and retirement planning via awareness
campaigns, online retirement planning tools and training/seminars.
The ETP also aspires to create a model pension system with a vibrant private pensions industry. The
reasons for this change are obvious: two million self-employed Malaysians not covered by the Employees
Provident Fund (EPF), most EPF members’ exhaust their lump-sum retirement funds within three to five
years and an ageing population increases strain on the existing pension system which is inadequate to
serve a high-income population. Clearly, something needs to be done, and quickly too.
In mid-October FPAM took up the challenge to organise a holistic retirement conference – deviating from
the usual “financials only” conferences. The Everyone Can Retire Well 2010 conference proved timely and
complementary. It was timely because the time has come for Malaysia to collectively address the issue of
retirement, and complementary because just a month earlier, an NKEA of the ETP espoused retirement
planning awareness as an area to be further enhanced.
FPAM chapters had a good year. Numbers-wise, a record of 27 events took place, 19 of which were seminars.
This was partly due to the financial assistance from the Association as well as the hard work put in by the
volunteer Chapter committees. By organising continuing education (CE) courses at the chapter level that
are Securities Industry Development Corporation (SIDC)-accredited, the question of outstation members
who are licensed holders having to travel far to obtain their CPE points is being addressed.
The well-attended Business Models and Business Opportunities for CFP Professionals talks which were initiated
in the Klang Valley are now being replicated and organised by the chapters. The FPAM management is
currently in the midst of organising similar talks for Islamic financial planning.
Publisher
Financial Planning Association of Malaysia
Editor
Dennis Tan
Managing Editor
Steven K C Poh
Advisor
Steve L H Teoh
Editorial Panel
Tan Beng Wah
K P Bose Dasan
Kong Kim Heng
Maznita Mokhtar
Administration & Advertising
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The 4E Journal is published quarterly by the
Financial Planning Association of Malaysia.
Opinions and views expressed in the 4E Journal
are solely the writers’ and do not necessarily
reflect those of the Financial Planning
Association of Malaysia. The publisher accepts
no responsibility for unsolicited manuscripts,
illustrations or photographs. All manuscripts
and enquiries should be addressed to:
The Editor, 4E Journal,
c/o Financial Planning Association of Malaysia,
Unit 1109, Block A,
Pusat Dagangan Phileo Damansara II,
No.15, Jln 16/11, Off Jalan Damansara,
46350 Petaling Jaya, Selangor.
Phone: +60-3-7954 9500
Fax: +60-3-7954 9400
As you can see, there are many things to be accomplished by FPAM in the New Year. Even so, we can look
ahead into the new decade with confidence, hope and resilience because we have the right resources
and experiences to meet those challenges. Let us all work closely together to make sure these things are
properly and effectively done.
I wish you all the very best. Happy New Year 2011!
Wong Boon Choy,
President
president@fpam.org.my
www.fpam.org.my

INDUSTRY
October - December 2010
A Behavioural View of How People Make
Financial Decisions
By Keith Redhead
Executive Summary
The paper provides a guide to
the implications of behavioural
finance for financial advisers.
The focus is on the process
of financial decision-making.
Financial decision-making is
seen to be subject to behavioural
biases at three stages:
1. The perception of
information
There is a difference between
objective information and
perceived information.
Decisions are based on
perceived information.
Selectivity, interpretation
and closure affect
perceptions. These
processes are affected by
behavioural biases, such
as narrow framing and the
availability bias along with a
wide range of motivational,
attitudinal, social, and
emotional factors.
2. Cognition
Thought is not entirely rational and
is influenced by bounded rationality,
the extent of cognitive reflection,
mental accounting, illusions and selfdeception
along with other cognitive,
emotional and social factors.
3. Motivation
Decisions may be made but not
implemented. Procrastination and
mistrust can inhibit the activation of
decisions.
A behavioural finance view of the financial
decision-making process is depicted by
Figure 1.
Perceived Information
Figure 1
There is a distinction between objective
information and perceived information
(objective reality and perceived reality).
What people perceive is influenced by how
they select information to process. People
are incapable of absorbing all information,
and are therefore selective as to what
Objective
Information
Perceived
Information
Information
Processing
Decisions
Activation
Action
A behavioural finance view of the
financial decision-making process
Historical Prices / Public Information /
Private Information / Noise
Selectivity / Interpretation / Closure
Information overload could terminate
the process
Satisficing subject to heuristic
simplification, selft-deception, social
influence, emotion and mood
Buy / Sell / Hold
Procrastination / Inhibition
Decision Implemented
information receives their conscious
attention. The process of selection
may occur largely at an unconscious
level. They need to distinguish between
reliable information and noise; and to
select the most important pieces of
reliable information. Noise is irrelevant
or inaccurate information, such as
misleading rumours.
Each person will interpret information
differently. Their interpretations of
information are influenced by their
motives, their knowledge, their
experience, their feelings, and by a
multitude of other cognitive, emotional,
and social influences.
There is also a closure process. Where
information is incomplete, people tend to
fill the gaps in order to obtain a complete
story. Additional “information” is used to
supplement what is perceived in order
to obtain closure. Some information may
be disregarded if it is inconsistent with
the perceived “story.” The factors that
influence closure are similar to those
that influence the interpretation of
information. What one person sees
can be very different to what another
person sees, even though the objective
information is the same (Litterer 1965;
Ricciardi 2008).
Decisions are made on the basis of
perceived information. A financial
adviser should be alert to the possibility
that a client has inaccurate perceptions,
which may need to be challenged.
DiFonzo and Bordia (1997) showed that
rumours affect investment decisions,
even when the rumours come from
sources that lack credibility. There is
evidence that people make decisions
based on stories constructed around
information, rather than on the
information itself (Mulligan and Hastie,
2005). If a rumour is consistent with
such a story or provides a story (an
explanation of events), it may be more
readily believed. People are prone to
accept information from unreliable
sources if such information is believable
and consistent with their existing
perceptions of events (Evans and Curtis-
Holmes, 2005).
Psychological Biases
There are cognitive biases that can
cause an exaggerated perception of risk.
Narrow framing entails focus on shortterm
investment performance when the
investment is long-term. An example
is the person who is concerned about
quarterly pension fund returns when
retirement is 30 years in the future. Short
investment horizons are much more likely
to show losses than long horizons. A shortterm
focus can cause an exaggerated view
of the probability of losses, and hence an
increased reluctance to contribute to a
pension plan.
Diacon and Hasseldine (2007) found that
clients were more likely to invest when
shown presentations of performance
over long periods than when they
The 4E Journal 5

were presented with a succession of
short-period returns. Although more
information is frequently thought to
be beneficial, a financial adviser might
benefit a client by making performance
information infrequent.
The availability bias can also produce
an exaggerated perception of risk.
When making decisions, people tend
to be influenced by what can be readily
remembered. Vivid, much-publicised
events are easily recalled. Stock market
crashes are vivid, highly publicised events.
Long periods of steady market advance
are less vivid and less publicised. The
result is that people over-emphasize
crashes and exaggerate risk. An adviser
can provide more balanced information in
order to overcome negative perceptions
arising from the availability bias.
Ciccotello (2009) provided anecdotal
evidence that illustrates the availability
bias. It is based on graduate students
studying a personal financial planning
course. He compared the attitudes of a
1999 cohort of students with those of a
2003 cohort, suggesting to both cohorts
that financial plans should be based
on the long-term average stock market
returns of 8 to 10 percent a year.
In 1999, stock markets had experienced
four consecutive years of strong
performance. The students tended to
reject the recommended 8 to 10 percent
and chose 20 to 25 percent a year
instead. The 2003 cohort of students had
witnessed large market falls in each of the
previous three years, and those students
were reluctant to use any positive market
rate of return. Both groups of students
had expectations of stock market returns,
which were heavily influenced by recent
experience. This indicates that an adviser
should provide evidence of long-term
stock market returns. However, the
emotional impact of recent experience
cannot be easily removed.
Effects of Information on
Perception
A number of studies have indicated that
attitude to stock market risk depends upon
the recent behaviour of the stock market
(Clarke and Statman 1998; Shefrin 2000;
MacKillop 2003; Grable, Lytton and O’Neill
2004; Yao, Hanna and Lindamood 2004).
An alternative perspective on that
evidence can be derived from research
by Weber and Milliman (1997) who
suggested that risk preference may be
stable and that the effect of situational
factors, such as stock market performance,
The provision of too much information could cause confusion and procrastination.
may be caused by changes in perceptions
of risk. They found that influences on
investment choices simultaneously
affected risk perceptions. It could be
the case that attitude to perceived risk is
constant, and that what changes is the
perception of risk. From the perspective
of providing financial advice, this implies
that by correcting misperceptions about
the risks of investments, a financial
adviser can have a positive influence on
investment decisions.
“Among non-experts, risk
is perceived as greater
if the person lacks
information about, or
control over, outcomes.”
There are factors that reduce perceived
risk. There is a tendency for information,
even irrelevant information, to reduce
perceived risk. This has been called the
illusion of information. Information can be
over-interpreted. The representativeness
bias leads people to see patterns in
random events or random numbers.
Whereas the objective information is
a series of random price changes, an
investor may perceive a pattern in the
changes. The perception of a pattern
could result in a forecast when no forecast
is warranted. In consequence, the degree
of risk is under-estimated.
A financial adviser might note that the
provision of some information about
an investment is likely to reduce a
client’s perception of risk. However the
provision of too much information could
cause confusion and procrastination.
Information overload inhibits decisionmaking.
Also, the familiarity bias suggests
that information that is not understood is
likely to deter a client. People are reluctant
to buy products that are unfamiliar or
confusing.
Among non-experts, risk is perceived as
greater if the person lacks information
about, or control over, outcomes. Lack
of information and control in regard to
investment outcomes leads to mistrust
of providers of financial services and
mistrust of financial advisers (Sjoberg,
2001). The mistrust of financial advisers
may be based on a perceived affiliation
bias whereby advisers are seen as being
too trusting of the providers of financial
services.
Some information is predominantly in the
mind of the investor. The information has
little objective basis and is nearly entirely
perceived. This includes future income
prospects. Bolhuis and Goodman (2005)
cited Laibson as suggesting the possibility
of unbounded optimism. This includes
optimism about future income. If a client
expects a substantial rise in income, that
perception of future income may be used
as a reason for not saving in the present.
The client chooses to delay saving until
the expected future income is received. In
the absence of the expected increase in
income, saving never takes place.
Information Processing
Behavioural finance takes a different
view of information processing to the
view taken by traditional finance. Rather
than seeing people as optimising, it sees
them as satisficing (Simon 1955, 1956;
March and Simon 1958). Satisficing
arises from bounded rationality, which
is the limited rationality that is present
because people do not have the requisite
intellectual capacity for fully rational
behaviour. When satisficing, a person
looks at alternatives and chooses the first
one that is acceptable (or the best from
a restricted set of alternatives). March
and Simon described an alternative as
optimal if it is possible to compare all the
alternatives and one is preferred to all the
others. Discovering all the alternatives
6 The 4E Journal

may be too time consuming, or may even
be impossible. In consequence, a person
would simply find an alternative that
satisfies their criteria of acceptability.
Satisficing is subject to a number of
behavioural influences such as selfdeception,
heuristic simplification,
social influence, emotion and mood
(see Redhead 2008 for an overview of
behavioural influences). Rationality is
reduced by both limited intellectual
capacity and various psychological biases
that affect cognitive (thought) processes.
The departure from full rationality
increases as the complexity of decisions
increases. It also increases as the time
available for decision-making is reduced.
Time constraints reduce the ability
to think about a decision and further
intensify the bounds on rationality. A
person facing complex decisions and
time constraints experiences extremely
bounded rationality. There would be
a corresponding increased reliance
on heuristic simplification (rules of
thumb that replace rational thought).
One implication is that the effects of
psychological biases can be reduced by
allowing the client a substantial amount of
time for making financial decisions and by
ensuring that the client is not presented
with the need to make a complex decision.
Cognitive Reflection
Frederick (2005) presented evidence that
the accuracy of the perception of risk
is related to a personality characteristic
referred to as “cognitive reflection.”
Cognitive reflection is the ability to
resist the first impulse or intuition. It is
the tendency to reflect and think about
a problem rather than following initial
inclinations. Low cognitive reflection
is associated with a tendency to yield
to immediate impulses by making
quick decisions with little thought and
deliberation. People who are high in
cognitive reflection tend to be good at
evaluating risky investment situations,
and tend to be willing to take risks.
Nofsinger and Varma (2007) cited
evidence that suggests a link between
cognitive reflection and relative immunity
from behavioural biases. They also
carried out a survey, which found that
professional financial advisers (personal
financial planners) were above average
in terms of cognitive reflection. Frederick
had presented evidence that suggests
a link between hyperbolic discounting
(that is, overemphasis on the present) and
low cognitive reflection. Nofsinger and
Varma provided evidence to support that
observation.
People with low cognitive reflection fail
to see the interest rate implicit in a choice
between two different sums of money at
different points of time (the present and
a future date). Personal financial advisers
should be able to see the implicit interest
rates in order to provide good advice
to their clients. More generally, clients
with low cognitive reflection are more
in need of guidance since their ability to
understand alternatives and to choose
between them would tend to be relatively
low.
Cognitive (Dis)Organisation
Among the psychological biases that
affect investors are choice bracketing and
mental accounting. In both cases, the
problem is a failure to take a coherent
view of the whole financial situation.
Choice bracketing causes people
to evaluate each new investment
independently of the existing portfolio.
The result can be a poorly diversified
portfolio. Although each individual
decision may seem good in isolation, the
aggregation of the individual decisions
may represent a poor portfolio.
Mental accounting may cause incoherence
in personal financial management since it
can lead to financial decisions being taken
independently of each other (Kahneman
“Cognitive reflection is
the ability to resist the
first impulse or intuition.
It is the tendency to
reflect and think about
a problem rather
than following initial
inclinations.”
and Tversky 1982). If a person separates
money holdings according to their uses,
or sources, financial organisation can lose
coherence. The separation of finances
may be into distinct bank or investment
accounts, or may simply be in the mind
of the individual. Although mental
accounting can help in the organisation
of finances, it can also hinder rational
decision-making.
For example, someone who makes
an investment whilst having a debt is
effectively financing the investment with
borrowed money. If the person did not
separate the debt and investment into
separate mental accounts, the decision
may have been to reduce the debt rather
than buy the investment. A financial
adviser would provide a useful service by
pointing out the inter-related nature of
a client’s finances. One dimension of the
provision of financial advice is teaching
the client about personal financial
management.
Mental accounting can result in different
investments being allocated to different
purposes. For example, one portfolio may
be for the purpose of funding retirement
whilst another is for financing children
through university. Mental accounting
keeps these two portfolios separate so
that neither is subsidised by the other.
It may be that in aggregate, the two
portfolios are showing strong gains
whilst one is showing a loss. The mental
accounting will cause the perception of
loss, in relation to a portfolio, despite the
overall profit.
One frequent rule for self-control is
“never touch the capital.” This means that
dividends and interest-but not the capital
sum-should be used to finance spending.
A low dividend may lead to a forced
withdrawal of capital. There may have
been a strong capital appreciation, but the
mental accounting that separates capital
and dividends could result in feelings of
failure and loss. An adviser could point out
that capital appreciation is an acceptable
alternative to dividends as a source of
financing consumption spending, and
that realising part of a capital gain need
not jeopardise future income.
People may not realise that they are using
mental accounting, but mental accounting
determines how a person thinks about
finance and makes financial decisions.
People have widely differing systems of
mental accounting. An adviser should
be wary of thinking that a client has a
conventional view of money and financial
decisions. A person’s mental accounting
may cause unusual ways of thinking about,
categorising, and evaluating money. If
The 4E Journal 7

financial advice is inconsistent with a
client’s mental accounting, the client may
choose not to accept the advice (McGuigan
and Eisner, 2003).
Illusions and Deceptions
Another cognitive bias is the illusion of
control. The illusion of control causes
people to behave as if they were able to
exert control where this is impossible
or unlikely; such control includes the
ability to identify future out-performers.
The illusion of control, together with
overconfidence, may explain why so many
investors choose actively managed funds
when tracker funds outperform them and
have lower charges.
A study by the Financial Services Authority
in Britain (Rhodes 2000) confirmed the
findings of academic studies, which found
that the relative past performance of
actively managed funds is no indicator of
future relative performance (not everyone
is convinced, see Redhead 2008). It
may be that overconfidence in their
own selection abilities, and the illusion
of control provided by the facility of
choosing between funds, cause investors
(or their financial advisers) to select
actively managed funds when tracker
funds offer better potential value.
According to Langer (1975), people often
find it difficult to accept that outcomes
may be random. Langer distinguishes
between chance events and skill events.
Skill events entail a causal link between
behaviour and the outcome. In the case
of chance events, the outcome is random.
People often see chance events as skill
events. When faced with randomness,
people frequently behave as if the event
were controllable (or predictable). If
people engage in skill behaviour, such
as making choices, their belief in the
controllability of a random event appears
to become stronger. There is considerable
evidence that investment managers
are unable to consistently out-perform
stock markets. This suggests that the
outcome of investment management is
random. However, since the investment
managers engage in skill behaviour,
analysis and choice, they tend to see
portfolio performance as controllable.
Retail investors and financial advisers are
also likely to see the performance of their
investment choices as controllable; the
act of choosing enhances the illusion of
control.
Overconfidence is commonplace. Investors
can be overconfident about their forecasts
and opinions. Overconfidence can be
reinforced by the hindsight bias. Hindsight
bias causes people to believe that past
events were capable of having been
forecast (even when they were not possible
to forecast). In consequence, clients may
question why their financial advisers failed
to forecast the events.
Overconfidence and the illusion
of control can be reinforced by
confirmation bias. Confirmation bias is
a tendency to interpret information as
confirming a preferred point of view and
an inclination to seek information that
confirms the opinion whilst discounting
contradictory information. An adviser
could attempt to combat overconfidence
and confirmation bias by asking the
client to consider both the opposite
point of view and the consequences of
being wrong (Moisand 2000).
Activation
A person may make a decision but not
act on it. Some motivation is required
for action. Behavioural finance has
identified the presence of procrastination
and inhibition in the activation stage
of investment decisions. Even when
decisions have been made they will not
be implemented unless the positive
motivation is strong enough to overcome
inclinations and feelings that inhibit
action (Neukam and Hershey, 2003).
The status quo bias and conservatism
tend to inhibit action by predisposing the
investor against change. The status quo
bias is the inclination to retain an existing
investment in preference to switching
to a new one. Possession of something
tends to enhance its perceived value.
Conservatism is reluctance to change an
opinion. Fear of change, and fear of the
process of change, can prevent action.
This is particularly so if there is uncertainty
about the costs and benefits of a decision.
Confirmation bias can produce an over
emphasis on the case against change.
One aspect of prospect theory is the
relative weighting of gains and losses.
Typically, losses are emotionally weighted
more than twice as much as gains of equal
size. This is referred to as loss aversion. So
if there were a 50 percent probability of
gain and a 50 percent probability of loss,
an investment would not be made. Loss
aversion inclines people to inaction rather
than action.
Financial activation motivates saving for
retirement, whereas financial inhibition
discourages saving. Financial activation is
goal-based, and financial inhibition is fearbased.
They are two distinct characteristics
rather than two ends of the same dimension.
Neukam and Hershey found that that
the people who saved most were those
“If people
engage in skill
behaviour, such
as making
choices, their
belief in the
controllability
of a random
event appears
to become
stronger.”
with the strongest financial goals and
the lowest level of fear. In relation to
retirement saving, visions of old age are
likely to affect financial goals. A vision of
prospective poverty might strengthen
the goals of saving as might visions of a
leisure-orientated lifestyle in retirement.
Conversely, images of poor health and
fading looks in old age could produce
inhibition since people might put old age
out of their minds. If they do not think
about the retirement years, they may not
save for them. The goals and fears were
not only related to visions of old age, but
also to the planning process. The personal
characteristics interact.
For example, a strong drive toward
saving (planning) for retirement could
be offset by a high level of fear about
the planning process; a strong desire to
accumulate wealth for retirement could
be offset by a fear of stock market risk or
a distrust of the financial services industry.
This latter point is close to the Harrison,
Waite and White (2006) observation that
mistrust of financial advisers can deter
retirement saving. The importance of
The 4E Journal 9

Make Prudent Financial
Management a Way of Life
Financial Education
Get knowledgeable about
managing your finances
smartly.
Financial Counselling
Learn to put into action
your financial knowledge by
practising positive financial
habits daily.
Debt Management
Enjoy financial freedom
through your determination
and discipline.
10 The 4E Journal
www.akpk.org.my
1800-88-2575

fears concerning the saving (retirement
planning) process relates to the Jacobs-
Lawson and Hershey (2005) findings that
financial knowledge and risk tolerance are
positively related to retirement saving.
SMarT
Many people exhibit a strong emphasis on
the present. Receipt of $50 immediately
may be preferred to $100 next month,
whereas $50 next month would not be
preferred to $100 in two months. This
inclination toward gratification in the
present is seen to arise from a lack of
future time perspective (Jacobs-Lawson
and Hershey 2005) or from hyperbolic
discounting (Ainslie 1991).
Benartzi and Thaler (2004) used the
principles of behavioural finance
to develop a practical program for
increasing the level of saving into pension
schemes. The program is called Save
More Tomorrow (SMarT). It was designed
to help employees who want to save
more for retirement but find that their
willpower is lacking.
One feature of SMarT is that there is a time
lag between commitment to the scheme
and the date on which payments begin.
This overcomes the problem that people
tend to value immediate money very
highly. People find it easier to commit to a
future investment than an immediate one.
A second feature is that increases in
payments to the scheme coincide with pay
rises. By using part of a pay rise, contributors
do not feel that they are reducing their
disposable income (take-home pay). This
avoids the aversion to loss identified by
prospect theory. It does not seem to matter
whether the pay rise is a real one, or simply
matches inflation, since people seem to
suffer from money illusion. The real rise is
the increase in the purchasing power of
the wage; if prices are rising, the real rise is
less than the rise in money terms. Money
illusion causes people to see money rises
as real ones. Evidence for money illusion
has been found by Kahneman, Knetch and
Thaler (1986) and by Shafir, Diamond and
Tversky (1997).
A third feature is that the contributions to
the pension scheme increase every time
there is a pay rise, until a predetermined
maximum proportion of income is
reached. The status quo bias indicates
that, when faced with a choice, people
tend to do nothing (i.e. they maintain the
status quo). This causes procrastination.
If the decision has already been made
to increase contributions to the scheme,
maintenance of the status quo entails
proceeding with the existing arrangement
to increase contributions.
A fourth feature is that employees can opt
out of the plan if they wish to. This makes
commitment to the scheme less binding,
and hence makes the commitment more
likely. The status quo bias tends to keep
people in the scheme.
Trust
If action requires operating through
an agent, there is inhibition if the
agent is not trusted. Such agents could
include financial advisers and financial
organisations that provide financial
products for retail investors. Trust can
be an important factor in determining
whether action is taken (Olsen 2008). For
example, a person may decide to start
a pension plan. However if that person
does not trust financial advisers, the result
could be an absence of action.
Mistrust inhibits action. The lack of
trust might relate to the competence
of financial advisers, or to the ability of
advisers to put clients’ interests ahead of
their own. Trust entails the acceptance of
vulnerability to the decisions of others. If
the investor cannot trust the competence
or integrity of an adviser, the pension
plan will not be implemented. There also
needs to be trust in the organisation that
provides the pension plan. There needs to
be trust in regulators and in the markets
in which the underlying investments are
made. Although an investor may wish to
invest in a pension plan, distrust of the
stock and bond markets in which the
provider invests could deter the investor
from pursuing the pension plan. One of
an adviser’s tasks is to improve the client’s
trust in the various agencies involved in
the delivery and provision of financial
products.
Financial advisers paid by commission
have a conflict of interest. The products
that are best for the client are not
necessarily those that pay the highest
commission. It might be argued that
advisers should have sufficient integrity to
consider only the interests of their clients,
but even the highest integrity does not
eliminate bias.
Research into the behaviour of auditors
has indicated that the psychological
processes involved in conflicts of interest
can occur without any conscious intention
to indulge in corruption (Moore, Tetlock,
Tanlu and Bazerman 2006). Confirmation
bias, which entails a focus on supporting
information and rejection of opposing
information, is not a conscious process.
Montier (2007) has referred to the notion
that people are able to exclude selfinterest
in decision-making as the illusion
of objectivity. Biases from motivated
reasoning are widespread; evidence
exists for their presence amongst medics
and judges. The human mind is not a
disinterested computer; its operation is
affected by moods, emotions, motives,
attitudes, and self-interest.
The inclination of financial advisers (and
everyone else) to consider their own
interests is often referred to as the selfserving
bias. Most people try to be fair
and objective, and like to feel that others
see them as acting fairly and objectively.
However, attempts to be fair and objective
are undermined by psychological
factors of which people are unaware.
The self-serving bias inclines people
(unconsciously) to gather information,
process information, and remember
information in such a way as to satisfy
their self-interest. Evidence that supports
self-interest may be accepted without
question, whilst contradictory evidence is
closely scrutinised (Koehler 1993). The selfserving
bias, as other behavioural biases,
tends to be stronger in situations
characterised by complexity and
uncertainty (Banaji, Bazerman and
Chugh 2003).
A client will not trust an adviser
unless the adviser is seen as
ethical. The perceived integrity
“Financial advisers paid
by commission have a
conflict of interest. The
products that are best
for the client are not
necessarily those that pay
the highest commission.”
The 4E Journal 11

of a financial adviser is dependent upon
the perceived ethical standards of the
adviser. Although good intentions are
necessary for ethical behaviour, they
are not sufficient. Cognitive limitations
and biases, including the self-serving
bias, can lead to unethical behaviour
even when the intention is to be ethical.
Many people accidentally blunder into
unethical behaviour (Prentice, 2007). A
complicating issue is the tendency for
people to be overconfident about their
ethical standards. The self-enhancement
bias not only leads people to believe
that they are above average in their
abilities, but also that they are above
average in the maintenance of ethical
standards (Jennings 2005). If people
are overconfident about their ethical
standards, they may be less inclined to
critically examine their behaviour; “I am a
good person, so what I do must be ethical.”
Often people will rationalise unethical
behaviour in order to preserve a selfimage
of being ethical. Rationalisation is
alternatively known as self-justification.
Anand, Ashforth and Joshi (2005)
described some types of rationalisation.
They included denial of responsibility;
e.g. “It is not my choice, it is the way the
business operates,” or “The client makes
the final decision,” or “The law allows it, so
it is the fault of the government.”
Another rationalisation is denial of injury;
e.g. “I know the fund charges are high, but
the good fund management will more
than compensate.”
There is denial of victim; e.g. “The
client does not pay the commission,
the life assurance company pays it,” or
“Customers are clever, they are not fooled.”
There is appeal to higher loyalties; e.g. “I
have a family to keep.”
Another form of rationalisation is the
metaphor of the ledger; e.g. “The value of
my advice is greater than the value of the
commission.”
Colleagues and authority can undermine
someone’s ethical standards without the
person being aware of the process. There
is a conformity bias whereby people
conform to the values and behaviours of
those around them, including colleagues.
A person could unconsciously adopt the
unethical behaviour of others. Obedience
to authority figures, such as employers
and managers, can be a strong tendency.
Even when explicit instructions are not
given they may be inferred (Tetlock 1991).
Strong emphasis on sales targets could
be taken as implying that sales volume is
more important than other factors such as
business ethics.
The conformity bias can result in groupthink
(Janis 1982, Sims 1992). Groupthink entails
a uniformity of thought and values within
a group. In business settings, bonding
activities such as awaydays reinforce
groupthink. If the thinking of the group
were unethical, a new member would
tend to adopt the unethical thinking. The
concurrence of other group members in a
set of values could lead to the belief that
those values are ethical. Risky shift is the
tendency for a group to take bigger risks
than individuals within the group (Coffee
1981). Group action dilutes an individual’s
feelings of responsibility (Schneyer 1991).
The increased risks include increased
ethical risks. Clients might be advised to
make risky investments.
A tendency to advise clients to take more
risk than is appropriate could be reinforced
by the optimism bias. This can manifest
itself in an understatement of risk (Smits
and Hoorens 2005) and an exaggeration
of profit potential. The optimism reflects
genuinely held beliefs on the part of the
financial adviser. Corporate insiders may
provide over-optimistic forecasts because
they really believe them, rather than
because they intend to deceive investors
(Langevoort 1997). The same may be true
of investment analysts (Prentice 2007) and
financial advisers.
MacCoun (2000) suggested that the
chances of removing cognitive biases
from people’s thinking are very low.
One implication is that regulation, to
protect consumers from cognitively
biased advisers, is necessary. If regulation
improves client trust, everyone could
benefit, but regulators must also be aware
of behavioural biases.
The principles of behavioural finance
throw light on the effectiveness of specific
regulatory measures. For example, in
Britain financial advisers are required to
tell clients how much commission the
advisers expect to receive. Laboratory
studies have indicated that clients follow
the advice of advisers to nearly the same
extent as they would in the absence of
knowing about the conflict of interest.
Also, advisers seem to feel less compelled
to be impartial when the conflict of
interest has been revealed. The presumed
increased scepticism on the part of the
client is seen as reducing the need to be
impartial (Bazerman and Malhotra 2005;
Cain, Loewenstein and Moore 2005).
“There is a
conformity bias
whereby people
conform to
the values and
behaviours of
those around
them, including
colleagues.
Conclusion
Financial advisers would improve
their service to clients if they correct
biases arising from the psychology of
perception (perceived information), the
psychology of cognition (information
processing), and the psychology of
motivation (activation).
Keith Redhead is principal lecturer in
finance at Coventry University in the
United Kingdom. He has published nine
books including, Personal Finance and
Investments: A Behavioural Finance
Perspective (Routledge, 2008). He teaches
courses on behavioural finance, financial
services, and institutional investments.
12 The 4E Journal

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ISLAMIC FINANCE
October - December 2010
Sub-Prime Crisis 2008:
Valuable Lessons for the Islamic Finance Industry
By Maznita Mokhtar
Introduction
The global financial crisis which began
some two years ago is far from over.
Though the story is well known, analysis
and corrective measures are on-going. It
has been said that the Islamic finance
industry was “sealed” from the worst blow
of the crisis, and this, thankfully, is due
to the minimal risk exposures of Islamic
financial transactions, as gharar and maisir
elements are prohibited by syariah. Islamic
financial institutions have stable deposit
bases, no exposure to the toxic assets and
maintain relatively small trading desks
whilst remaining as small leveraging
participants. However, the tumble of the
sukuk market after Sheikh Taqi Usmani’s
comment in 2007 i demonstrated that
the ISLAMIC FINANCE industry was not
spared, and that “stability” should not be
taken for granted.
Causes of the Financial Crisis
There are many views on what actually
caused the crisis. Two Islamic economists
gave the following perspectives. Chapra
(2008) blamed the inadequate market
discipline attributable to the lack of
risk/reward structure which led to the
expansion of credit and the size of
derivatives, and the “too big to fall” policy.
He further called for a “new architecture”
to prevent a recurrence of the financial
turmoil. Siddiqi (2008) attributed the
root cause to the “moral failure” that led to
corruption and exploitation, identifying
the following as main features of the
crisis: the credit crunch, over-leveraging,
complexity of innovative products and
risk transferring in speculation.
These events made headlines in 2008: In
March 2008 Bear Stearns was acquired by
JP Morgan Chase for US$10 a share, in a fire
sale to avoid bankruptcy and the Federal
Reserve backed up the deal providing up
to US$30 billion covering Bear Stearns’
losses. After this event, the market and
investors alike stayed calm believing that
the crisis had ended, only to realise soon
after that it was only the beginning.
“Red September” was when the spiraling
effects took place: the U.S. government
allocated over US$900 billion to the
U.S. housing bubble, substantially
towards Fannie Mae, Freddie Mac and
the Federal Housing Administration.
Meryll Lynch was sold to the Bank of
America amidst fears of a liquidity crisis.
Lehman Brothers collapsed and filed for
bankruptcy protection. The Feds loaned
US$85 billion to American International
Group (AIG) to avoid bankruptcy as its
credit rating fell below the “AA” levels.
14 The 4E Journal

Washington Mutual was seized by the
Federal Deposit Insurance Corporation
(FDIC) and its banking assets were sold
to JP Morgan Chase for US$1.84 billion, as
a result of the takeover. And Washington
Mutual’s shareholders lost all their equity.
(Wikipedia)
Flashback: The U.S. peaked in early 2005,
then started to decline in 2006 and 2007.
Sub-prime mortgages began to rise due
to the decline of house prices and interest
rates went on the rise from their initial low
rates. Variable mortgage rates attracted
customers with low initial payments but
caused them to default when the rates shot
up. With the homes purchased no longer of
any value, they could not refinance.
The greed for profits led to some creative
innovations and new financial products
(which many customers have no
understanding of) were introduced and
this significantly changed the existing
financial structure. Traditionally, customers’
deposits were the banks’ source of funds
for investment, but securitised papers
from the market quickly replaced this
source of funds. Loans were pooled and
sold to investors as residential mortgage
backed securities (MBS) and collateralised
debt obligations (CDO).
By the end of 2006, about 55 percent of
the US$10.2 trillion mortgage loans in
the U.S. was packaged and sold to local
as well as global investors. (Habib Ahmad,
2009:13) By early 2007, warnings were
issued by many organisations including
the International Monetary Fund (IMF),
Bank for International Settlements (BIS),
Organisation for Economic Cooperation
and Development (OECD), Bank of
England and the Financial Services
Authority (FSA), but they were received
with mixed reactions. By August 2007, it
was apparent what this new risk aversion
was all about – concerns over the subprime
home mortgage market and how
much the financial institutions were
exposed to potential losses through
investments in MBS, CDOs and other
securitised and structured instruments.
The credit crunch came when those who
had hedged MBS and CDO by buying
CDS claimed compensation against their
losses. Whilst CDS issues paid off the
claims, these financial institutions were
depleting their capital and incurring
losses themselves and hence, scrambled
to get funds from various sources to avoid
bankruptcy. When the money market
froze, the liquidity crisis began.
“The greed for profits
led to some creative
innovations and new
financial products (which
many customers have
no understanding of)
were introduced and this
significantly changed
the existing financial
structure.”
The economic crisis was a spillover effect
of the credit crunch. The vicious cycle
worked through the various institutions
and markets; interlinked with one another.
The lack of financing led to the housing
market crumbling and prices plummeted
further. The CDO process took a severe
beating. Finally, the real economy was
brought to a standstill. Globalisation
took the crisis everywhere. As Gordon
Gekko succinctly put it, “It was systemic,
malignant and global … just like cancer.” iii
The Syariah Perspective
Syariah’s guidelines on risk management
relate to the prohibition of gharar, maisir
and riba, in particular within the context
of protection of property (al-mal). This is
one of the five necessities (al-dharuriyyah
al-khamsah) of maqasid al-syariah, others
being the protection of religion (al-din),
life (an-nafs), reason (al-aql) and progeny
(al-nasl).
It is argued that the financial crisis could
have been prevented if Islamic principles
had been applied. Gharar that caused
the crisis not only related to risk, but
also involved elements of uncertainty,
deception or jeopardy to one party (Ismail,
2010; 9). Zuhayli concluded that “gharar
is risk in the sense of lack of certainty
regarding the existence of an object
and that the gharar sale is that whose
measure is not known to be large or small”.
(Zuhayli, 2003: 84). Maisir (gambling) is
clearly forbidden to Muslims, as one party
wins while the other loses – a zero sum
game with risky payoffs. In other words,
speculative and gambling activities were
merely shifting the risk from one party to
another. Hence, derivatives such as CDS
would have been prohibited if Islamic
finance were applied. The prohibition of
riba in debt trading would mean products
such as MBS and CDO would have been
non-existent in the IF system. iv
Syariah compliance not only refers to
the gharar, maisir and riba in the trade
and products involved as explained
above, but also the higher ethical and
moral standards. Muslims are required
to achieve hayyatan tayyibah – lawful
and goodness in all aspects of life. In the
context of debt discussed in this paper,
the financial institution (seller) should be
transparent, responsible and accountable
for the credit facilities that they offer to
the market, and should not act merely
on profit-maximisation motives. There is
a standard of care, required of all parties
in a transaction, which links ethical
considerations to legal considerations.
The derivatives market was also expanding
rapidly during the period preceding the
crisis. The market for credit default swaps
(CDS) increased tremendously in 2003. By
the end of 2007, the outstanding amount
was US$62.2 trillion, falling to US$38.6
trillion by the end of 2008. Even though
some of these products were held for
hedging purposes, a large proportion
was used for speculation – easily proven
when the size of total derivatives (US$182
trillion, 2Q2008) was compared to the real
economy (world gross domestic product
(GDP) was US$60.69 trillion in 2008). ii
With the homes purchased no longer of any value, they could not refinance.
The 4E Journal 15

The standard of care for the debt-providers
(sellers) covers the following fundamental
values:
• Avoidance of excessive profits:
the seller is prohibited from
taking excessive profits and taking
advantage of buyers.
• Truthful and complete disclosure
of information: the seller is
required to provide full and truthful
information about the product, its
type, origin, and cost.
• Ease of conduct: both seller and
buyer are required to be reasonable
when setting the terms and
conditions of a contract.
• Documentation and witnessing of
all debts: as prescribed in the Quran
(2:282), all contracts and loans should
be written and witnessed.
On the other side of the coin, the Muslim
borrower (buyer) is obliged to pay his
debts on time and according to the
terms signed in the contract. At the same
time, the Prophet (pbuh) illustrated that
he must be gracious is doing so: the
Prophet (pbuh) took a small camel on loan.
When he was given camels as sadaqah
(donation) – presumably he is often given
resources as appreciation from his people
– he wanted to pay back a similar camel
but found that they were big camels,
aged four years old – so value-wise, these
are of higher value than what he owed.
Even so, he paid his debt with one of the
big camels, which was more than what he
owed and said: “Virtuous are they who pay
back their debts well.” This was related by
Rafi’ and reported by Ata b. Yasir.
“Syariah dictates that
regulators too are dutybound
to ensure that
both banks (sellers)
and customers (buyers)
conform to standards
that are applicable to
all parties, Islamic and
conventional.”
Syariah dictates that regulators too are
duty-bound to ensure that both banks
(sellers) and customers (buyers) conform
to standards that are applicable to all
parties, Islamic and conventional. There
would not be any ‘regulatory arbitrage’
or comparative advantage of the
conventional over the Islamic financial
institutions if the same standards applied
to all. Bailouts for banks’ survival would
have been avoided.
Lessons Learned
Risk transfers and the failure of risk
management
A credit default swap (CDS) is effectively
insurance against bond defaults that are
used to hedge against CDOs losing value.
The CDS allows the transfer of credit risk
from one party to say, an insurer, for a
premium. In the event of default, the
insurer would have to purchase the
defaulted asset from the insured party.
The nature of the underlying loans based
on a variable rate made the CDS a higher
risk.
Many new risks arise due to innovations
and the dynamic nature of the financial
system. While risks in debt and equity
16 The 4E Journal

instruments are known, risks in many
derivative products are complex as well
as abstract as these instruments are
not linked to any underlying asset or
transaction. Moreover, derivatives such
as futures, forwards as well as a put and
call option may also introduce unlimited
risks of loss that may exceed the value of
its original investment.
With globalisation, the introduction
of new products also links various
intermediaries and market segments,
hence creating a contagious effect and
further risks. The lesson learned, in light
of the voracious demand for increased
and innovative Islamic financial products
means product developers need to be
wary of the new risks being introduced
within these instruments. These new risks
need to be properly understood, assessed
and controlled.
Expansion of debt and unbacked credit
growth
Debt or al-Dayn, as explained in the longest
verse in the Quran (Al Baqarah, 2:282)
begins with “O you who believe! When you
contract a debt for a fixed period, write it
down ….” From a layperson’s perspective,
debt’s significance can be seen from the
length of this verse, and these first few
words. However, the dominant financial
system is a debt-based framework.
The crisis is a direct result of the
extraordinary boom in credit growth
and leverage within the financial system.
The low interest regime had lasted too
long, luring both borrowers and funders
to borrow more and create more new
“packaged” products, respectively, in
search of greater profits. The fact that all
banks assumed that they could exit their
speculative positions simultaneously
was based on the assumption that the
financial market would always remain
liquid as they are normally. This was a
lesson – the banks which invested in
CDOs and CDSs all rushed to sell them
only to find that they could not sell them
at any price.
“The Muslim borrower
(buyer) is obliged to
pay his debts on time
and according to the
terms signed in the
contract. At the same
time, the Prophet (pbuh)
illustrated that he must
be gracious is doing so:
the Prophet (pbuh) took
a small camel on loan.”
There is general belief that Islamic
financial institutions cannot invest in
CDOs and CDSs and hence are immuned
to the risks related to these speculative
products. However, Islamic financial
institutions are heavily exposed to real
estate instead. Similarly, if each funding
institution assumes that it would
comfortably exit a project with profits,
then the industry as a whole may face
similar situation and suffer losses at exit
or have problems exiting within a desired
time-frame.
Disclosure and transparency
The lesson relating to the importance
of disclosure and transparency is for
Accounting and Auditing Organisation
for Islamic Financial Institutions (AAOIFI),
Islamic Financial Services Board (IFSB) and
the accounting standard setters. The crisis
involved numerous failures of disclosures
and transparency.
One example that was pointed out at the
AAOIFI-World Bank Annual Conference
2009 was: “the off-balance sheet
treatment used by conventional banks in
moving assets to Structured Investment
Vehicles (SIVs) as these ‘conduits’ were not
part of the normal financial reporting or
disclosures.”
Hence these entities were obscure to
regulators as well as counterparties of
the banks – inadequate risk disclosure
made it difficult for a proper risk/
reward assessment to be made on these
strucured financial instruments. This is
no different from the use of off-balance
sheet special purpose vehicles in Islamic
finance funding projects. There is a
need to consider whether this will give
rise to gharar due to the same lack of
transparency as the conventional SIVs.
(Mohammad Al-Maraj, 2009)
On that same note, accounting standards
for Islamic finance need to keep up
with the dynamic growth of product
innovation. Failures could similarly
arise without suitable accounting and
disclosure standards for treatment of
such new instruments. Since the U.S.’s
Financial Accounting Standards Board
(FASB) and the International Financial
Standards Board (IFSB) v have since been
mandated to review lessons from the
crisis and amend the related accounting
standards accordingly, AAOIFI and IFSB
too would have to enhance standards
and disclosure frameworks to match the
improved standards that are likely to be
released for the conventional financial
system.
The regulatory-supervisory framework
One of the most damaging culprit of the
crisis was that the larger segment of the
financial market and institutions within
the U.S. regulatory system had little or no
regulatory-supervisory oversight. Hence,
a properly designed regulatory oversight
for the Islamic financial sector is essential,
and its standards must apply uniformly
to all Islamic financial institutions,
transactions and instruments globally.
This is because at this stage of the Islamic
financial evolution, the reputational
The 4E Journal 17

isk of failure in any Islamic institution /
instrument can lead to greater systemic
risk, much more damaging to the similar
failure in the conventional system.
This is where syariah governance comes
into play. Syariah compliance is the core
purpose of Islamic banking and finance and
therefore gives legitimacy to the practices
of the Islamic financial institutions. With
this compliance in place, the confidence of
the shareholders and public is assured as
all the practices and activities of the Islamic
financial institutions are halal. Existence of
any non-Syariah element would not just
affect the public confidence in the Islamic
financial institutions, but would also
expose these institutions to fiduciary and
reputational risks.
The call for standardisation of opinions
is not something new. All scholars and
researchers are in agreement that new
standards are required to apply the best
practices in Syariah governance for Islamic
financial institutions, with no single model
being applicable to all. This application will
vary from country to country, depending
on the pace of development each country
is going through.
The alternative financial system
Other than stricter corporate governance,
the failure of the debt-based financial
framework calls for an alternative financial
system and the Islamic financial system
has been identified as the most suitable
candidate.
A full-fledged Islamic framework would
include, inter alia, sanctity of contract
(explicit and implicit); property rights;
trust; rules of behaviour in governance;
existence of markets; rules regarding
allocation, production, and distribution
of resources, income and wealth; rules
governing the behaviour of market
participants; and rules regarding postmarket
distribution (Mirakhor, 2009).
Such a system, advocates an equitybased,
risk-sharing financial system.
Mirakhor constructed a theoretical
model in 1990 demonstrating that a
full-fledged equity-based system has
desirable features that improves the
shock-absorption adjustment capacity
of the economy. The rate of return in this
model is derived from the real sector,
providing an interactive process from the
financial and real sectors. vi
However, such a system can only exist
if Islamic finance operates on its own
regulatory-supervisory framework.
Mirakhor suggested that such a
framework has to be unified, uniform and
multinational, covering all economies that
has adopted, however little, any form of
Islamic finance.
Conclusion and Recommendations
The recent events created a great
opportunity for the Islamic finance industry
as the alternative financial system. However,
this opportunity must not be lost. There
is no room for complacency. If marketplayers
want to make the most of this timely
opportunity, there is a need to ensure the
lessons of the crisis are well learned.
Risk management: Good risk management
practice in financial institutions means
efforts must be made to efficiently manage
risks, shifting those that can be transferred
and avoiding other risks by simple business
practices. The introduction of new products
to the Islamic financial landscape must also
be accompanied by a clear understanding
of such products so that any new risks that
arise could be assessed and controlled
accordingly.
Towards equity-based funding: Learning
from the credit growth and leverage lesson
above, it appears as if equity-funding
is the next best alternative. An equitybased
system would be linked to the real
economy. The role of debt should not
be a predominant one, but a measure
of last resort. Chapra (2008) mentioned
conditions that need to be met, as clearly
laid down by syariah, to prevent excessive
debt expansion:
• The asset transacted must be real,
not imaginary nor notional
• The seller must own and possess the
goods being sold/leased (qabd)
• The transaction must be a genuine
one, with intention of delivery
(dhaman)
• The debt cannot be sold and must be
born be the creditor himself (ghorm),
i.e. risk cannot be transferred.
Enhanced standards and disclosure
requirements: In terms of transparency
and accountability, there is a call for
enhanced standards and disclosure
requirements for Islamic financial
instruments, especially for new
innovations. AAOIFI and IFSB not only
have to ensure that they are keeping
in pace with the rapid development of
Islamic financial products but also with
the U.S. and international standard setters
who are reviewing their own standards in
response to the crisis.
Corporate and Syariah Governance:
The strength of Islamic finance over the
conventional system in the crisis was asset
quality, as Islamic principles safeguarded
parties from investing in low-quality assets
that were not so transparent. However,
there still remains lack of transparency
and weak corporate governance across
the Islamic financial sector. In particular,
more knowledge and tougher regulation
are required in profit sharing investment
accounts where merely “converting” a
readily available conventional model is
just not good enough. Presently there is
great demand for high quality investment
products but this means the financial
institutions need to manage the liquidity
challenges, as profitability is affected. At
a recent IFSB meeting vii , the needs of the
industry were identified – to develop
financial instruments with triple A rating
for sukuk as well as the secondary market
so that liquidity too can be managed.
Enhancement of the Islamic finance
profession: One of the key strategies in line
with enhanced standards is the enrichment
of the Islamic finance professionals,
within the industry, in terms of quality
and quantity. Many academic courses
/ qualifications offered are essentially
to “convert” the professionals within the
Islamic finance industry to Islamic-based
technical skills and knowledge. This is
essential as most personnel of newly
established Islamic financial institutions
have just been redeployed from their
18 The 4E Journal

prior equivalent designation in the
conventional seat. There needs to be some
sort of consolidation between the various
qualifications offered by the various bodies.
Perhaps a standard minimum certification
level must be made as a prerequisite for
Islamic finance industry personnel who are
holding management posts.
Ethics and moralistic principles: Ethics
within Islamic principles would be
applicable to all parties – banks would
not only disclose adequate information
but also educate the customers about
their products. Their responsibility here
is in educating their customers, and they
should be held accountable if they fail to
do so. In their quest to achieve hayyatan
tayyibah, all market players, including
the banks (sellers) and borrower (buyers),
must ensure that a standard of care is
adhered to so that no one party gains at
the expense of the other.
“The recent events created
a great opportunity
for the Islamic finance
industry as the alternative
financial system. However,
this opportunity must not
be lost.”
The ultimate alternative system:
Mirakhor theorises that a full-fledged
Islamic financial system can ensure
economic stability as well as maintain
shock resilience; he further explains that
until a fully Islamic system is implemented,
it would be difficult to be well clear of any
crisis as a dual system would be proned
to similar financial disasters. However, in
many economies, the Islamic financial
system can only exist as a sector within
the dominant debt-based system. As
such, a properly designed regulatoryprudential-supervisory
framework is key
to an orderly development and evolution
of Islamic finance.
Mirakhor and Haneef agreed that the ideal
framework and/or new standards must be
imposed by regulators and supervisory
authorities on the entire financial
services industry, not merely Islamic
finance sectors, so that there is no unfair
arbitrage or comparative advantage to
the conventional players.
In conclusion
Even though there is likelihood that
Islamic financial principles would have
prevented the crisis, some Islamic
financial practices are still considered
vulnerable to a similar crisis. If the
industry players continue to focus on
providing syariah-compliant structures
for conventional products and not put in
the extra effort to innovate new syariah
products merely to meet the demands of
clients, the Islamic banking and finance
practice would be shifting towards what
the conventional system went through
and may cause more harm (mafasid) than
good (masalih).
Habib Ahmad (2009) illustrated a
number of steps of the crisis which
could be replicated in Islamic finance.
He compared the ijarah / diminishing
musyarakah financing (where the
assets are securitised as sukuk) to loans
packaged as MBS/CDO. He also likened
the positive ratings of Islamic products
which are complex and difficult to assess
to favourable ratings of the debt-based
securities given by rating agencies
even though the products were not
understood. Similarly, investors are now
buying return-swaps exchanging sukuk
returns with returns from other assets
classes, just like CDS were bought to
hedge credit risks. (Ahmad, 2009: 9)
The opportunity for Islamic finance
to shine that arose from the global
financial crisis should not be taken for
granted and hence future developments
within the Islamic finance framework
and governance needs to be given due
attention and not done in haste in the
pursuit of market share and profits.
The author is the vice-president of IIFIN
Consulting Sdn Bhd, an Islamic finance
consulting firm.
References
Ahmad, Habib (2009). Financial Crisis:
Risks and Lessons for Islamic Finance.
ISRA International Journal of Islamic
Finance, Vol. 1, Issue 1, 2009.
Chapra, Umer (2008). The Global
Financial Crisis: Can Islamic Finance
Help Minimize the Severity and
Frequency of Such a Crisis in the
Future. Paper presented at the
Forum On the Global Financial Crisis,
Islamic Development Bank, Oct 2008.
Haneef, Rafe & Smolo, Edib (2010).
Reshaping the Islamic Finance
Industry Applying The Lessons Learnt
from the Global Financial Crisis. ISRA
Research Paper No:11/2010.
Ismail, Azman & Ahmad, Muhammad
Ali Jinnah (2010). The Credit Crisis
from an Islamic Risk Management
Perspective: How the Shariah
Can Provide Valuable Lessons for
Capitalists. Presented in Milan:
“Moral Values and Financial Markets:
Assessing The Resilience of Islamic
Finance Against Financial Crisis”,
organized by Durham University,
England and the Fondazione Eni
Enrico Mattei, Italy November 18-19,
2009.
Mirakhor, Abbas & Krichene,
Noureddine. (2009). The Recent Crisis:
Lessons for Islamic Finance. IFSB 2nd
Public Lecture on Financial Policy
and Stability, Kuala Lumpur: IFSB.
Journal of Islamic Economic, Banking
and Finance, Volume-5 Number-1.
Mohamad Al-Maraj, Rasheed (2009).
Islamic Finance and the financial
crisis. Keynote address by Governor
of the Central Bank of Bahrain, at
the AAOIFI-World Bank Annual
Conference on Islamic Banking and
Finance, Manama, December 14,
2009. BIS Review, 167/2009.
Zuhayli, Wahbah (2003). Financial
Transactions in Islamic Jurisprudence
Vol 1 Translated by Mahmud El-Gamal
and Muhammad S Eissa. Dar al-Fikr.
Beirut. Lebanon.
i In November 2007, Sheikh Muhammad Taqi Usmani, AAOIFI’s Chairman of Shariah Standard Council, declared that 85 percent of the sukuk inssuance were not shariahcompliant,
referring to the repurchase undertaking within the structure i.e. a promise that the borrow will pay back their face value at maturity or in event of default, hence
mirrorin the structure of a conventional bond. (arabian business.com November 21, 2007)
ii Statistical data sourced from Wikipedia (search: derivatives, world economy)
iii Quote from the film, Wall Street 2 - Money Never Sleeps, cinema release 2010.
iv Sale of debt (bai’al-dayn) is generally not allowed in the Middle East as debt should not be sold at discount but only transferred at par value by hawala. However, the SAC
of Malaysia allows sale of debt arising from sale transactions.
v Not to be confused with the Islamic Financial Services Board, also abbreviated “IFSB”.
vi One of the first theoretical analysis of a debtless system was developed by Lloyd Metzler (1951) based on pure “stock market” economies and “cash-in-advance” systems.
Mohsin Khan (1986) took the next step and demonstrated a stable equilibrium of such a system. Mirakhor structured various models, with Khan (1988) and with Zaidi (1988)
proving that monetory policy is effective for stabilization purposes and disturbances to asset positions are absorbed efficiently in an Islamic Financial System. Mirakhor’s
1990 model incorporated the earlier ones and other researchers’ works which extended Metzler’s model in new directions. (Mirakhor, 2009: pp 46-47).
vii Seminar on Challenges and Opportunities to IF organised by IFSB, Bahrain, October 3, 2010. (source: http://www.gulf-daily-news.com/NewsDetails.aspxstoryid=288334)
The 4E Journal 19

INDUSTRY
October - December 2010
The Concept of Ageing-in-Place
By Richard Lim
As we age, we will experience
physiological and psychological
changes to our bodies and minds.
We become shorter, we need brighter
lights, we fall easily, we cannot hear the
telephone ringing, we cannot climb stairs
or steps, we cannot turn on the taps, we
feel cold easily and a host of other things.
Life is literally telling us that unless we
have the means to compensate for our
diminishing capabilities, we will soon
have trouble with our daily living routines
and looking after ourselves in our own
homes. Yes, it’s that serious!
An “Ageing-in-Place” Home
Most houses have not been designed
and built with older age in mind and the
current designs are such that often they
affect our ability to live safely, securely,
independently and comfortably in our
own homes as we age.
However, most elderly people around
the world would prefer to live or age in
their own homes as any forced relocation
to a more suitable living arrangement
would cause “relocation stress syndrome.”
Providing assisted living facilities for all
those in need would be an unbearable
financial burden to governments and
families alike.
Governments have responded by
evolving the “ageing-in-place” concept to
address the needs of their elderly citizens.
Ageing-in-place is a phrase that refers to
making changes in the home to allow the
elderly to live at home as long as possible.
Basically it involves looking at known
limitations the elderly have while ageing
and modify the home to minimise the
impact of those limitations. It could also
incorporate telecare and other assistive
technologies to prolong liveability and
independence.
Telecare facilities are devices that offer
continuous, automatic and remote
monitoring of real-time emergencies
and lifestyle changes over time in order
to manage the risks associated with
independent living.
Examples of such devices are: safety
confirmation phone, non-movement
Ageing-in-Place - Continuum of Care
Independence
as we age
Needs Dependency
sensors, food/water alarms, bed/chair
occupancy sensors, gas shut-off devices,
falls sensors, medication reminder
systems, automatic lighting sensors,
wrist-worn well-being monitors and
temperature range sensors.
Assistive technologies relate to devices,
products and systems that assist the
elderly with vision, hearing, dexterity and
mobility, language and communication
impairments to manage the activities
of daily living so that they remain
independent as long as possible.
In Australia, the government has responded
by offering in-home care services for those
qualified for such services. The carers who
deliver those services are trained and
qualified (Certificate III) and have prior
police character clearance. There are also
specialised building services that provide
advisory and renovation services that help
the elderly to create a home that meets
their changing needs as they aged over
time.
However, all those modifications to the
home and all those telecare and assistive
devices and systems only cater for the
physical and health needs of the elderly.
What about their social, emotional and
psychological needs, especially for those
without their spouses or those with
limited mobility
In Australia, time and again we see and
hear of single elderly folks enduring
Dependence
Total Partial Partial
Total
Independent
• 24-hour emergency call
Retirement Facility
Assisted Living
• 24-hour emergency call
• Cleaning & heavy laundry
Residential Aged Care Facility
Low-level Care
• 24-hour emergency call
• Personal care
• Limited nurse care
• Some allied health
e.g. : Physiotherapy,
occupational therapy,
recreational therapy and
podiatry
Ageing in Place : Allows the elders to age gracefully and with dignity at one location and meeting their changing care needs
over time in one familiar environment.
The “Ageing-in-Place” development.
extreme loneliness and boredom in his
or her home. We are starting to hear the
elderly going through similar experiences
in Malaysia.
Another issue is that statistically, an
average Malaysian is likely to need nine
years of nursing care of some form.
Moving an elderly person to a nursing
home is emotionally very traumatic for
that person and also to his or her spouse
in terms of physical separation. This
negative feeling is exacerbated when the
ambient and care are below the standards
expected and when the elderly perceive
it as “going to a place to die” rather than
“going to a place to live out their golden
years with dignity.”
An “Ageing-in-Place”
Development
High-level Care
• 24-hour emergency call
• 24-hour personal care
and nurse care
• Allied health
e.g. : Physiotherapy,
occupational therapy,
recreational therapy and
podiatry
An “Ageing-in-Place” development is
basically a development consisting of two
components:
• A retirement village consisting
of single level or multi-level
independent living units, and
• Aged care facility which provides
low, high and dementia specific
nursing care. It is likely for the facility
to provide or arrange for in-home
care services for residents living in
the retirement village who are still
independent but need assistance in
their daily living activities.
The 4E Journal 21

Retirement Village
Retirement Units
Residential Aged Care Facility
The “Ageing-in-Place” Master Plan.
Ageing-In-Place Development
Where the retirement village and the
aged care facility are co-located in
one location – residents changing
care needs over time are met in one
familiar place.
In a typical resort style retirement village,
there is a wide range of amenities,
activities and services to cater for the
social, physical and health needs of its
residents. The objective is to create a
secure environment where its residents
can socialise and mix with people of their
own age and with similar interests, thus
helping to remove some of the loneliness
and boredom often associated with
growing old.
The residents’ independent living units
or apartments are designed and built to
meet their changing needs as they age.
The many benefits of retirement
village living
As a result of being misinformed
or uninformed, most people
tend to become emotional and
irrational, feel guilty or regard
themselves as “not being filial”
when debating the pros and cons
of encouraging their parents to
move into a retirement village.
Consequently they tend to
have misconceptions of what
retirement living is, some of
which are as follows:
Myth – A retirement village is a place where
a lot of old people sit around waiting for
the inevitable or a place to be “put-away.”
Fact – Lifestyle retirement villages
provide a range of activities and
facilities that enable residents to retain
their independence. Also they offer
companionship, social, intellectual
and physical activities for the residents.
In reality, it is more likely a vibrant
community of active people enjoying life.
A research conducted in 2002 for the
Retirement Village Association of Australia
found that a retirement village lifestyle
could extend a resident’s life expectancy
by up to three years.
village participants score of 77.0 percent.
(The survey involved eight aspects of life:
standard of living, health, achievements
in life, personal relationship, how safe you
feel, community connectedness, future
security and spirituality and religion.)
These two findings are not surprising as
the many social and physical activities and
support services readily available in the
retirement villages “enrich” the residents’
lives, their well-being and happiness.
Aged Care or Nursing Home
With a nursing home (that embraces
international’s best care practices and a
care model that empowers the resident)
in the same vicinity, it greatly lessens the
emotional trauma, known as “relocation
stress syndrome,” associated with the
move from their independent living units
or apartments to the nursing home as the
residents are similar with the surrounding
environment and the people and where
the place has a homely ambient and
caring staff.
Such “ageing-in-place” development is
able to offer “a continuum of care” to their
residents so that the residents can age
gracefully and with dignity and where
their changing care needs over time can
be met at one familiar location.
Some of the built-in features include
secure railings in the bathroom and toilets,
minimal steps, wider doors, benches
accessible for those in wheelchairs and
non-slip floors.
Telecare and assistive devices include
24/7 emergency response system in the
bedroom, bathroom and toile), nonmovement
sensors, gas shut-off devices,
falls sensors, automatic lighting sensors,
wrist-worn well-being monitors and
temperature control devices.
A diversional therapist will organise
activities tailored to meet the needs of
the residents. The resort-owned village
bus will provide transport for residents
to undertake their daily living activities if
they choose not to drive.
Telecare and assistive devices include 24/7 emergency
response system
Myth – The elderly are more independent
living at home
Fact – Living at home is in fact is more
dependent – depending on the help and
good will of others (family and friends).
Retirement villages offer the security and
freedom of choice of activities. Residents can
choose to take part in the village’s activities
or be alone. This is true independence. In
time of crisis, other like-minded residents
can offer immediate support.
Myth – The elderly are happier being
cared for in an extended family household.
Fact – A study undertaken in Hong Kong
in 2004 revealed that residents living
in a communal environment (senior
accommodation/retirement village)
showed higher psychological well-being
than residents living alone or with their
families.
A survey report in 2009, conducted over
four years by the Australian Centre on
Quality of Life (Deakin University) based
on Australian Unity “Personal Well-being
Index” found that retirement village
residents aged 65 and over scored 80.3
percent against other non-retirement
Generally, the current practice and
standard of care in Malaysia leave much
to be desired. The management culture
and environment is very institutional and
sterile, almost devoid of human warmth.
Caring is more like giving out treatment
rather than looking after the resident with
compassion. Duty of care is being used
by carers as a reason to justify the use of
power and control, enforcing restrictions
on the residents, instead of providing
support and encouragement to enable
the residents to live life to their fullest
potential and ensuring that their needs
are fulfilled.
The aged care or nursing home industry
in Malaysia is still in the nascent stage
of development. As such, it has the
A nursing home that has a homely ambient
and caring staff.
22 The 4E Journal

Normal Living & Life
opportunity to bypass the outdated
medical model of care and go straight to a
more contemporary social model (picture
6) with a focus on the residents and their
social well-being, a care model like the
“Eden Alternative.” The financial cost to
implement such care model is negligible
as it is more the need of a paradigm shift
in the management mindset.
The Eden Alternative Care
Model
The core concept of the Eden Alternative
is strikingly simple. It is about where
the residents live – it must be a habitat
for human beings, not a sterile medical
institution. This concept shows how
companionships, the opportunity to give
meaningful care to other living beings,
and the variety and spontaneity that mark
an enlivened environment can succeed
where pills and therapies often fail.
The Eden Alternative is about changing the
culture of long-term care organisations.
The departmentalised, task-orientation
of the current medical model of care has
created a culture that is characterised
by pessimism, cynicism and stinginess.
By moving away from the top-down
bureaucratic approach to management
and moving decision-making closer to the
residents, they can have a meaningful life.
Studies have shown that implementation
of the Eden Alternative is a powerful tool
for improving quality of life and quality
of care for those living in nursing homes.
Also, in homes that have adopted this
principle, there is often improved staff
satisfaction and retention and significant
decreases in the overuse of medications
and restraints. And most importantly, the
residents enjoy themselves and have a
“life worth living for.”
Successfully undertaking an
“Ageing-in-Place’ development
For a retirement village with aged care
(nursing home) facility development to
be successful as a commercial venture,
the following critical factors must be fully
considered and understood:
• Understanding the ageing process,
psychology of colours and the
physiological and psychological
changes to the abilities, behaviour
and social attitudes of its residents
(Example: When the author
undertook the project in Australia,
anthropometric information was
gathered on the reach and height of
its target market. Consequently, the
Physical Care
Spiritual Care
Encouraging
Humour, Joy
Smiles
Supporting
Psychological/
Emotional
Welfare
Home
Valuing &
Respecting
Diversity
Giving
Compassion,
Empathy,
Love
Valuing
Commitment
Family Members
Clients
Harmony
with the
Environment
Asian Communities
INDIVIDUAL
Staff
Maintaining
Dignity
Ensuring
Comforting
& Security
Communicating
Respect
& Trust
Model of Care
Encouraging
Individuality
Taking Pride
and Satisfaction
in Work
Providing
Visitors
Volunteers
Residents
kitchen bench height was reduced
to meet the functional needs of its
elderly residents.)
• Understanding the lifestyle needs of
the residents – the “pull” and “push”
factors that draw Malaysian retirees to
such lifestyle development. (Example:
A retired Malaysian nurse migrated to
Australia recently. She did not want
to stay with her children for lifestyle
reasons, but was worried about
living alone. When the idea of living
in a retirement village was sounded
to her, she was very sceptical until
she visited one. She bought into the
retirement village concept instantly as
the retirement village “pull” and “push”
factors answered all her needs and
addressed all her concerns and fears.)
• Appreciating that it is a long-term
“lifestyle play” underpin by the
property element. (The author’s
project in Australia – the retirement
villa units’ prices were 25 percent
more than similar size residential
villa units in comparable locations.
Initially, the project encountered
resistance from Asian buyers until
a change of sales strategy which
focused on selling solutions to the
buyers’ ageing needs and problems.
The higher price factor then became
secondary.)
• It is a long-term commitment with
a strong social overtone. (Whilst
the developer makes the initial
development margin, managing
the development effectively will
deliver attractive on-going profit.
The developer has the responsibility
to create a lifestyle that meets the
expectations of its residents. As
reported in the Australian newspaper
The Age on October 20, 2007 ...
“Retirement villages, it seems have
become the new frontier in property
Time
& Other
Resources
Advocating for
Those Who
Cannot
Expressing
Spirituality
Psychological / Emotional Care
Palliative Care
Providing
Education
- Internal
& External
Fostering
Relationships
Between
People
Promoting
A Sense of
Belonging
Spatial
Bereavement Care
Quality of Care – consider
individual needs and a host of
complex and inter-related
relationships and the
environment.
Individual - Focus
Rights
Dignity
Quality of Life
Lifestyle
Independence
Social Opportunities
development ... but for the majority
property developers moving into
the sector, its correct calculation
promises unfathomable riches”.)
• Evolve a business model that is
relevant to the market and equitable
both to the developers and residents
alike. (The author’s project in Australia
– when a resident leaves the village, the
developer charges up to 27 percent
of that resident’s unit selling price as
DMF (Deferred Management Fee) and
then takes another 50 percent share
of any capital gain. Consequently for
every one transacted sale, there was
a loss of three to four potential sales.
Two bites of the cherry pie – a lesson
learnt.)
A nursing care standard that
embraces international best practices
and a model of care that focuses on
the resident’s social well-being. (The
author has experiences with friend’s
parents in Malaysia and Singapore
– they checked themselves out of
nursing homes after a short period
of stay, complaining to their children
that they would continue staying if
the standards were similar to what
they saw in Australia.
There was an instance in Singapore
where two elderly residents fell in
love. Instead of celebrating such
joyous occasion, the nursing home
warned the couple that they could
not fall in love and they need to
move out if they continued their
courtship.)
Richard Lim has over 12 years of experience in
the retirement and aged care industry. He was
one of the founding directors of Australia’s first
Asian specific “Ageing-in-Place” development
based on Asian values and philosophies
(www.jetagardens.com). He is also a founding
director of Skylight Lifestyles Group with
offices in Australia and Kuala Lumpur. The
group specialises in wellness, retirement and
aged care advisory services and telecare and
assistive technologies sourcing. He can be
reached at: richardlim.47@gmail.com
The 4E Journal 23

Aziz with his son, Ray
& grandson, Kiern
My Happiness,
My Family,
My Legacy,
MyLife.
My life is filled with happiness. As a retiree I am doing things that I love and, as
a grandfather, I am spending more time with the people I love. My family means
everything to me and I want to make sure that they are well taken care of, even
after I am gone.
My investments must be stable and easily repeatable. I do not want to monitor
them everyday; so I must have trust in the people I invest with. Walton’s land
investments are both stable and hassle-free. My Walton Consultant is professional
and knowledgeable. With my Walton investments, I am on my way to securing my
legacy and my family’s future.
Visit www.mylifewithwalton.com to find out more.
Abdul Aziz Mustajab
Retiree & Grandfather
With over 30 years of experience, Walton is one of North America’s leading real
estate investment groups, managing over $2.2 billion USD ($2.5 billion CAD) of
land on behalf of over 60,000 investors globally. Walton has achieved a 28.24%*
average rate of return for our investors, a track record verified and audited by
PricewaterhouseCoopers LLP.
* This is a weighted average simple annualized rate of return. Audit performed by PricewaterhouseCoopers
LLP (Canada) dated April 20, 2010. The complete audit report may be requested through your Walton
representative or is available online at www.waltoninternational.com
Past performance is not necessarily indicative of future results.
Corporate Services Hotline 1800 88 WALTON (925866)
Walton International Property Group (M) Sdn Bhd
8/F Wisma Genting, 28 Jalan Sultan Ismail, 50250 Kuala Lumpur Malaysia
© Walton International Group Inc. 2010

ECONOMY
October - December 2010
Developing Asia to Provide Growth Support
By Anthony Dass
Developing Asia has rebounded
strongly from the global economic
downturn, with growth projected
to expand by 8.2 percent in 2010, driven
by a rapid turnaround in exports, healthy
private demand, and positive effects of
the stimulus fiscal and monetary policy
measures.
In contrast, the developed economies like
U.S., eurozone and Japan who pick-up in
1Q2010 started losing steam in 2Q2010
onwards. Weakness in U.S. housing
markets, the specter of eurozone sovereign
debt default and risks of commodity price
spikes are clouding global prospects.
While a second contraction in the major
industrial economies remains unlikely, it
cannot be ruled out.
Looking ahead, while Developing Asia
continues to progress, we believe the
policymakers must turn their focus from
managing short-term macroeconomic
fluctuations to ensure strong and
sustained medium- and long-term
growth. This will require policies that
expand the region’s productive capacity
through both factor accumulation and
rising productivity. Trade, human capital,
infrastructure, and financial development
will be key focus of this growth.
Key issues on the global front that
could hold back near term growth
High uncertainty in the financial markets
Should there be a lack of strong, credible,
medium-term fiscal consolidation plan as
well as risk of sovereign debt and markets
flaring up, it will delay the recovery
process. Banks are expected to face a
‘wall’ of maturing debt due for refinancing
over the next 24 months, amounting to
about US$4 trillion. This can heighten
risk as: (1) competition escalates for
funding amongst these economies; (2)
turbulence in sovereign debt markets
continues; (3) real estate markets weaken
further; (4) regulatory uncertainty and
ill-conceived regulatory measures cut
the nascent recovery; and (5) downside
surprises affect economic activity. In view
of the complex linkages within and across
borders, these problems could quickly
become more widespread.
Real estate can turn out to be a drag
Should the upside to the real estate
market remain sticky, it will further reduce
the balance sheets of households and
banks. The drop in residential investment
is exceptionally steep compared with
past recessions, despite several parts of
the world’s real estate prices remaining
high. With the risk of the bubble bursting
brewing in these economies, compounded
with the enormous overhang of unsold
properties with ‘underwater’ mortgages
in U.S., it will put a lid on the upside
momentum on transactions. Inventories
may fall and depress prices.
Deleveraging by households
Household savings are expected to stay
high vis-à-vis pre-crisis level for a while
as they repair their balance sheets. With
household borrowings down sharply, as
per reflected by the debt ratios, corrections
will have some way to go especially in the
vulnerable eurozone. Hence, deleveraging
will not require significant additional hike
in household saving rates – implying rates
could stay low.
Slowing inventory accumulation
We do not expect strong inventory
building in the U.S. and several advanced
Asian economies after having built their
inventory level on a high note. As for
eurozone and Japan, we found inventory
the drawdown more limited, suggesting
a move to contain unemployment and
keep production up. We expect inventory
rebuilding unlikely to accelerate in these
areas. As such, we expect inventories to
turn from a ‘supportive’ role to ‘neutral’ in
the recovery.
Risk of ineffective policy
We expect monetary policy to remain
accommodative in the advance
economies in 2011. Any tightening by
them will depend much on how well
the financial markets have healed. On
the contrary, some of the Developing
Asia economies will continue to tighten
rates to combat inflation and prevent
the asset bubble bursting. Meanwhile,
fiscal tightening by most economies
will continue in 2011. Our fear is that
the simultaneous fiscal adjustments will
mute the export channels. With policy
rates expected to remain near zero for
many large advanced economies in 2011,
we believe the conventional monetary
policy can offer only limited short-term
help when demand weakens. Risk of
falling into the liquidity trap remains
high. And fiscal policies will eventually
become less stimulative and the mix of
macroeconomic policies across countries
will provide limited support to global
demand rebalancing. This is in contrast to
the past experience.
The drivers to global growth in the
near term
Continuous robust growth from many
emerging market economies
Global growth driver in 2011, in our
view, will come from many emerging
The 4E Journal 25

market economies. Although industrial
production (IP) is seen to be easing for
now, we expect it to bottom out sometime
in 1Q2011 or 2Q2011. This implies that
gross domestic product (GDP) will bottom
out during these quarters. Growth will
be driven by the self-sustained phase,
which is beyond restocking and focusing
on consumption and fixed investments,
which will slash excess capacity. Thus, we
expect global growth to hover close to
near term trajectory.
Asset allocation will remain favourable
with emerging market economies
Emerging market coped well during
the global downturn by virtue of the
strong growth and avoidance of financial
excesses. Going forward, we expect
the economic growth to stay healthy.
Advance economies are expected to
remain anemic despite their improving
IPs. Their IPs are poised to remain below
the pre-crisis levels. Underpinned by the
relatively healthy economic outlook for
emerging markets and low interest rates
as well as anemic growth from mature
markets in 2011, inflow of asset allocation
to emerging market will remain positive,
boosting the region’s wealth effect.
Deleveraging by non-financial firms much
faster will boost growth
Deleveraging by non-financial firms was
much quicker as opposed to deleveraging
by households. Hence, we can expect a
smaller build-up of debt and a stronger
recovery of profitability and cash flow
from non-financial firms going forward.
The reason: non-financial firms swallowed
the bitter pill by slashing investment
and payroll in the early periods of the
recession. Although global IP has been
easing of late, we expect a reversed trend
in 1Q2011 or 2Q2011 when investment
propels again and/or inventory build-up
decelerates further.
Credit growth is expected to remain
healthy
The credit growth cycle will continue
to lend support in 2011. Despite the
tightening of policy rates expected in
several emerging market economies, we
believe the healthy economic outlook
and strong liquidity in 2011 will ensure
the credit cycle remains positive. Also,
we expect the credit cycle to improve
in advance economies in 2011 as the
uncertainty dust starts to settle. We are
already seeing positive economic data
rolling out from U.S. and we view the Euro
setback will not be as severe as have been
envisaged earlier.
Positive terms of trade
Commodity prices are expected to
remain firm in 2011 underpinned by
a more stable global growth, which is
primarily supported by emerging market
economies. Also the lingering effects of
tight credit markets prior to the global
crisis created a significant level of spare
capacity. Thus, we project crude oil prices
to hover around US$85-US$90 per barrel
in 2011 from US$80 per barrel in 2010 and
the crude palm oil (CPO) price to average
at approximately RM3,000 per tonne
in 2011 from an estimated RM2,650 per
tonne in 2010. Thus, we expect terms-oftrade
(TOT) to remain healthy in 2011.
We expect an anemic economic outlook
for G3 in 2011
G3 (U.S., Europe and Japan) outlook
will remain anemic in 2011 despite the
encouraging economic developments in
1Q2010 that favoured an upward revision
for 2010 to 2.3 percent (previously 1.7
percent). The promising outlook ran out
of steam from 2Q2010, exhibiting only
moderate growth. Fading of the stimulus
measures and various uncertainties saw
growth momentum easing and turning
anemic. We project a 1.7 percent in 2011
with U.S. to expand by 2.1 percent in 2011,
while Europe and Japan will go up 1.5
percent respectively.
Underpinned by anemic economic
growth, prices will remain depressed. Also,
falling demand will lower inflation as firms
slash prices to step-down the inventory
levels. Rising unemployment will put a lid
on higher labour costs and wages, while
weak commodity prices will further drag
down inflation. We believe the deflation
risk could be elevated when the economic
condition becomes more protracted as
opposed to cyclical.
But stag-deflation risk remains low. The
deadly combination of stag-deflation (that
is the economy stagnating/recession and
hurt by deflation) which we sang loudly
in the past does not pose a serious threat.
It can only gain momentum when the
economy falls into a ‘liquidity trap’ (when
the nominal policy rates remains close
to zero and monetary policy becomes
ineffective). We have ruled this out for the
moment.
Nonetheless, if we were to rank the risk of
stag-deflation amongst the G3, Japan is
in pole position, followed by Europe and
the U.S. due to differing structural issues,
policy abilities and lag pass-through
effects from higher commodity prices.
We project inflation for these advanced
economies to average 142 percent in
2010 and 1.3 percent in 2011.
Monetary policy is expected to remain
low amongst the developed economies
in 2011. Nonetheless, the direction of
interest rate hike could vary amongst the
G3 economies. For instance, we expect
Japan to maintain its low policy rates of
0.1 percent throughout 2011, hurt by
recession and collapsing prices.
As for Europe, we think the European
Central Bank would hold rates at 1 percent
for most of 2011. But a rate hike could
happen in 4Q2011 by 25 basis points
(bps) if potential inflation is seen as a
cause of concern. In the case of the U.S.,
the proposed higher budget deficit in
2011 would give some breathing space to
the Fed when implemented. Pressure on
the Fed to boost the economy through
quantitative easing will be reduced.
Should the economy gain any momentum,
we can expect the U.S. to end its monetary
easing and start increasing rates again.
26 The 4E Journal

We reckon this could happen in 2H2011.
We are looking at the possibilities of a rate
hike between 50 bps to 75 bps.
Developing Asia will continue to lend
growth support
Meanwhile, we reiterate our view that
Developing Asia will continue to exhibit
cyclical growth momentum in 2011,
backed by its credible growth. Growth will
continue to emanate from a combination
of buoyant exports, strong private
demand and sustained positive effects
from the various stimulus policies.
Nevertheless, it remains vulnerable to
external shocks. In particular, there are
growing concerns over the strength
of the global economy, fears over the
sustainability of private domestic demand,
management of capital inflows and rising
exchange rates. On that note, we have
revised downwards 2011growth to 7.4
percent from 8.2 percent in 2010 (was
previously 7.5 percent).
While growth is seen to expand with a
slight moderation, we expect inflation
to remain a cause of concern. Driven by
the combinations of demand-pull and
cost-push inflation, upward pressure
on domestic prices remains. And this
is despite enjoying a stronger currency
which has sliced off some of the pressure
emanating from imported bills. We
project inflation to rise by 3.9 percent in
2011 from 4.1 percent in 2010.
Asia lags behind the industrial economies
in per capita income and remains home
to two-thirds of the world’s poor. Thus,
sustaining growth is critical to lift living
standards and reduce poverty.
Return to long-term growth would mean
focusing more on structural supplyside
policies. The return of long-term
growth means the region’s policymakers
must give higher priority to structural
supply-side policies. The focus would
be to improve the productive capacity
by fostering factor accumulation and
productivity growth. Countercyclical
fiscal and monetary policies which are
designed to smooth output fluctuations
temporarily would not be able to sustain
growth over a longer horizon.
ASEAN-4 to expand moderately in 2011
We expect the economic growth to
expand albeit moderately amongst the
Asean-4 economies in 2011. Southeast
Asia’s bigger economies – Indonesia,
Malaysia, Singapore, and Thailand – have
rebounded from 2009’s weakness at
a much stronger pace than expected.
The growth spurt was sparked by a
sharp upturn in exports, which fueled
recoveries in consumption and private
investment. Aggregate growth for these
economies in 2010 is projected at 8.6
percent. Nonetheless, we expect the
pace of growth to decelerate in 2011due
to the end of the low-base effect and
moderate world trade expansion. Growth
is projected at 5.3 percent in 2011.
Room for monetary tightening remains
high
Inflation in Developing Asia is poised
to remain subdued in 2011, projected
to rise by 3.9 percent from an estimated
4.1 percent in 2010. Nonetheless, the
monetary authorities are expected to
remain on guard against spikes in global
oil and food prices in 2011, implying that
room for monetary tightening remains
high. Meanwhile, inflation for the Asean-4
countries is forecast to edge down to 3.3
percent in 2011from 3.4 percent in 2010,
given the moderate price pressures thus
far in 2010.
Current account surplus remains
The continued strength of domestic
demand will keep the overall current
account surplus in the next two years
to an average of around 4 percent for
Developing Asia. Meanwhile, the current
account surpluses for the Asean-4
economies are projected at 9.1 percent
of GDP in 2010 and 9.2 percent of GDP in
2011.
The author is the chief economist of MIDF
Amanah Investment Bank Bhd.
Monetary policy is expected to remain
tight amongst many developed Asia
economies in 2011. Driven by strong
inflation, we expect policy rates to
continue trending upwards. We are
looking at rate hikes ranging between
75 bps to 100 bps. Also, for selected
economies in Developing Asia, there is still
room for the required reserve requirement
to inch up by 50 bps to 75 bps.
The future of growth in Asia
Overall, Developing Asia’s recovery
seems to have taken a firm hold. As the
global crisis recedes, medium- and longterm
growth will reassert themselves.
Aggressive fiscal and monetary expansion
limited the depth of the slowdown
and laid the foundation for a V-shaped
recovery.
The central challenge now facing the
region is to transform this foundation into
sustained medium- and long-term growth.
Despite its rapid pre-crisis growth and
resilience during the crisis, Developing
China
India
Indonesia
Malaysia
Singapore
Thailand
China
India
Indonesia
Malaysia
Singapore
Thailand
2009 2010f 2011f
9.1
7.4
4.5
-1.7
-1.3
-2.2
9.6
8.5
6.1
7.2
14.0
-3.5
9.0
8.2
6.3
5.3
5.0
4.5
Table 1: Real GDP (y/y percent)
2009 2010f 2011f
-0.7
3.2
3.2
3.6
7.5
5.5
4.8
5.2
5.7
0.6
2.1
2.5
0.6
3.0
2.0
-0.9
3.2
3.0
Table 2: Inflation GDP (y/y percent)
The 4E Journal 27

COVER STORY
October - December 2010
Banking on
Heritage
& Leveraging on
Relationship
The Malaysian financial planning
industry is heading the right
way, Tiew Siew Chuen, Standard
Chartered Bank Malaysia Bhd’s consumer
banking country head declared when
the 4E Journal met up with her recently in
Menara Standard Chartered.
From the tower’s vantage point, the Kuala
Lumpur skyline is clear and breathtaking.
Corporate Malaysia is in no doubt alive
and kicking. And affluence is on the
rise. Tiew’s perspective of the financial
planning industry is perhaps an indication
of exciting things to come for an industry
that has been struggling in the past
decade to find its raison d’être in the
domestic financial services scene.
“We are operating in a whole new world
where the balance of economic strength
and affluence is shifting from West to
East,” Tiew said. “If there is ever a better
time, now is the opportunity for Malaysia’s
financial planning industry to gain a
quantum leap on the back of strong
structural reforms by the government and
good measures implemented by Bank
Negara and the Securities Commission.”
Regulators play an important role
to ensure that both financial market
governance and public education are well
developed in the marketplace to facilitate
the growth of the industry, Tiew opined.
The buzzword for the industry in the
next five to 10 years, and perhaps always,
is customer-centric. Tiew, the former
Standard Chartered Bank Brunei’s CEO
and consumer banking head, believes this
is key to ensure that financial planning
products and services are relevant and
effective in helping customers fulfill their
personal financial needs.
As an international bank, she said
Standard Chartered is able to synergise
with its global operations in matured
markets such as Singapore and Hong
Kong to ensure product capability is
localised towards the local market
financial planning requirement. “This is
evident in our ability to showcase local
currency bonds to conservative investors
during the turbulent markets of 2009,”
Tiew said. “Malaysia also displayed a good
balance between yield generation and
taking care of customer’s well-being by
being one of the most sheltered market in
Asia from the last financial crisis.
“As a bank, we are definitely one of the key
players availing financial planning solutions
as a key tool for the next level of financial
planning,” she pointed out. “We are also one
of the few banks providing financial access
to cross asset covering foreign exchange,
fixed income, equity and commodity with
the intention of expanding within the asset
class mentioned.”
To find out more about how Standard
Chartered Bank Malaysia intends to
position the financial planning service
within it wealth management portfolio,
check out the discourse the managing
editor of the 4E Journal Steven K C Poh
had with Tiew.
28 The 4E Journal

As country head of consumer banking
for Standard Chartered Bank, does your
mandate include wealth management
and financial planning for clients
Yes, wealth management is very much
part of Standard Chartered’s consumer
banking portfolio. I have oversight
and responsibility for the strategy,
development and management of the
consumer banking business which
spreads across a network of more than
30 branches all over Malaysia, employing
over 1,600 people.
Wealth management is increasingly
growing in size as the affluent market
grows. How does Standard Chartered
Bank view this growing market and
what is it doing about it in terms of
product and service offerings
Asia is going through a super cycle of
growth very different from what we see
in the West. Research by Merrill Lynch
Capgemini shows that the affluent
segment, people with more than
US$100,000 in investible assets, in Asia
is growing at 12 percent compounded
annual growth rate (CAGR), triple the rate
of Western markets.
We also see another segment, the
emerging-affluent, individuals with
investible assets of between RM72,000
– RM250,000 rising in numbers and in
wealth. Last year alone, 42 million joined
the emerging-affluent category in the
region. They will be the story of the
decade and will surpass the Western
peers in global spending power within
two decades.
These two segments are the sweet spot
in Asia as the financial needs of these
individuals are largely underserved;
which segments have become our target
segments. Standard Chartered offers
a unique proposition for the affluent
segment through our Priority Banking.
We continue to develop and enhance
our Priority Banking services to fit these
individuals whose demand grows for
holistic relationship that offers more
than just investment, but also wealth
protection, lending and savings.
Several months ago, we added another
level of banking to Standard Chartered’s
suite of offerings in the high value
segment category in Malaysia. We
introduced Preferred Banking, a new level
of relationship banking for the emergingaffluent
market which constitutes 5.7
percent of the country’s population.
Findings through our research have
revealed these individuals’ needs for
recognition and access to services,
benefits and privileges similar to an
affluent customer, and this has shaped
the Preferred Banking proposition.
What differentiates us in the market
is our focus on customer needs.
Building and deepening relationship
with our customers is paramount to
understanding their needs. We just
don’t introduce products and services,
but formulate differentiated and
distinct value propositions based on
our customers needs. Our approach has
been a success – since the relaunch of
our Priority Banking last year, our Priority
Banking customer base has grown by
over 20 percent.
What is Standard Chartered Bank’s
branding and positioning statement
in the wealth management business
How has the bank communicated this
in the marketplace to date
Standard Chartered has been in Asia,
Africa and the Middle East for over 150
years, and specifically in Malaysia for
more than 130 years. Our brand promise,
to be here for good underscores our
commitment to be in our markets both
now and in the future, in good and bad
times; to maintain the highest standards
in terms of regulation, both internally and
externally; and to build long standing
relationships with our customers by being
the ‘trusted adviser’ to our customers.
‘Here for good’ sums up our commitment
to developing long-lasting relationships
with our customers. It is about operating
with integrity, which concerns every
aspect of how we operate as a bank.
For example we will build and deepen
relationships with our customers,
leverage on our international network
and provide holistic and comprehensive
suite of wealth management solutions
personalised to our customer’s banking,
investment and protection needs and
requirements in the different stages of
their lives.
In its current operating environment,
how is financial planning featured in
Standard Chartered Bank’s product
offerings And how would it complement
the overall business of the bank
Standard Chartered has always put
financial planning in the heart of our
product offering initiative. We are here
for our customers in the long run and
we design our wealth management
and consumer bank treasury products
based on an in-depth understanding
of our customer’s financial planning
requirement. By putting all the individual
pieces together via responding to the
current market trend and client needs,
we managed to balance the bank and
positioned ourselves as one of the most
innovative financial solution provider in
the market. Testament to our leadership
“What differentiates
us in the market is our
focus on customer needs.
Building and deepening
relationship with our
customers is paramount to
understanding their needs.”
The 4E Journal 29

TIew: Wealth management is a knowledge business and deals with customers who have specific short- and long-term investment plans and cash flow requirements.
in innovation is our ability to offer retail
bond and equity-linked investment to our
customers during the most appropriate
market condition be it in a bull or bear
market.
As a Charter Member of FPAM, it
is assumed that you see financial
planning as an integral part of Standard
Chartered Bank’s overall business
strategy. How would you approach
this new ‘frontier’ Also how would you
position Standard Chartered Bank to
participate and thrive in the financial
planning industry per se
Wealth management is a knowledge
business and deals with customers
who have specific short- and longterm
investment plans and cash flow
requirements. As the affluent and
emerging-affluent segments continue
to grow and become more discerning,
we need to look beyond managing just
their financial matters but understand
the customers’ current financial position,
on-going financial needs, funds flow
requirements, risk appetite levels and
provide a comprehensive suite of
investment options and value-added
advisory services.
At Standard Chartered, our customerfocused
strategy has and continues to
help us build and develop sustainable
customer relationships. Knowing our
customers well enables us to uncover our
customers’ needs, which in turn, supports
our efforts to deliver fast and accurate
services, provide the right solutions and
recognise our customers’ overall banking
relationship. This approach is embedded
across all touch points and businesses in
the bank.
In developing and enhancing the
following key areas, we are strengthening
our position in the wealth management
market:
Personalising banking with relationship
managers and specialist teams
With increasing wealth, customers want
to feel valued and unique as they have
differentiated financial goals to fit their
lifestyle, commitment and expectations.
We have relationship managers and a
team of specialists comprising investment
consultants, insurance and treasury
experts to specifically serve our Priority
and Preferred Banking segments;
providing customised financial plans
based on the customers’ risk appetite and
investment horizon.
Providing the most comprehensive suite
of financial solutions
This suite of financial solutions ranges
from unit trusts, retail bonds, structured
investment, dual currency investment
to bancassurance, and forex trading. We
have a track record in developing and
introducing innovative solutions that
fit our customers’ investment needs at
every stage of their life even amid an
uncertain economic environment. For
example:
• our Premium Currency Investment
launched in 2006 helped our
customers to enhance yield during
the low interest rate environment.
• our Gold Premium Currency helped
our customers to leverage on and
take advantage of the gold hike back
in 2008, when gold price was still
trading at US$850 level.
• the launch of our retail bond in
July 2009 allowed our customers to
ride on the bond market rally and
enhance their investment return.
• we have launched the Enhanced
Premium Currency Investment
(this year) to enable investors to
participate in the forex market
especially in the current volatile
environment
• most recently, we introduced our
premium equity-linked investment
that enables retail customers to tap
into foreign share markets and earn
potential yield as high as 40 percent
per annum.
Providing distinctive customer-focused
value proposition
Through survey and continuous
interaction with customers, we have up
the ante in offering differentiated and
holistic offering for our Priority Banking
and Preferred Banking customers
respectively. Unique to the industry and
designed for our premium customers
is the pan-bank rewards programme
which enables customers to earn reward
points on their total relationship with the
bank including mortgages, investments,
deposits, online transactions and credit
card spend. Additionally, we are also the
first in the marketplace to extend the same
priority benefits, service and privileges of
our Priority Banking customers to his/her
family members and this include special
relationship pricing, fees and team of
dedicated relationship managers.
How would Standard Chartered Bank
promote financial planning to its
customers What has been done to
date in this regard
In addition to traditional media and
various communications channels, our
core approach is through deepening
relationship with our customers who
would in turn recommend their family
and friends to us.
Through our survey, we have found that
family is important to our customers.
Appreciating this need, we host financial
and investment seminars that include
special workshops for our customer’s
children. The Robert Kiyosaki cash
flow game for the children is aimed at
30 The 4E Journal

introducing and inculcating the importance of financial
planning among the young.
Clearly, our approach is to build sustainable relationship with
our customers and their family members as well as their next
generations.
What role do you think the bank can play in educating the
public on the importance of financial planning
We share insights on useful thoughts on wealth management
through a series of Talk Wealth articles which we have
published in the media and our website.
consumer banking
A variety of investment periodicals and commentaries from
our team of investment strategies are also shared with
customers
Once a customer starts a relationship with us, we will engage
with them to uncover their banking needs. If they show interest
in wealth management, we have our relationship managers
assess their risk appetite using proprietary tools and provide
advice to enable customers to make sound decisions.
Our Priority Banking customers are provided with our regular
market outlook updates in the morning and other insights
that are vital in their financial planning endeavour.
“Knowing our customers well
enables us to uncover our customers’
needs, which in turn, supports our
efforts to deliver fast and accurate
services, provide the right solutions
and recognise our customers’ overall
banking relationship.”
Apart for educating our customers, we have also developed a
financial literacy programme which includes school outreach.
Financial literacy workshops are customised for primary
and secondary school students and every year we look at
updating the materials to fit the level of understanding of
these students. Essentially, the employee-driven programme
empowers children in Malaysia in financial literacy, a life skill
required to prepare them for the real world. We advocate
the fundamental of save, spend and invest and share tips on
money management and getting value from their money.
Through the programme we have reached more than
5,000 children across the country since the inception of the
programme in 2008.
The retail banking industry in Malaysia is fast evolving
in as much as it is fast growing. What do you foresee will
happen in the near term as far as the evolution of these
products and services are concerned and what do you
think would further contribute to this growth
Over a decade, we have witnessed a slow but steady paradigm
shift in consumer banking. Banks have built infrastructure,
expanded distribution capabilities and developed solid risk
management capabilities. The liberalisation of the banking
regulations have also spurred the development of the
banking sector, the quality of products services and entry of
more international organisations to accelerate the growth of
the industry.
Fax: 603-2698 3001
Email: careers@alliancebg.com.my
Website: www.alliancebank.com.my/careers.html
Human Resource, Level 20 Menara Multi-Purpose,
Capital Square, 8 Jalan Munshi Abdullah,
50100 Kuala Lumpur.

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Well-managed banks have been in a
position to grow and rapidly take market
share by making superior propositions
and keeping expenses on a tight leash. We
are one of the few international banks that
have emerged from the financial crisis
stronger and continue to deliver record
profits.
Right now the banks’ challenge is
developing solutions that customers
want in the most cost effective manner
and providing multi-channel access. It
is not only the banks who have reached
maturity, but also markets and customers.
Banks increasingly will have to address the
needs of the customers and to customise
products, services and communication.
As emerging markets such as Malaysia
see improved economic growth, demand
for more sophisticated financing, wealth
and transaction banking solution will also
increase. Much of the consumer banking
growth will be driven by sophisticated
customers (affluent and emergingaffluent),
a growing concentration of
wealth, a likely doubling of the bankable
population, the emergence of small
and medium-sized enterprises and the
fascination with new technologies.
We see this trend and have positioned
our consumer banking business for
sustainable growth through our strategy
of being customer-focused, deepening
our relationship with our customers to
enable us to deliver solutions specific
to their needs and recognise their total
relationship with us.
The purpose of wealth management,
among other things, is to ensure that
one’s retirement is well taken care
of. And financial planning comes into
play with regard to planning for that
retirement. Does Standard Chartered
Bank have any plan in approaching the
retirement planning market Does it
have products and services to offer and
help Malaysians to better manage their
retirement
Standard Chartered has a good number of
products created specifically for retirement
planning and wealth preservation. We are
definitely very well positioned to tap into
this market as this is also where most high
net worth individuals are sitting if you look
at the market segmentation. To name a
few, we have long-term single premium
investment-linked bancassurance product
designed for protection and wealth
preservation, monthly launches of capital
protected structured investment which
provides customers upside by participating
into equity, commodity and forex market,
as well as our retail bond denominated in
both Ringgit and foreign currency such
as U.S. Dollar, Australian Dollar and the
British Pound, which is in effect a great
diversification tool for customers who wish
to expose their financial holdings to multiasset
as well as currency.
In your opinion, how can the financial
planning community (financial
planning practitioners, and banks
like Standard Chartered Bank) help
Malaysians wake-up to the stark
realities of 21st century retirement
funding challenges
There are initiatives from banks to always
venture into this area. However, it is a
tall order to beat the real interest rate
while preserving the nest egg of our
customers. In Standard Chartered, our
value chain of financial product offering
goes deep and well beyond what our
customers see in their interaction with
our relationship managers and personal
financial consultants. A team of experts
is behind each of our frontliners to
ensure we produce the best-in-class
market information, financial advisory
and product execution. The bank’s
commitment to our customers is evident
as we have specialists supporting our
entire wealth management product lines
and even to the extent of a designated
consumer bank treasury desk specifically
to fulfill customers’ request for more
sophisticated treasury products.
Why, in your opinion, have financial
services organisations been slow in
manufacturing products and services
to cater specifically for the aged
Everyone will grow old one day isn’t it
And clearly older folks have difference
financial and funding needs.
Developing products for the aged is a
challenging task as their risk tolerance is
much lower when compared to their younger
“A team of experts is
behind each of our
frontliners to ensure
we produce the
best-in-class market
information, financial
advisory and product
execution.”
counterparts. With capital preservation as a
key requirement, designing and structuring
these products become restricted for
financial institutions without relative scale in
the market they operate.
For Standard Chartered, our product
capability comes with both breadth
and depth given the bank’s direction
to constantly explore the forefront of
financial markets and provide the bestin-class
solution to our customers. We
recognise the demographic shift as we
observe a lower birth rate in matured
market and high concentration of wealth
in the retirement group as baby boomers
retires. In anticipation and forward
planning in mind, we have the necessary
product suite in the wealth management
space to serve this particular segment
and ensure their retirement planning
is easy. This can only be achieved with
strict standards of product development
process and sensitivity towards economic
trends which allows us to respond fast and
capture the best arbitrage opportunity
within the market as it arises.
Would Standard Chartered Bank be
moving to the ‘silver market’ soon, and
how would it approach this market
Even though it is customary that Asian
children are expected and usually do take
care of the aging parents, nonetheless,
we do recognise and find customers of
this segment have specific needs and we
have been offering customised financial
solutions such as investment products
that focuses on dividend/annuity with
periodic income. Additionally, we are one
of the few banks in the marketplace that
provide trust services embedded in our
wealth solutions to suit the specific needs
of this segment. We are continuously
developing new products and this
segment remains one of our core focuses
for new products and services.
The 4E Journal 33

INDUSTRY
October - December 2010
By Tang Wee Hen
Is it all about the Business Model
Positioning and transitioning your financial planning business from an organisation’s perspective
• What is the most effective business
model for delivering financial
planning services in Malaysia
• Is the market ready to pay a fee for
financial planning advice
• Should financial planners be
independent and use a fee-only
model to ensure unbiased advice
• Is there a lack of commitment
among financial planners to deliver
consistent planning services for all of
their clients
• Is the productivity of advisers who
use a financial planning approach
lower than for advisers who use a
traditional product-based approach
• How difficult is it to get advisors to
use a financial planning approach,
even if it is better for the client,
since they tend to want a quick win
through an immediate product sale
Do any of these questions sound
familiar to you They tend to be the
hot topics of conversation whenever
a financial services company is considering
the launch of financial planning services in
their organisation. But companies already
in the business also find themselves asking
the same questions.
This is true whether we are talking about:
• banks that have private banking,
wealth management and financial
planning service departments
• asset management companies
• unit trust distributors
• life insurance companies
• independent licensed financial
planning companies and advisers
Before venturing to talk about the various
business models for a financial planning
practice, we should first go back to
ground zero and define what we mean
by “financial planning” since different
organisations and individual practitioners
will have their own interpretations. What
does “financial planning” mean to your
organisation What does the service
include What process does it involve
Take for example, a bank that has financial
advisers or customer relationship
managers at the counter that sell multiproducts.
When a client is provided with
an analysis to identify if they can achieve
their retirement objectives, using a simple
calculator, does that constitute financial
planning Or if a unit trust consultant
recommends a well diversified portfolio
after considering the client’s investment
risk profile and investment objectives,
does that constitute financial planning
According to the Financial Planning
Standard Board (FPSB), financial planning
is a process that determines how you can
best meet your life goals through the
proper management of your financial
affairs. Key to effective financial planning is
the ability to take into account all relevant
aspects of your financial situation and to
identify and analyse the interrelationships
among sometimes conflicting objectives.
It is this unique integration of knowledge
and skills across a broad range of
topics (six fundamental components –
financial management, tax planning,
asset management, risk management,
retirement planning and estate planning)
to formulate strategies, which distinguish
financial planning from other forms of
financial advice or financial intermediation.
Thus, a life insurance agent who claims to
provide financial planning services cannot
simply provide advice on life insurance
without considering the client’s current
investment holdings, family income
requirements, the existence of a will or
other family issues.
The ambiguity about what constitutes
“financial planning” has posed a lot of
challenges for our industry globally. As a
result of working with firms operating in
various domains in Canada and abroad,
PlanPlus Inc recently presented an
amalgamation of general observations
about “financial planning” with the aim
to provide its corporate compliance
departments and marketing departments
with a framework to consider “advisory
services” during the implementation of
financial planning business.
Here is an excerpt of the
Summary of Best Practice &
Regulatory Standards …
• Firms need to explicitly disclose
the levels of service they provide in
engagement agreements so clients
understand if they are receiving
financial planning services or a more
basic level of advice.
• Firms should provide guidelines to
help advisers and clients understand
when the specific complexity of a case
warrants financial planning services.
This is an ethical responsibility of
financial planners.
• A designated financial planner
should always undertake financial
planning services. Firms should have
clear guidelines that outline when
advisers can hold themselves out as
financial planners.
• If a non-planner works in
collaboration with a financial
planner in the delivery of financial
planning services to clients:
- It must be clearly disclosed to
the client their respective roles;
- The financial planner must remain
responsible for the engagement.
• Separate fees charged to clients
should be for “financial planning
services” – not generic advice.
• Firms must supervise the advisory
activities of their advisers with access
to the records and plans generated.
34 The 4E Journal

A Summary of Observations
Factor Financial Advice Financial Planning
Process
May be event driven although
6 Steps of financial planning
process remains a best practice
Engagement Engagement is best practice but
Mandatory part of financial planning
should disclose this is not a
financial planning engagement
Fees Should not charge fees for advice Fees for advice constitute a clear
planning engagement
Complexity &
Integration
Modular calcualtors
Need analysis
Engagement for planning services can be
without separate fees. Alternate forms of
compensation should be disclosed.
Integration of complex multiple goals
and the 6 areas of Financial Management,
Asset Management, Risk Management,
Tax Planning, Retirement Planning and
Estate Planning
Designations None required CFP®, PFP, RFP, PI.Fin or competency as
outlined in the FPSC “CFP® Professional
Competency Profile”
products you need to actually implement
your planning recommendations.
When all these things are in place, you
can communicate the organisation’s
philosophy to all members of the
team through your vision and mission
statements. These are some of the simplest
and most effective governance tools to
define and guide the organisation’s new
endeavour!
All of this sounds like a lot of work and
indeed it is. Fortunately most organisations
will already have in place either full or
partial backend support systems while
others may still be developing these
components. So, to succeed in launching
a successful financial planning business, is
it all about the business model
Once an organisation has a clear
definition of what “financial planning”
is and how financial planning will be
delivered to their clients, and by whom,
it makes it much easier to transition both
advisers and clients to that business
model.
Just like any other business, there are
some basic components that need to
be in place to successfully position and
launch financial planning services in an
organisation. As depicted by Figure 1, the
first step is to clearly define the services
and products that will be offered. Next,
you would need to do a profile of your
ideal client which would help you zero in
on your target market.
You are now in a position to develop
a sales process that is suitable to your
target market and you can put in place
the tools and technologies necessary
to perform the analytics, develop the
planning strategies and prepare the
financial plans.
At this point, you would be ready to hire
and train your sales force of financial
planners since you have a solid foundation
in place.
Backend Support
So what will these financial planners
need as backend support Some of
the key components include sales and
marketing to create the market, and
promote the services and products.
Legal compliance, finance, operation
and administration, plan review
and technical support, training and
development as well as research
and development are also important
support functions.
System, IT and Infrastructure
To make the business more efficient it takes
IT (information technology) infrastructure
and systems such as a system to process
transactions, an accounting system,
compensation system and client
management systems. You would also
have to identify the in-house or strategic
partners you would use to access the
Figure 1: Ideal Financial Planning Business Structure
Business Model
According to Dr Bruce M. Firestone, a
researcher on business models from
Ottawa, Canada, a business model is
a one-page description (usually in the
form of a flow chart) of the ‘engine’ of a
business. The business model follows the
money (as French dictum quotes: suivez
l’argent) from customers and clients to the
business and through the
business to its network
of suppliers (the supply
chain).
It shows how products
and services flow in
the other direction, up
the supply chain to the
business and the business’
clients and customers.
Lastly, there is an
‘orthogonal’ dimension
of information flows
which describes how the
relationships between
the business and its
customers and clients are
maintained – that is, how
marketing information
flows so that potential
clients and customers can
learn about the business.
Thus, a business model
includes the components
and functions of the
business, as well as the
revenues it generates and
the expenses it incurs.
The business model is
one of the organisation’s
strategies as well as
revenue and expense
models that are critical
to the success of the
business.
The 4E Journal 35

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Revenue Model
The measure of success in any business
is ultimately the ability to bring in more
revenue than it costs to deliver a product or
service. With financial planning, a common
dilemma is to determine what is the best
revenue model. Do you charge a fee for
advice, receive a commission from your
product sales, charge a retainer fee, receive a
commission from a percentage of your asset
under management or perhaps charge
an annual service fee Unfortunately, the
answer to this question is not the same for
every circumstance or for every market. To
find the right answer for your organisation
you would have to consider what your
service and product offering is. What level of
planning service would you provide to your
clients Is it modular or comprehensive
Do you also help the client to implement
the plan by providing products and other
related services
When a financial planner goes through
the six-step financial planning process
with a client, they naturally achieve a
high level of trust and rapport. This means
the client would often want the planner
to assist them in implementing the plan.
The questions is, is the financial planner
ready with the products that are needed
to implement the plan for the client such
as insurance, investments, wills, loan
financing or even a funeral package
Choosing the right revenue model for
your organisation is critical. If you just give
advice and earn a fee, and leave the client
to implement the plan with someone else,
you are often leaving revenue on the table
for someone else. In this situation, the
client is also at the mercy of other advisers
who may not adhere to the plan you have
crafted for the client but instead sell what
they want to the client.
A key challenge in some organisations,
where plan implementation products are
limited, is revenue leaks. To address this
problem, some financial planners work
with other firms to access products or
services not available in-house. This could
provide clients a wider array of choices
of investment and protection products.
However, banks and other firms with
corporate unit trust adviser (CUTA) and
financial advisory (FA) licenses who have
a wide range of in-house products and
solutions for plan implementation are
in a better position to provide financial
planning services that generate strong
revenue streams for the organisation.
Expense Model
One of the key components in the expense
model is the compensation structure for the
sales force/ financial planners. Some of the
most common compensation structures
include salary, salary plus commission,
profit sharing and commission only.
Ultimately, the compensation structure
has to be a ‘win-win’ model so that the
organisation and the sales force feel their
compensation is fair for the work they do.
The good news is that your business
model can evolve over time.
In the more mature markets like United
States and Canada, the financial planning
industry has gone through many changes.
In the initial stages, it was highly weighted
to commission sales with a gradual shift to
fees on asset under management and for
comprehensive planners more towards fee
for service. Because you can fine-tune your
model over time, it is more important to
stop trying to transition all at once and just
start practising. Once the fundamentals are
established, you can continually update
and revisit your business model to ensure
it is appropriate to the constantly evolving
conditions in the marketplace.
“The measure of success
in any business is
ultimately the ability to
bring in more revenue
than it costs to deliver a
product or service.”
After being in practice for six years,
and more recently spending time
working with financial institutions and
independent financial planning firms, I
have had the unique opportunity to
observe the gaps that often exist. Based
on this experience, what follow are some
constructive feedback for building a
successful financial planning practice.
Recruitment & Selection
From my observations, organisations can
be very aggressive in their campaigns
to recruit financial planners. A lot of
effort and resources are invested in the
recruiting process but unfortunately the
dropout rate several months later is high.
The reason, often given by the dropouts,
for leaving the industry is that financial
planning is a long and tedious process
and they are unable to cari makan (earn a
living). Is this the real reason for dropping
out or is there something else to blame
There are two key criteria in recruiting
the right people to join the sales force
as financial planners. The first and most
common criterion used by recruiters is
eligibility. But the second and less often
considered criterion is the candidate’s
suitability. Eligibility refers to someone’s
education, knowledge, skills, and
experience – abilities that are typically
listed on a resumé. Suitability refers to
their attitudes, motivations, interpersonal
and decision-making skills, task and
work environment preferences as well as
personality balance. Eligibility normally
indicates if a candidate can do a job, while
suitability is a measure of how likely it is
that they will do the job and enjoy doing it.
An eligible person may not necessarily be
a suitable person to become a successful
financial planner. It requires more time
to develop a less suitable person when
compared to a more eligible person.
However, it is possible with proper coaching.
According to Dr Dan Harrison, who
developed the Harrison Assessments (HA),
there are 10 essential traits or required
behaviours (in order of importance) to
be a successful financial planner. (HA is
a state-of-the-art assessment tool that
enables employers to predict the job success
of candidates with 80 to 90 percent accuracy,
compared to most personality tests that
only produce about 55 percent accuracy)
The recommended traits are:
1. Persistent – The tendency to be
tenacious despite encountering
significant obstacles
2. Finance/Business – The interest in
commerce or fiscal management
3. Optimistic – The tendency to believe
the future will be positive
4. Self-Improvement – The tendency to
develop or better oneself
5. Teaching – The enjoyment of
instructing, training, or educating
others
6. Outgoing – The tendency to
be socially extroverted and the
enjoyment of meeting new people
7. Takes Initiatives – The tendency to
perceive what is necessary to be
accomplished and to proceed doing
it accordingly
8. Wants challenge – The willingness to
attempt difficult tasks or goals
9. Influence – The tendency and ability
to persuade and convince others
10. Self-acceptance – The tendency to
like and accept oneself
By understanding the required
behavioural competencies for a
successful financial planner, it is easier
for organisations to develop financial
planners who would perform well. This
would also result in better retention so
that the recruiting resources and training
efforts are not wasted.
The 4E Journal 37

“Contracting” and Goal
Alignment
Contracting is a coaching term that
identifies a “way of working.” It sets out
clearly the expectations of the organisation
so that the planner understands what
is required of him/her. It also gives the
financial planners an understanding of
what the organisation would do to support
them. Some of the terms defined in the
contacting document include performance
expectations, support services that
would be provided, business and sales
management tools available, to name a
few. Unfortunately, many new recruits who
join organisations with the desire to be a
financial planner have no idea what they
are getting into. They have no realistic
understanding of what is involved and
are often not even sure themselves what
outcomes they hope to achieve.
For some, where the business model is
built around an existing client base, the
new financial planner would walk into
the role with an “employee” mindset
where they are looking to get paid for just
servicing that existing client base. This may
be very inappropriate in organisations
that are looking for financial planners
who can build up the planning business
by bringing in new clients through their
prospecting efforts and through referrals.
“An eligible person may not
necessarily be a suitable
person to become a successful
financial planner.”
Another situation would arise when an
organisation charges a membership fee
for providing support to the financial
planners with a minimum performance
requirement. Some financial planners
resist paying the support fee while they
keep demanding front-end and backend
support from the organisation. A
financial planner with an entrepreneurial
mindset, however, would not mind
paying the membership fee in return for
the organisation’s branding and support.
The membership fee is in fact a part of the
business’ operational costs.
This demonstrates the importance of
identifying the expectations clearly in
the contracting document in order to
meet mutual expectations of both parties.
Furthermore, new financial planners
would need to go through a visioning
process so that they have a well defined
and clear picture of their personal goals
and dreams. This would allow them to
make sure that they are aligned with the
vision and mission of the organisation.
The Financial Planning
Sales Process – Tools
and Skills
For a financial planner, the sixstep
financial planning process
starts with establishing
and defining the client
relationship and initiating
the engagement. This is true
whether the engagement is
fee-based or uses any of the
other compensation models.
Fee-based planning is the
direction that many advisers would like to
go. However, there is a barrier in Malaysia
because the perception is that people
will not pay for advice. In addition, some
financial planners have also found there is
resistance on the part of clients to disclose
their financial information.
The fact is a financial planner still needs
to go through the engagement process
with the client, even if it is not a fee-based
relationship. The engagement is the
‘closing’ for financial planning services. If
you bypass the engagement process, you
are missing a key aspect of establishing a
client/adviser relationship.
The Wealth Enhancement Process as
seen in Figure 2 is part of PlanPlus Advice
Transition Programme. The first two steps
in the Wealth Enhancement process are:
(1) Target and Approach and (2) Qualifying
and Engagement.
Both of these steps deal with client
acquisition strategies to identify, approach
and develop new clients. The programme
focuses on soft skills to build rapport and
trust throughout the engagement process.
There are essentially four core coaching
skills – rapport building, listening,
powerful questioning and feedback
giving. These can be applied throughout
the engagement process to close the sale
by getting the engagement. Continuous
education is not only important in the
technical areas, but also for the soft skills.
Financial Planning Tool
Some organisations and individuals
who want to provide financial planning
services are still not able to get started
because they lack financial planning tools.
But financial planning software needs to
do much more than generate plans. A
powerful financial planning tool should
integrate all the six steps of the financial
planning process. It should provide a
means of ensuring a follow-through
on key strategies, a method to monitor
continuous progress toward life goals, and
a great way to uncover and fill client gaps.
Figure 2: Wealth Enhancement Process
More advanced planning systems will
integrate financial planning tools, CRM
(customer relationship management),
document management and portfolio
management to make the planning
process more efficient and effective.
A powerful financial planning tool would
help to accelerate the transition to a
financial planning business model. This
means that clients are more actively
engaged throughout the planning
process resulting in much greater client
buy-in to any recommendations derived
from the planning effort.
In Conclusion
So, is starting a financial planning practice
all about finding the most viable and ideal
business model I think we have seen that
launching or transitioning to a financial
planning advisory approach is not just
about finding a viable business model but
involves change. There must be change
in the business processes, which include
systems, operations, support, sales process,
and more importantly, selection of the right
people with the right mindset, behaviour
and working habits. This is indeed a tall
order but the rewards are worth the effort!
Contemplations
• What are the current gaps in your
business operation
• What are the key actions you should
take to bridge those gaps
The author is a consultant-coach to financial
professionals and organisations to transition
their current multi-products selling to
financial planning advisory business. She is
the Southeast Asia vice-president of PlanPlus
Inc, a world-class financial planning software
and training provider (www.planplus.com).
She is also a sales performance coach with
Harvest Global Resources Sdn Bhd. She can
be reached at: weehen@planplus.com
38 The 4E Journal

INDUSTRY
October - December 2010
Excellence Award Ceremony
Group photo of award winners
The Excellence Award ceremony to honour students who have achieved scholastic excellence for 2009 was held on October 13, 2010
at Sunway Pyramid Convention Centre, Petaling Jaya.
The award winners are as follow:
Mokhtar Daud
Module 1
Chu Lai Yee
Module 2
Yong Chu Eu
Module 3
Teo Hwa See
Module 4
Tan Piek Chin
Module 5
Cheong Weng Fei
Module 1
Chen Yok Ching
Module 2
Chen Yok Ching
Module 3
Lew Kai Nun
Module 4
Choo Wai Yin
Module 6
Woo Chong You
Module 5
Yong Yeong Chow
Module 6
FPAM would also like to thank the following sponsors for presenting the awards at the ceremony.
Module 1 Module 2 Module 3
Module 4 Module 5 Module 6
KDU Management
Development Centre
HSBC Bank
Malaysia Bhd
Edmond Cheah
Former President of FPAM
Public Mutual
Bhd
American
International
Assurance Company,
Ltd
IFPA Resources
Sdn Bhd
The 4E Journal 39

NEWS IN BRIEF
October - December 2010
CIMB Bank’s Cambodian Foray
CIMB Bank Plc recently received its
license to fully operate a wholly-owned
subsidiary in Cambodia.
H.E. Chea Chanto, Governor of the National
Bank of Cambodia, officially handed
over of the license to Datuk Seri Nazir
Razak, the group chief executive of the
CIMB Group in a ceremony at the branch
which also serves as the headquarters on
Norodom Boulevard in Phnom Penh.
Speaking at the launch ceremony, Nazir
said that CIMB Group is optimistic
about the long-term prospects of the
Cambodian economy. “We are very
excited about building our presence
here in Cambodia. With the nation’s able
leadership, vibrant economy and young
and capable population, Cambodia is
poised to become a key regional market
for us in the near future,” he added.
“In establishing ourselves in Cambodia, we
also bring with us our regional network
of clients, customers and resources –
businesses, vendors, trading partners,
professionals and others, he said. “We will
share our expertise, our financial solutions
and best practices to contribute towards
the Cambodian banking system and the
economy as a whole.” One of CIMB’s key
differentiators is its multi-local business
model – which the bank has successfully
implemented across its ASEAN franchise
and it intends to do the same in Cambodia.
“Our regional model enables us to
fully leverage the reach and scale of
our Southeast Asian platform whilst
preserving the aspects which identify
us to the local population, and allowing
us to understand as well as cater to their
specific needs,” Nazir said. “For example,
we strongly believe in the empowerment
of local leadership and the development
of products and services which are familiar
to local cultures and practices. In doing so,
we hope that the population would treat
us not as a foreign bank, but as a local
bank with regional resources.”
MAAKL Launches Indonesia Equity Fund
MAAKL Mutual Bhd recently launched
a new fund – the MAAKL Indonesia
Equity Fund – with the objective to
achieve capital appreciation over the
long-term through investments in
equities and equities-related instruments
predominantly in Indonesian market.
“The MAAKL Indonesia Equity Fund gives
investors the opportunity to diversify
their investments into the fast-growing
Indonesian equity market,” said Wong Boon
Choy, chief executive officer and executive
director of MAAKL Mutual during an
investment talk by BNP Paribas Investment
Partners which was attended by MAAKL
investors and members of the public.
of companies whose headquarters, or
the majority of their economic activity, is
carried out in Indonesia.”
The MAAKL Indonesia Equity Fund has
an approved fund size of 600 million
units.
“The fund invests at least 95 percent of its
net asset value (NAV) in a target fund – the
BNP Paribas L1 Equity Indonesia – which in
turn seeks to achieve capital appreciation
over the long-term by investing at least
two-thirds of its assets in the share capital
(L-R) Hisham Abdul Rahim, executive director of BNP Paribas Islamic Asset Management Malaysia, Glen Lee, vicepresident
for regional business development of BNP Paribas Investment Partners Singapore, Johan Sidik, investment
specialist of PT BNP Paribas Investment Partners Indonesia, Wong Boon Choy, CEO and executive director of MAAKL
Mutual, Edmond Cheah, director of MAAKL Mutual, Patrick Nge, senior general manager of MAAKL Mutual, Simon Chow,
executive director of BNP Paribas Investment Partners and Bor Ngee Wha, head of finance of MAAKL Mutual at the
Investment Talk by BNP Paribas Investment Partners.
40 The 4E Journal

CFP CERTIFICATION
GLOBAL UPDATES
October - December 2010
Public Mutual
Declares
Distributions
for Six Funds
Public Bank Bhd’s wholly-owned
subsidiary, Public Mutual Bhd, recently
declared distributions for six of the
funds under its management. The
total gross distributions declared for
the financial year ended November 30,
2010 are as follows:
Fund
Public Select
Alpha-30 Fund
Public Natural
Resources Equity
Fund
Public Far-East
Dividened Fund
Public Islamic
Balanced Fun
Public Islamic
Sector Select
Fund
Public Islamic Asia
Leaders Equity
Fund
Gross
Distribution
per Unit
2.50 sen
1.50 sen
0.50 sen
1.00 sen
1.00 sen
0.75 sen
According to The Edge-Lipper Fund
Table dated November 22, 2010, Public
Select Alpha-30 Fund and Public
Natural Resources Equity Fund have
generated one-year returns of 15.81
percent and 12.10 percent respectively
for the period ended November 12,
2010. At the same time, Public Far-East
Dividend Fund recorded a one-year
return of 6.97 percent.
Meanwhile, both Public Islamic
Balanced Fund and Public Islamic
Sector Select Fund, which are open
for EPF Members Investment Scheme,
also recorded double digit one-year
returns of 11.08 percent and 32.73
percent respectively for the period
ended November 12, 2010. Public
Islamic Asia Leaders Equity Fund,
which was launched in January this
year, generated a six-month return
of 9.67 percent for the period ended
November 12, 2010.
FPSB Forms Committee to Oversee
Global Financial Planning Competency,
Ethics and Practice Standards
Denver: Financial Planning Standards
Board Ltd. (FPSB), the international
financial planning standards-setting body
and owner of the CFP, CERTIFIED FINANCIAL
PLANNER and CFP Logo trademarks
outside the U.S., named a 2011 Standards
Committee to oversee the establishment
and maintenance of FPSB’s global
competency, ethics and practice standards
for the financial planning profession.
“We are pleased to have this distinguished,
global group of certification and standards
specialists overseeing FPSB’s standardssetting
process,” said Corinna Dieters,
FPSB Board chairperson. “In forming the
committee, FPSB sought recognised
experts in the fields of professional
standards-setting, regulation and
financial planning education, curriculum
development and certification. The
committee’s broad range of experience
and depth of knowledge will not only
help FPSB develop high-quality standards
that represent excellence in financial
planning; it will help us achieve consistent
and appropriate application of those
standards around the world.”
The six-member committee, consisting
of representatives from Hong Kong, New
Zealand, South Africa, Britain, the United
Arab Emirates and the U.S., will develop,
maintain and modify competency, ethics
and practice standards for the global
financial planning profession (as defined
by FPSB’s Financial Planner Competency
Profile, Financial Planner Code of Ethics
and Professional Responsibility and
Financial Planning Practice Standards).
Other duties and responsibilities include
developing, maintaining and modifying
FPSB’s certification scheme; monitoring
trends in applying or adapting FPSB’s
standards and certification requirements
and making recommendations for
modification or enhancement; advising
FPSB’s Board of Directors about the impact
of changes suggested by FPSB’s staff or
other stakeholders to FPSB standards or
certification requirements; and, approving
policies for FPSB’s certifications to ensure
consistency and fair treatment of FPSB
members, candidates for certification and
certification holders.
Chaired by Ian Johnston, FPSB Board
member and deputy chief executive and
managing director for Dubai Financial
Services Authority, committee members
will serve two-year terms, starting
January 1, 2011. In addition to Johnston,
participants include:
Simon Hassan, CFP, CLU, director
of Hassan & Associates and Hassan
Consulting in New Zealand;
Alan Kershaw, chairperson of ILEX
(Institute of Legal Executives) Professional
Standards Ltd in Britain;
Wessel Oosthuizen, CFP, director of the
Center for Financial Planning Law at the
University of the Free State in South Africa;
Lynn Pi, Ph.D., CFP, adjunct associate
professor in the Department of Finance
at Hong Kong University of Science and
Technology in Hong Kong; and
I. Richard Ploss, CFP, CPA, of counsel with
Preti Flaherty’s Trusts and Estates and
Business Law Practice Groups in the U.S.
FPSB also named a Certification and
Standards Advisory Panel to provide
advice and guidance to the Standards
Committee on the development,
implementation and administration of
standards for the global financial planning
profession. Consisting of six certification
and/or standards specialists from member
organisations of FPSB, the advisory
panel will provide advice and guidance
to the FPSB Standards Committee on
the development, implementation and
administration of standards for the global
financial planning profession.
FPSB works in conjunction with its members,
practicing CFP professionals and subjectmatter
experts from around the world, to
create standards for the financial planning
profession. FPSB’s certification standards
demonstrate to those accessing the services
of a CFP professional that the financial
planner has met rigorous competency,
ethics and professional practice standards to
provide comprehensive financial planning
to clients.
The 4E Journal 41

Putting our stamp on Malaysia for the past 10 years
2000
2001
2002
Incorporation of
Prudential Unit Trust Berhad
(PUTB)
2003
PRUsmall-cap, PRUgrowth fund,
PRUbalanced fund, PRUbond fund
The launch of Prudential’s
four flagship funds
2003
PRUdana al-illham
PRUdana al-islah
The first two Islamic funds
PRUdana al-illham and
PRUdana al-islah were launched
2004
2001 - RM0
2003 - RM1,000,000,000
We make money work harder for
the people of Malaysia.
Prudential reached its
1 billion mark in
Funds Under Management
2005
PRUfirst capital guaranteed
fund
The launch of First Capital
Guaranteed Fund
2006
PRUdynamic fund
Successfully launched
the dynamic asset allocation
fund called PRUdynamic fund
2009
PRUAsia Pacific equity fund
Launch of first
offshore equity fund
Rebranding of PUTB to
Prudential Fund Management
Berhad, PFMB
10 th
Year
Anniversary
2010
Launched its Islamic fund
management business,
Prudential Al-Wara’ Asset
Management
Prudential
celebrates
a decade
of excellence!
Disclaimer: This information is not an offer or solicitation of an offer for the purchase of investment units in any fund and nothing herein
should be construed as a recommendation to transact in any investment products.
Prudential Fund Management Berhad (531241-U)
Head Office - Level 12, Menara Prudential, 10 Jalan Sultan Ismail, 50250 Kuala Lumpur.
General Tel No.: 603-2052 3388 General Fax No.: 603-2070 6129 Customer Service: 603-2332 1000 Customer Service Fax No.: 603-2026 5577
Branches: • Bandar Sri Damansara Tel: 03-6279 5888 • Kota Kinabalu Tel: 088-238613
Email: pfmbservice@prudential.com.my Website: www.prudentialfunds.com.my

CFP CERTIFICATION
GLOBAL UPDATES
October - December 2010
FPSB Introduces Guidance to Certifying Bodies for
Implementing a Supervised Experience Programme
for Financial Planners
Denver: The Financial Planning Standards
Board Ltd. (FPSB) has recently introduced
a new publication – Guidance on
Supervision of Financial Planner Work
Experience – as a tool for certifying bodies
to support new entrants to the financial
planning profession in gaining mastery of
the art and science of financial planning.
The document supports implementation
of FPSB’s recommendation that oneyear
supervised work experience be
introduced for financial planning
certification globally.
“FPSB recognises the importance of work
experience for entrants to the financial
planning profession and believes that
supervised practice is the preferred way of
gaining professional experience,” said Noel
Maye, FPSB CEO. “Supervised experience
programmes can help bridge the gap
between financial planning theory and
practice to enable new entrants to the
profession to develop a thorough and
competent understanding of the practice
of financial planning.”
FPSB’s work experience supervision model
supports the establishment of supervised
work experience and programmes for
individuals seeking to enter the financial
planning profession. The supervised work
experience programme also supports an
individual’s application of the abilities,
professional skills and knowledge needed
to competently practice financial planning
under the supervision of an experienced
professional.
“The guidance document and portfolio
framework allow new entrants to
the profession, and those guiding
professionals developing financial plans,
to establish a method for ensuring
appropriate depth and breadth of
experience in financial planning that can
be used by certifying bodies as elements
within a financial planner certification
programme,” said Wessel Oosthuizen,
CFP, FPSB working group chairperson
and director of the Centre for Financial
Planning Law at the University of the Free
State in South Africa. “Through a portfolio
submission, candidates demonstrate
mastery of the abilities and skills required
to appropriately practice financial
planning, in line with approaches taken
by other more established professions.”
The six-member working group,
consisting of representatives from China,
Germany, Japan, New Zealand and South
Africa, created the guidance document
outlining the processes and procedures
for supporting new entrants to the
financial planning profession on how to
appropriately engage in a supervised
work experienced process. The group
received input from FPSB’s member
organisations that together have certified
more than 126,000 CFP professionals in 23
territories globally.
FPSB Releases Position on Regulation and Oversight of
the Financial Planning Profession
Denver: Financial Planning Standards
Board Ltd. (FPSB) recently released a
white paper outlining the organisation’s
position on regulation and oversight of
the financial planning profession. The 19-
page paper, unanimously endorsed by the
23 financial planning certifying bodies
that make up FPSB’s membership, is the
result of a year-long consultative process
that included input and feedback from
FPSB members, public policy experts, and
global regulators.
The white paper entitled Regulation
and Oversight of the Financial Planning
Profession argues that professional
financial planning bodies have a key role
to play in the regulation and oversight
of financial planning, and supporting
governments to achieve their regulatory
goals by relying on global best practices
for financial planning regulation and
certification. The paper suggests four
tenets for effective financial planning
oversight, including protecting the term
“financial planner” in law or regulation,
holding financial planners to a fiduciary
Dieters: FPSB
believes
regulation and
oversight of the
financial planning
profession is best
achieved through
a collaborative
process among
governments
and professional
bodies.
standard of care, covering the use of
financial-planning related titles in law or
regulation, and that oversight of financial
planners should be undertaken by a
professional financial planning body, the
characteristics of which are also defined
in the paper.
“FPSB believes regulation and oversight of
the financial planning profession is best
achieved through a collaborative process
among governments and professional
bodies,” said Corinna Dieters, chairperson
of FPSB’s Board of Directors. “By aligning
both public and professional interests, we
believe we can create better regulatory
outcomes that best serve the needs and
desires of consumers.”
The white paper suggests that models for
oversight of the profession could include
self-regulation, external regulation,
or various combinations of the two
approaches.
“While our vision is to gain recognition
for financial planning as a district
professional practice, FPSB recognises
that some jurisdictions may not be ready
to protect the title, “financial planner,”
in the near or even medium term,” said
Noel Maye, FPSB CEO. “However, we are
committed to working with regulators
and other key stakeholders to ensure
that the clients and potential clients of
financial planners benefit from increased
financial planner professionalism,
through the development, enforcement
and promotion of global competency,
ethics and practice standards.”
The 4E Journal 43

The Way Banking Should Be
SIRIM
Certified to ISO 9001:2000
Cert. No. : AR 1350
The Way Banking Should Be
SIRIM
Certified to ISO 9001:2000
Cert. No. : AR 1350
Certified to ISO 9001:2008
Cert. No. : AR 1350

MARKET OUTLOOK
October - December 2010
By David Ng
Flavour of the Year:
Asia Emerging Markets
Asia Emerging Markets will be the Best
Investment Regions in 2011
The emerging markets of Asia will be the
best regions to invest in 2011 and over the
long-term due to its solid fundamentals
and strong corporate and government
balance sheet. Together, these factors
present an exciting and sustainable
growth opportunity for investors.
Regardless of market environments, there
will always be money to be made. It is a
question of what, where, at what risk
levels, and how these opportunities can
be maximised.
The focus in 2011 should be capital
preservation and income due to slowing
global growth and an expected extended
low interest rate environment in the
developed economies. No doubt the
developed markets are experiencing a
slowdown in their growth, but we believe
there will be no double dip 1 .
Instead, we are expecting a ‘soft landing’ in
the global emerging markets in the New
Year, a situation where growth activities
are decent enough to avoid a recession
but cool enough to avoid overheating.
Amid such an environment, investors
should adopt a fairly defensive investment
strategy where the focus will be on capital
preservation whilst capitalising on strong,
dividend-yielding investments that will
generate regular income streams and of
course, keep up with the inflation rate.
This rather conservative form of investing,
as opposed to focusing on making
windfall-like returns, is recommended
due to slowing global growth and the
extended low interest rate environment
especially in the developed markets.
Right now, all figures point to Asia Emerging
Markets (AEMs) as the next growth story.
The region’s solid fundamentals such as
positive demographics, young population
(Figure 1), urbanisation and rising middle
class are expected to drive domestic
demand and these are model traits of
sustainable growth in the long-term.
The growth momentum in AEMs is
very encouraging – China’s purchasing
managers index (PMI) was above 50 2
(Figure 2) which means there were
manufacturing expansions in September
Male
Indonesia - 2010
100
95
90
85
80
75
70
65
60
55
50
45
40
35
30
25
20
15
10
5
0
Female
15 12 9 6 3 0 0 3 6 9 12 15
Population (in millions)
Figure 1: A typical “Christmas Tree” population pattern
of an Asian emerging market like Indonesia. A younger
population base will help to fuel future growth.
58
56
54
52
50
48
46
44
42
40
Figure 2: China’s PMI.
2007 2008 2009 2010
The 4E Journal 45

2010 compared to a month ago, and
Indonesians will continue spending as
demonstrated by its automobile sales
and consumer confidence numbers that
are expected to remain in the positive
territory 3 (Figure 3). We expect this
trend continuing in AEMs well into 2011,
provided the developed markets do not
collapse.
Meanwhile, the region’s strong corporate
and government balance sheets such as
lower corporate gearing, healthier fiscal
balance and lower government debt are
also the reasons why we remain bullish
on AEMs. As a basis for comparison, the
%yoy, 3mma
100
50
0
-50
Strong Growth Momentum in Indonesia
Auto Sale
Motorcycle Sale
Consumer confidence
3mma
120
110
100
90
80
estimated AEMs’ government debt in
2010 accounted for only 25 percent of its
gross domestic product (GDP) compared
to the European governments’ debt size
of about 80 percent 4 of its GDP (Figure 7).
This illustrates the former’s healthier fiscal
balance and borrowing level compared to
its Western counterpart. Corporations in
AEMs also have lower corporate gearing,
which is expected to continue trending
down by 2011 to 15 percent debt-toequity
ratio and 35 percent cash-to-equity
ratio 5 (Figure 41).
Gross Government debt as % of GDP 2010F
Japan
US
Malaysia has also emerged as one
of the emerging economies that are
expected to garner more interest
from the international market. Our
long-term growth story, which will be
supported by the recently launched
Economic Transformation Programme
(ETP) projects, is expected to generate 6
percent yearly growth aimed to propel
the nation to a high-income society.
The master plan, the local bourse’s fair
valuations with price-earning ratio of
14.4 6 (Figure 15) and analysts upgrades
Europe
EMEA
Asia ex-Japan
GEM
Latin America
250
200
150
100
50
-100
2004 2005 2006 2007 2008 2009 2010
70
-12 -10 -8 -6 -4 -2
Fiscal balance as a % of GDP, 2010F
0
Source: CEIC, Deutsche Bank
Source: Datastream, IMF, Credit Suisse estimates
Figure 3: Indonesia Growth Momentum.
Figure 7: Fiscal balance and gross government debt to GDP
46 The 4E Journal

100 (%) Cash and equivalent to equity
90
Net debt-to-equity
80 24.1
Gearing levels have trended down since the
70
Asian financial crisis, but the recent shock has
led to companies hoarding cash again after
22.0
60
increasing gearing levels in 2008
50
17.4
19.6 19.5
15.3
40
18.9
22.4
20.2
30
19.6 24.1
20.3 21.2
22.7
25.2
20
10
0
97A 98A 99A 00A 01A 02A 03A 04A 05A 06A 07A 08A 09CL 10CL 11CL
Note: The ratios are calculated bottom up with freefloat adjustment for the CLSA covered universe.
Source: CLSA Asia-Pacific Markets
Figure 41: Asia ex-Japan net debt-to-equity and cash-to-equity (ex-financials)
of corporate earnings estimate to 2.7
percent going into 2011 versus 2.1
percent 7 (Figure 6) the year before, have
attracted foreign fund inflows from
investors searching for opportunities
beyond their shores. This trend is
expected to continue well into 2011.
In short, the focus for 2011 should be
dividend-yield play in which, the core
investment portfolio will be in high-grade
bonds, and the rest in income-yielding
corporate bonds and dividend-yielding
equities of high quality corporations in
AEMs (Figure 4).
Besides, statistics have proven that
more than 40 percent of historical
total shareholders’ returns in such
corporations were contributed by
dividend yields and 10-year cumulative
returns have proven that such stocks
have historically outperformed the
broad index 8 . Dividend-yield play may
sound boring, but it works. That said,
not all dividend-yielding stocks will
guarantee returns and this is where a
fund manager’s skill in stock picking is
key in delivering results.
1
A “double dip” refers to a recession followed by a shortlived
recovery, and followed by another recession.
2
Source: China Manufacturing PMI, ISI October 2010.
3
Source: Strong Growth Momentum in Indonesia, CEIC
Deutsche Bank July 2010.
4
Source: Datastream, IMF Credit Suisse estimates, June
2010
5
Source: Asia ex-Japan net debt-to-equity & cash-toequity,
CLSA Asia-Pacific, July 2010
6
Source: CIMB estimate as at October 2010
7
Source: CIMB estimate as at October 2010
8
Source: CLSA Asia Pacific Markets, Bloomberg July 2010
P/E (x)
24.0
22.0
20.0
18.0
16.0
14.0
12.0
10.0
8.0
6.0
Nov 03 Jul 04 Mar 05 Nov 05 July 06 Mar 07 Nov 07 Jul 08 Mar 09 Nov 09 Jul 10
Source: CIMB estimates
3.0%
2.0%
1.0%
0.0%
-1.0%
1.1%
Figure 15: FBM KCLI’s 12M forward core P/E (x) and standard deviation
CY10
Source: Company, CIMB estimates
1.6%
CY11
1.8%
End Feb 2010 End May 2010 End Aug 2010
Figure 6: Qoq change in our KLCI universe earnings estimates for CY10 & CY11 post results seasons
High-grade Bonds
1.9%
2.1%
2.7%
Asia Emerging Market Income-yielding
corporate bonds
The author is the chief investment officer of
HwangDBS Investment Management Bhd.
Figure 4: Portfolio construction for 2011
Asia Emerging Market
Dividend-yielding equities
The 4E Journal 47

INDUSTRY
October - December 2010
Building Financial Planning Awareness in Penang
The Financial Planning Association
of Malaysia (FPAM)’s forum at the
recent PIP Property Summit 2010
in Penang drew the largest audience.
A packed crowd of FPAM members
and interested members of the public
filled all 120 available seats within the
designated area. Many other curious
individuals stood outside the perimeter
of the cordoned off square within the
Penang International Sports Arena (PISA)
throughout its two-hour slice of this twoday
event.
The work and value of FPAM was
highlighted to the Chief Minister of
Penang, Lim Guan Eng, when the keynote
speaker Rajen Devadason, a Securities
Commission-licensed financial planner
with MAAKL Mutual Bhd and CEO of RD
WealthCreation Sdn Bhd, presented an
autographed copy of his book Liberty –
From Debt-Slave to Money Master to Lim.
FPAM’s two-hour forum comprised a
panel discussion led by moderator Ricky
Devadason addressing the crowd.
Khoo, who asked pertinent questions
to Michael Geh, senior partner, Raine
& Horne International, Kim Wan Hooi
Poh, registered financial consultant,
and Devadason; as well as separate
presentations by Michael Geh on property
investing and by Devadason on the role
of different asset classes in retirement
planning. The audience stayed raptly
attentive throughout our event.
Chief Minister Lim reading Devadason’s book.
The longest segment of the forum was
Devadason’s keynote presentation, which
elicited questions from the audience
during his talk and throughout the panel
discussion. He highlighted global trends
in property investing, shared a model
on achieving financial freedom, and
explained the key distinction between
bad liabilities and good liabilities, as well
as between good assets and bad assets.
The Investment Plan is Your Blue Print for Success
A
total of 38 people attended an FPAM Ipoh chapter continuing education (CE) course entitled: “The Investment Plan is Your Blue
Print for Success- and How You Can Accumulate Wealth & Sleep well” conducted by Mike Lee at the Tower Regency Hotel, Ipoh
on October 16, 2010,
Melaka Chapter Networking Night
48 The 4E Journal

Everyone Can
Retire Well
The Financial Planning Association of Malaysia (FPAM) organised
the Everyone Can Retire Well Conference and Exhibition 2010
(ECRWCE 2010) on October 13 and 14 at the Sunway Pyramid
Convention Centre which attracted over 400 delegates. In addition to
the conference which featured two discussion forums which were wellparticipated,
ECRWCE 2010 also had an exhibition and free public talks
to promote retirement planning.
The 4E Journal 49

INDUSTRY
October - December 2010
A Night with FPAM,
Smart Investor and Renault
China Nite
50 The 4E Journal

CE COURSES
October - December 2010
Declaration of Trust – Protection of Equitable Interest and Distribution of Assets
(A Securities Commission CPE-accredited course)
Speaker:
Azhar Iskandar Hew
Date: January 29, 2011 / Saturday [ full day ]
Venue:
Dewan Berjaya, Bukit Kiara Equestrian & Country Resort
Jalan Bukit Kiara, 60000 Kuala Lumpur
Registration: 8:30AM – 9:00AM
Time:
9:00AM – 5:00PM
Fee:
Early Bird Special – RM280 ( FPAM Member) , RM350 (Public)
by January 1, 2011
Normal – RM320 ( FPAM Member), RM380 (Public)
Wealth Destruction and Rehabilitation – Helping Malaysia Retirement Clients Thrive
(A Securities Commission CPE-accredited course)
Speaker:
Rajen Devadason
Date: February 12, 2011 / Saturday [ full day ]
Venue:
Dewan Berjaya, Bukit Kiara Equestrian & Country Resort
Jalan Bukit Kiara, 60000 Kuala Lumpur
Registration: 8:30AM – 9:00AM
Time:
9:00AM – 5:00PM
Fee:
Early Bird Special – RM280 ( FPAM Member) , RM350 (Public)
by February 1, 2011
Normal – RM320 ( FPAM Member), RM380 (Public)
Understanding & Interpreting Financial Statements
(A Securities Commission CPE-accredited course)
Speaker:
Thye Foot Leong
Date: March 6, 2011 / Saturday [ full day ]
Venue:
Dewan Berjaya, Bukit Kiara Equestrian & Country Resort
Jalan Bukit Kiara, 60000 Kuala Lumpur
Registration: 8:30AM – 9:00AM
Time:
9:00AM – 5:00PM
Fee:
Early Bird Special – RM280 ( FPAM Member) , RM350 (Public)
by March 1, 2011
Normal – RM320 ( FPAM Member), RM380 (Public)
SMART PROPERTY INVESTMENT STRATEGIES
(A Securities Commission CPE-accredited course)
10 CE
points
10 CE
points
with
Code
of Ethics
10 CE
points
with
Code
of Ethics
10 CPE
points
10 CPE
points
10 CPE
points
Speaker:
Ho Chin Soon and Michael Geh
Date: April 2, 2011 / Saturday [ full day ]
Venue:
Harbour View Hotel, Kuching
Registration: 8:30AM – 9:00AM
Time:
9:00AM – 5:30PM
Fee:
Early Bird Special – RM280 ( FPAM Member) , RM350 (Public)
by March 1, 2011
Normal – RM320 ( FPAM Member), RM380 (Public)
10 CE
points
10 CPE
points
Note: Programmes are subject to changes.
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Email: muru@fpam.org.my
The 4E Journal 51