Starting since last year March 2020, during pandemic crisis lockdown, gave birth to many new retail investors, who began their investment journey through online and manual trading platforms in the security derivatives, crypto-currencies and properties investment.
Current trend was indeed worrying as there had been a multiplying of unlicensed “investment gurus”. Many individuals, either ignorantly or purposely, may be offering investment advice which is a licensed regulated activity. Some see the use of social media as the homogenizing of financial markets, but with that comes its own risks, especially for the retail investor. We can expect to see more enforcement on this front to weed out illegal investment advisors.
Cautions Against Unlicensed Investment Advisors
Given the increasing number of self-proclaimed investment advisors, the Guidance Note clarifies situations where a person needs to be licensed by the Securities Commission Malaysia (SC) to provide investment advice.
Nevertheless, the Guidance Note reminds the unlicensed person that the following acts amount to offenses punishable with imprisonment for maximum of 10 years and to a minimum fine of RM1 million.
The Guidance Note also reminds the licensed advisors that they should not make any false or misleading representation that is likely to induce a person to invest in securities or derivatives, including stating that investment is capital guaranteed when it is not, or promising an investment that will give high return with minimum risk of loss to the investor. The failure to adhere to these standards will affect the licensed person’s overall fitness and propriety as a licensed person and result in sanctions being imposed against him.
The licensed advisors should also be reminded that they owe duties (both common law and contractual) to their clients. Thus, they ought to exercise reasonable professional care when advising their clients. In the event that they breach their duties or contractual obligations, they are exposed to civil suits for negligence and breach of contract.
The SC also warns the operators of other online webinars, seminars, social media, and messaging applications chat rooms to cease carrying out unlicensed investment advice activities. The SC is monitoring this closely and will, where appropriate, take action against those who breach securities laws. Here is the SC’s Guiding Principles.
Where To Get Proper Financial Advice
The public is also reminded to be vigilant and be cautious of the risks of participating in any investment schemes, as they could be defrauded or used as part of a market manipulation scheme. Suggestions for investors to is to upgrade their financial knowledge about investing and investor rights through the InvestSmart, while Securities Industry Development Corporation (SIDC) is the leading capital market learning and development solutions provider for industry participants, also refer the SC’s Investor Alert List for any unauthorized or unlicensed companies and individuals before making an investment decision.
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Role of a Licensed Financial Planner (LFP)
Regulated activity is an activity that requires a license under the Capital Markets and Services Act 2007 (CMSA). The following activities are regulated activities:
- Dealing in securities;
- Trading in futures contracts;
- Fund management;
- Advising on corporate finance;
- Investment advice; or
- Financial planning.
The term Licensed Financial Planner (LFP) encompasses many different aspects of financial advice, which need 2 different licenses: SC’s New Capital Markets Services Representative’s License (CMSRL) – granted to a representative to enable him to carry on any one or more regulated activities on behalf of his CMSL principal; BNM’s Financial Advisers’ Representative (FAR) – performs for the FA any services relating to financial advisory business especially in Insurance/Takaful needs.
A LFP offers professional financial advice and assistance to help clients reach their short and long-term financial goals. A session with a LFP usually begins with an assessment of a client’s current financial situation and what their financial goals are; which can begin with a modular or comprehensive financial approach, either goal-based (simple direct) or cashflow-based (more detail) planning.
Discussions with an LFP can involve calculating how much you need to save for retirement, children education (current private/international’s primary & secondary school, and future tertiary education), long term care (when we are old and weak, depend on and stay with children or prefer retirement village: independent/assisted living), creating an adequate emergency fund, recommending specific investments, or providing complete investment management, refinancing strategies to improve your cash flow and pay off debts, and so on.
The cost of providing a financial product or service to you will depend on the nature and complexity of the advice, financial product and/or service provided. Generally, whenever an LFP provides a recommendation for a financial product or service, your LFP may be remunerated once or through a combination of fee for service, initial, ongoing and/or LFP service fees and/or commission payments from the product providers where applicable.