Healthy wealth management

THE term “wealth management” came about in the 1990s to describe a complex series of services similar to financial planning. The phrase has also been adopted by accountants, estate planners, lawyers and some finance specialists. These experts cater mostly to high-net-worth clients.

Rather than just perceiving wealth as product of a toil-and-reap process, money can be considered a tool with which you can gain profit

Instead of just spending your money, invest it wisely to get returns.

Unlike professions such as accountancy, taxation or auditing, which involve specialised fields of study where professionals are provided official certifications by governing bodies who supervise the field, wealth managers are yet to require official certifications.

However, the Investment Management Consultants Association (IMCA), the governing body that awards the CIMA certification (Certified Investment Management Analyst), began offering a certification for wealth management in 2007 known as the Certified Private Wealth Advisor (CPWA).

The certification recognises individuals who specialise in the life cycle of wealth – accumulation, preservation and protection and distribution.

They identify and analyse challenges faced by high-networth clients and how to develop specific strategies to minimise taxes, monetise and protect assets, maximise growth and transfer wealth.

What is wealth management?

Wealth management is a system that involves the effort of both experts and clients to design and adopt ideas to manage and grow the clients’ wealth.

Wealth comes in many different forms – hard cash, properties, shares, luxury items, businesses, lands and others.

Managing it, however, involves collective consultative processes that build a specific portfolio for owners. It is a slow and painstaking process that requires the clients’ trust and the consultants’ patience.

Deciding to involve a wealth manager in planning your finances is an important step.

It requires you to entrust the management of your wealth to someone else.

However, leaving your wealth to stagnate or deplete would be less desirable but this is most likely the case for most people.

What wealth managers do is enhance wealth while providing a valued experience for clients. In addition to learning about the many financial areas, those undergoing the CPWA certification study family dynamics.

This includes the study of anthropology and building relationships based on shared experience.

This is particularly important if the wealth involves a few generations of a family.

The difference between wealth managers and financial advisors is that wealth managers are a niche group of people.

They have cultivated specific tools and skills over the years and have a relatively small number of clients.

They can also apply distinctive designs and have a better skill set compared to other more common models.

Wealth as a tool

A common mistake that people make is to see income as a figure to make purchases with.

Having wealth does not necessarily translate into profitability.

Rather than just perceiving wealth as a product of a toiland-reap process, money can be considered a tool with which you can gain profit.

In this circumstance, having professional help will evolve this tool into a working design that will snowball into a self-sustaining model. The process often involves a lifestyle change for clients as well.

Even those who do not fall within the high-net-worth bracket should consider getting consultancy aid since the nature of wealth management allows it to be adaptable as a tool to manage one’s situation even when in deficit.

Behavioural issues

Humans are generally protective of their finances, therefore a new concept such as wealth management may not be easily accepted as it is still largely unexplored and remains unknown to many people.

As a result, finances are normally made stagnant or spent, not giving much return to its owners if not put in a bank or invested with little or no returns.

K. Gunesegaran, financial planner and money coach from Wealth Street Sdn Bhd, was recently a guest on BFM (a Malaysian radio station) and spoke about how to keep emotions in check when dealing with money.

He suggested that adhering to a certain behavioural portfolio regardless of the market’s response and adopting a shared behavioural framework that clients and investors can agree on and adopt in any finance management context offer a good solution to the behavioural issue surrounding wealth management.

Towards a bright future

As Malaysia readies itself for the increase urbanisation of its cultures and communities, the growth of wealth will mean more opportunities for the wealth management field to develop.

By substantiating certification and licensing as well as educating the changing demographics about wealth management, the field will gain more recognition within the finance industry.

Creating a niche market of professionals is also a better option than generalising the industry’s talent.<

For example, a wealth manager who specialises in real estate or the ICT industry would prove to be better than a general wealth manager in certain contexts.

Scouting for a niche specialist wealth manager, especially if the wealth involved is derived from or being invested into a certain industry, would then be a better approach to handling wealth.

However, as a client, the first step is to better understand how you would like to use and invest your money before seeking professional help.

The role of a wealth management consultant

Deciding to involve a wealth manager in planning your finances is an important step. It requires you to entrust the management of your wealth to someone else. However, leaving your wealth to stagnate or deplete would be less desirable but this is most likely the case for most people.

Most banks offer wealth management services catered to highnet-worth individuals. There are also private, stand-alone wealth management firms that not only act as advisors but as executors of clients’ instructions pertaining to their finances.

The biggest challenge for a wealth manager is to understand the financial needs of the clients.

It is important for clients to understand the role of wealth advisors to ensure their credibility and market value.

Experts need to convince middle-income and low-income earners of their skills, as these earners have the potential to become higherincome earners.

This creates business opportunities and expands networks, which is the perception of wealth management that the industry is aiming for.

This is important because their relationship with clients is not usually a short-term one and the advice and information given need to be accepted by clients with trust and understanding.

There is no one way to manage wealth because people’s lifestyles differ and different people require different aspects of their wealth to be managed, including tax management, risk assessments, retirement planning, portfolio management, estate planning, generational legacy, trust fund managements and specialised services for executives and small business owners.

Sources: Money & You, StarSpecial


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Stay true to your dreams, get real like AirAsia, SP Setia ...

THIS is my 52nd and last article for StarBizWeek. It started more than a year ago out of a challenge from my golf buddy to communicate with local entrepreneurs in a simple and straightforward manner.

Since I am a simple and straightforward person, I believe I have carried out my duties to the letter even though most of the time, my articles did not make much business sense. But I did try to inject a business idea or concept in each weekly article which I hope did not put you in a further state of confusion.

I have not been friendly to entrepreneur wannabes who wanted to start a business without a solid business model nor having sufficient funding in place. I hate to see precious capital and talent being wasted just to please the ego of being your own boss. Starting a new business is exhilarating and exciting but closing down is painful to your pocket and your soul. Some people healed slowly and some did not recover at all.

If you really do want to be on your own, may I suggest you prepare well, seek experienced advice and stay humble. Lower your expectations and work out survival plans on worst case scenarios. If you are worse off income-wise, are you still keen to continue? Get real but stay true to your dreams.

I have great admiration for the AirAsia business model, not so much for its originality but more for its single-minded execution on its core strategy of low-cost high-volume. The whole organisation is fixated on lowering cost across all expense so that lower priced tickets can be offered continuously to secure constant high volume on an Internet platform that works tirelessly 24/7.

This business model is easy to scale across the region which adds purchasing power when negotiating with Airbus. All airlines pay the same fuel cost but AirAsia, with newer and lower cost planes, are much more fuel-efficient and if you add its competitive edge of having the lowest operating cost per seat, it now has a sustainable business model. While Ryanair dominates Europe, AirAsia will dominate the Asian airspace.

While the low-cost model has been proven successful over short quick turnaround flights of less than five hours, I was sceptical from the beginning of the viability of the long haul low-cost operator AirAsia X. True enough, the numbers did not work out for 13-hour flights to London and Paris. But it has found a profitable niche in six to seven-hour direct flights within Asia. The management has been decisive (no political interference) in pulling out of unprofitable routes and concentrating all its resources on routes that makes commercial sense.

Just imagine the potential of AirAsia X if it is able to replicate its business model operating out of Indonesia to Australia or out of Japan to the Middle East and beyond.

That's why I am looking forward to the listing of AirAsia X this year. It will be the first successful long haul low-cost airline in the world. Malaysia Boleh!

When you think you have a viable and sustainable model, stay true to your strategies and focus on executing the appropriate strategies across your entire organisation. If you are a five-star operator, make sure your organisation is able to deliver five-star services consistently to your customers.

If you have a business model that is able to scale across cultures and countries, your growth potential will reward you in multiples. Big dreams are for those who look beyond our small domestic market of 28 million people. But dreams will remain as dreams if you are not successful with your home market first. You should only replicate successful models.

If you do not find optimum success with your business model or defined strategies, be decisive and admit to yourself that it is not working as planned. Eat the humble pie and swiftly change direction or tweak your business model to find a sustainable and profitable niche where you can survive comfortably.

Do not be afraid to change and do not delay until the shit hits the fan. Unless you can go begging to the Government for more funds, it will be difficult for you to find friendly benefactors to help you then. Your business will suffer a slow and painful death and you will wish that you have not been on your own.

I have been active in the consumer product markets for the last 27 years and I have often wondered why the multinational companies make more money per dollar sales than my company. That is despite them paying higher salaries and spending more on advertising and promotions. I consoled myself then by reasoning that they had first mover advantage, better brand equity and they were smarter than me.

After looking closely at their numbers, I discovered that they have a higher selling price and a lower cost of goods which means their gross margins are easily 10% to 20% higher than mine. Their products fetch better prices because they spend more on branding and they have a lower cost of goods because they understand the supply chain system better than I did. They are brilliantly efficient in logistics and channel management.

To compete, I have to match them in all aspects. Share of voice, understanding the supply chain forward and backward and having an efficient logistic set up. But you can only compete if you have comparable margins. My business model was subsequently amended over a few years to a comparable high margin model with similar A&P spend.

Building brand equity

High margins mean lower break-even point and less pressure on volume sales. Less working capital required means less financial risk. It is easier to make a profit in a high margin business but you have to find the margins in the value chain. Apple makes 30% profit on sales but its OEM manufacturer Foxconn makes only 1.5% profit. Our telco companies make 30% on sales but their prepaid card wholesalers make a 2% gross margin. Soft dollars versus hard dollars.

To earn the soft dollars, you need to build your brand equity. Whether it is product branding or corporate branding, you must be committed and consistent in promoting your brand. Margins for great brands differ substantially from commoditised generic products or services. Differentiate or suffer low margins always.

I particularly like SP Setia as a perfect example of how to build a strong corporate brand. However just as Tan Sri Tony Fernandes is synonymous with the AirAsia brand, Tan Sri Liew See Kin is the face of SP Setia. What will happen to the SP Setia brand after Liew leaves? Can he be replaced successfully by another brilliant marketeer from the new owner, PNB? Your guess is as good as mine.

There are many key words used by management professors to describe the hectic changes in the current business environment but my favourite phrase is the concept of disruption. Technological advancements disrupts technological laggards which disrupts our lifestyle as well. Phones gets smarter by the day, from voice to SMS to data to watching Astro on-the-go. Brands come and go at the speed of disruption. What was your favourite phone-brand five years ago? Can't remember? Me too.

My thought process gets totally disrupted trying to figure out how to sell products to the Gen Y segment. They don't watch TV and they don't read newspapers. They socialise with screens and they communicate faceless through a “book”. They shop anytime in the Internet mall and they sleep in different time zones. As they are our biggest customer segment, we have to tweet them with respect. Or for the heck of it, just blog them into submission.

Gen Y and the Internet

Because of Gen Y and the Internet revolution, entrepreneurs are getting younger and younger. With a laptop, they trade anything and everything across countries like borderless pirates while prim and proper Gen X businessman worry about traditional sales team and distribution channels across the country. They collect cash in advance directly from consumers while Mr X gives credit to the trade. They have all the personal details of their customers and they are connected on a daily basis whereas Mr X can only guess that someone of a certain race, age and size has bought his products.

E-commerce will be the single biggest influence on rental rates of brick and mortar retail space. Already certain successful e-commerce products like books and music have decimated the traditional distribution channels of bookshops and music shops. The middleman's job has been taken over by Amazon.com.

Now you see other products like shoes, apparels, contact lenses etc gaining popularity on e-commerce platforms. And retail prices trending downwards much to the delight of consumers.

The only option for traditional businesses threatened by the e-commerce wave is to join them. Sephora has seen its cosmetic and fragrance sales slowing down and rental rates of their shops going up. So it set up sephora.com which has been growing very well, protecting its overall market share in the luxury segment of cosmetics and fragrance.

For traditional media companies, all the newspapers have a similar e version now. Even though visibility of e advertising revenue is still shrouded in fog, they are prepared for any eventual switch by news hungry consumers to e-consumption. While Astro offers TV couch potatoes with Astro-on-the-go mobility, Media Prima countered with Tonton, an e-content platform where you can watch missed programmes on the net and on-the-go. Mind you, these massive investment and creative efforts are made just to ensure its business stay relevant in the fast changing landscape.

Just as I give an “A” to these top private companies for their innovative business acumen, the Government and the GLCs deserve an “E” for their involvement in business. I do agree that the Government should play a major role in sensitive sectors of the economy like utilities, education and national security but to be actively involved in all businesses competing with the private sector is counter productive and in most cases a waste of public money. Lack of competition breeds inefficiency and lethargy. Enough said.

I am pleased to note that there has been a major shift of public perception towards politicians being involved in business. Politicians should stay exclusively active in the political arena if they want to avoid unnecessary accusations, nasty tweets and rumoured scandals. A clean politician who cares and fights for the people that he represents will always be voted favourably by his constituents. I read that from Dummies for Politicians.

I was born in 1960 thus I was given a blue Identity card. Having been a Malaysian since birth, I grew up in Petaling Jaya and studied in local schools and Universiti Malaya. I have worked all my life in Malaysia. My wife is Malaysian and all my three children were born in Malaysia.

So you can imagine my outrage when I am called an immigrant by some senseless and dumb politicians out to score a point or two with their supporters. As a Malaysian would say “I so angry until I cannot speak.”

But speak out you must in the coming 13th General Eelection. Choose wisely and please vote for sincere and smart candidates. Avoid wolfs in sheep skin for the sake of our children's future. Do not live to regret.

It has been a fun write for me the last 52 weeks and I must thank the StarBizWeek editorial team for sacrificing valuable space to accommodate my nonsensical and shallow articles. I hope I have given you some weekly chuckles and brought a wry smile on your face on lazy Saturday afternoons. I thank you for your kind patience. Goodbye.

The writer has decided to go e-communicado. For further nonsensical musings, stay in touch with him at thiamhock.com. You might just find some useful tips on your own.

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Tips on courting investors

IN this penultimate column, I would like to explore the world of romance, courtship and partnership. Why some marriages are happy and long lasting and why some end in a messy divorce. I will also talk about quickie engagements, marriage of convenience and spouse for hire.

No, I am not Aunty Thelma providing counsel on your turbulent personal life. Neither am I qualified to talk about politicians and rent seekers. This discussion is confined to entrepreneurs who need partners to help them kick start their business. Occasionally, desperately sourcing capital for survival and sometimes needing a healthy dose of cash injection to grow.

For new startups, courting the investors will be the most stressful stage. Before they part with their money, they will question the viability of your business, sustainability of your business model and most importantly, the potential to scale. You are advised to be well prepared with facts and figures supporting your proposal. If a knowledgeable investor tears up your assumptions and forecast, swallow your pride and rebuild your model if necessary. You will be better prepared to face the next potential investor.

Knowing the type of investors that you would like to “sleep with” will save you unnecessary stress and avoiding misaligned discussions. Short-term investors think very differently from long-term investors. Temporary relationships means moving in together and having fun without any responsibility. Breaking up is not hard to do.

Long-term relationships requires patience, understanding and tolerance between both parties. Like all marriages, there will be fights and misunderstandings but both sides will make up and continue for the sake of the children, albeit on an uneasy truce.

If you have a quick turnaround project with an early exit plan, then you will click immediately with short-term investors who will be willing to take on higher risks but expecting immediate returns on invested capital. Normally they do not mind having a smaller equity share as long as they see good upside but you will have to pay interest or dividends on their different class of preferred shares. It is best you find out more on terms like convertible cumulative preferred stocks and RCCPS (redeemable convertible cumulative preference shares) etc ... If you want to be on the same page as these savvy investors.

If your project has a long gestation period, get a rich investor who looks for steady recurring income with an eye for capital asset growth. Be conservative with your forecast and highlight your cashflow management skills. Nothing pleases the long-term investor more than having a mature thinking partner who will conservatively build a meaningful asset business in a steady environment.

Once you have the investor interested, the real negotiation starts. Assuming all investors are fools, you will be able to load the investors with a high valuation, retain majority equity and management control and yet raise a lot of capital by giving little away. Alternatively, assuming you are the desperate fool, you would end up working for the new investors, saddled with a low valuation and stuck with minority equity stakes. Nobody likes playing the fool so either one of these relationships will definitely end up in divorce.

Basically, the whole negotiation rests on the basis of valuation. For a new startup with no prior track record, the valuation is based on forecast budgets normally over a five-year period. To investors, getting the forecast right determines the level of risks to be taken. But his guess is as good as your guess. Then you end up with two sides articulating their understanding on market trends, benchmarking best practices etc, just to justify their number guessing skills.

So the final numbers to be agreed upon will depend heavily on your negotiation skills or how much the Investors believe in you. If you are desperate, the Investor will see through that and you will not be negotiating from strength. A right minded investor would prefer to have a highly motivated entrepreneur at the controls of a start up so you will not be forcefully bullied. Just remember to tell him that you need to feel motivated when you wake up every morning and he will back off and see that you are fairly treated.

If the Investor pushes you into a corner, just walk away. You have not lost anything. That said, I assumed you have been realistic with your forecast numbers and have comfortably addressed the investors concerns. If not, do not be surprised if the investor walks away instead.

Understanding how investors think will help you prepare your proposal. Greedy investors look for maximum short-term returns and these are normally fund managers who wants to believe in well structured glossy presentations so that they can justify to their investors why they should invest their money into your project. It will be unfair for me to say that these professional fund managers are willing to invest in high risk projects since it is not their personal money but the pressure to perform forces them to take higher risks that carries higher returns.

Individual investors are way too careful and they prefer proposals with reduced risks and long-term asset building models. This has been my preferred business model as an entrepreneur then and even now as an investor. But the lure of fast short-term gains enjoyed by so many has whetted my appetite and I am now reconsidering my investment strategies. Greed is indeed sinful and irresistible.

Since I made a promise not to write about politicians and GLCs (government-linked corporations), I will not be elaborating on the topics of quickie engagements and marriage of convenience. I apologise if you have found this column dry and boring but I hope my advice on having safe sex in a monogamous marriage will help you live longer with a healthy bank balance by your side. Stay happy always.

ON YOUR OWN
By TAN THIAM HOCK

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