Banks offering more attractive home loans to boost market share

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Rising competition prompts banks offering more attractive home loans

By DALJIT DHESI daljit@thestar.com.my

PETALING JAYA: With razor thin margins due to rising competition in the home loans market, banks are now aggressively value-adding their home loans to stay competitive and boost their market share.

OCBC Bank (M) Bhd head of secured lending Thoo Mee Ling said banks must value-add to their generic home loan offerings in order to not just survive but thrive, especially in this competitive climate.

“What separates those who thrive from the others today is how much they have moved from price to innovation. It is heartening to see a greater emphasis today on enhancements to loans products, rather than mere reliance on price cutting previously.

“This is where banks are getting even more creative by adding in the necessary finer details to a product that otherwise appears bland. Home loans with features and benefits that are tailored specifically to complement customers' lifestyles often serve to compel them to look beyond price and into a more holistic perspective,'' she told StarBiz.

File picture shows a housing are in Shah Alam - Starpic by BRIAN MOH
 

Thoo said customers were nowlooking for more than just a home loan as purchasing a house was simply the beginning.

Banks would also need to cater to their immediate follow-on needs like renovations and furnishing, for example, and this was where additional financing that came with the home loan would be helpful, she reckoned.

At OCBC Bank, she said there were bespoke home loans that were tied in with study loans, renovation loans and even overseas property financing schemes, adding that each of these took into consideration things that went beyond mere property purchase.



She said it was undeniable that investing in a product to bring in customers and then introduce them to other products remained a good strategy for growing the business, but banks would still need to strengthen their range of offerings to become a one-stop shop for their customers.

Outstanding home loans, valued at RM261bil, accounted for about 27% of the total banking system's loans as at end-September 2011. Although there has been strong expansion in home loans in the last couple of years, the proportion of home loans has been hovering at 27% in the past five years.

,B>Thoo: ‘What separates those who thrive from the others today is how much they have moved from price to innovation.’

Commenting on home loans, RAM Ratings' head of financial institution ratings Wong Yin Ching said competition among banks in the home loan market had been rife, resulting in razor thin margins in recent years.

This stemmed from the homogeneity of the home loan products, whereby any innovation in product features and price competition (by lowering rates) were quickly replicated and matched by market players, she said.

Wong added: “While some banks have instilled more discipline in its risk-reward pricing, aggressive pricing is still seen in the market and this is unhealthy and unsustainable in the long run.

“Going forward, we think that personalised services and quicker turnaround times by banks would be key to stay relevant in the home loan market.”

Alliance Bank Malaysia Bhd executive vice president and head of consumer banking Ronnie Lim said competitive pricing aside, Malaysian banks were now re-inventing the mortgage landscape by extending superior customer experience at every customer touch point.

For the bank, he said having mortgage specialists, who also acted as advisory consultants, among others, had enabled Alliance Bank to become one of the key mortgage players in the market.

He said the bank has been growing its mortgage specialists force extensively to not only engage customers effectively but also deepen its relationship with developers, lawyers and real estate agents.

Lim added the bank was also able to provide fast “approval in principle” service to assist customers looking for home financing solutions to make informed decisions before committing to their choice property.

For mortgage players, he said one of the key challenges was about overcoming margin compression and the bank was able to achieve this by introducing new systems and processes to help staff increase their productivity.

This had since yielded results: “For the year under review, sales productivity has increased threefold compared to a year ago,” he said.

Over-work and the generation gap

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M'sians working more and carrying home more work

Monday Starters - By Soo Ewe Jin

ACCORDING to a global survey by Regus, Malaysians are not only clocking more hours at work but bringing their office load back home as well.

I can already see many of you, especially young workers in consultancy firms, nodding your heads in agreement. And today is only Monday.

The article on the survey findings, written by my colleague Yuen Mei Keng and published in this newspaper last Wednesday, was aptly headlined “Malaysians too hardworking”.

Regus is the world’s largest provider of workplace solutions so it obviously has the credentials to carry out the survey which involved some 12,000 business people in 85 countries.

The findings of interest to us – 47% of Malaysian workers take tasks home to finish at the end of the day for more than three times a week, compared to 43% globally; 15% regularly work for more than 11 hours a day, compared with 10% globally.

William Willems, regional vice-president for Regus Australia, New Zealand and South-East Asia, says the study found “a clear blurring” of the line separating work and home.

 

File picture shows Mohd Rasul (centre), who is handicapped from birth, showing his skill working with computer using his toes. The computer was donated by superstar Anita Sarawak. Looking on were Hamidah (right) and Mohd Ramli (left). - Starpic by ROSHIDI ABU SAMAH.

“The long-term effects of such over-work could be damaging to both workers’ health and overall productivity.

“This is because workers may drive themselves too hard and become disaffected, depressed and even physically ill.”

Sounds rather ominous but I doubt if anyone is going to lobby the Government for policy changes so that people don’t work so hard.



After all, many are fighting to raise the retirement age in the private sector to 60, the same as that in the Government sector.

The Regus report should be seen in the right perspective of how different generations view work because of different circumstances.

Our problem has always been that the earlier generations control the workplace environment and are not as sympathetic about the realities of today.

I must confess that when young people seek my advice, I still cannot resist telling them that I started on a salary of RM135 and had to work, for many years, on the graveyard shift. Although I feel they need to experience pain before pleasure and appreciate the value of hard work, it often does not come across like that from their perspective.

They probably see me as the old foggie who did not have any form of social life back then, so spending all my waking hours in the office was the only thing to do.

But we need to understand that the world has changed so much from the time of the baby boomers to the current Generation Y.

Advances in technology, which allow the workforce to stay connected without being together physically, may, in some industries, make even the standard 9 to 5 routine in the office outdated.

Being hardworking is a positive trait for all good workers but if we are working too hard, and chalking unnecessary extra hours that cause severe strain on our home life, then maybe something is not right.

I am glad that we are beginning to see many enlightened bosses who value a proper work-life balance for their workers but they are still in the minority.

I have a dear friend who works in a rather high position in a multinational who told me that whenever she was at headquarters in Europe, she is reminded that no one is allowed to work beyond office hours unless a written request is submitted.

“They shut down the office after 5 so you had better have a strong case to want the lights and air-conditioner on,” she said.

No wonder she is so happy that she has been posted to headquarters permanently.

Her Facebook sharing is full of her travel stories and picnics in the park that I sometimes wonder if she is even working at all.

Deputy executive editor Soo Ewe Jin will remember 11.11.11 as the day he missed a most meaningful reunion in Penang of Old Frees from his year who came from near and far to catch up with one another.

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PRM, the Seladang's Resurgence in Malaysian politics?

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No bowing out for the seladang

One Man's Meat By Philip Golingai

PRM, the only left-wing party in the country, is looking for a resurgence in the coming general election

A DIE-HARD Parti Rakyat Malaysia (PRM) supporter trudged up a long flight of stairs to the party headquarters on the third floor of a shoplot in Petaling Jaya.

I could literally hear the 57-year-old man’s knee creaking as he spiritedly - one step at a time - advanced towards where PRM was celebrating its 56th birthday on Friday.

On the way up, he talked about the days in the 1960s when, as a boy, he put up PRM posters during the election campaign against the “kapal layar” (the sailboat logo of the Alliance, predecessor to Barisan Nasional).

Quiet celebration: Joining Rohana in cutting the PRM anniversary cake are (from left) treasurer Teh Soon Ming, secretary-general R.N. Rajah and central working committee member Zulkarnain Abdullah at the party headquarters in Petaling Jaya last Friday.

“It was during the Vietnam War era when anti-Americanism was the rage and support for the party was at its height,” he recalled.

PRM won the parliamentary seats of Kuala Lumpur and Johor Baru in the 1959 general election.

At 11am sharp on 11.11.11, PRM president Rohana Ariffin and her comrades cut a cake with the party’s logo - the head of a seladang (the Malayan gaur), witnessed by about 50 people, including two party members who were ISA detainees.

After the party, I spoke to Rohana, a retired associate professor of Universiti Sains Malaysia.

A bit wary of attending a party with leftist leanings as it is the season to attack all things linked to Socialism, I asked the president to explain her party.
 
“The socialist party - as far as we know it in Malaysia - believes in the democratic process of being elected into power and not through armed revolution,” said the 60-something who was wearing a red bandana.

“If you ask what socialist ideology is, it believes that all production of the country should be for the consumption of the rakyat first and not so much for profit.

“You can make a certain amount of profit but the rakyat’s interest comes first, especially that of the working class.”

PRM is one of Malaysia’s oldest political parties. It was founded as Parti Rakyat on Nov 11, 1955 by Ahmad Boestamam, Dr Burhanuddin Al Helmy and Ishak Mohamad.

“The party was strong in the 1960s and 1970s. But since it was the only legitimate left-wing party in the country at that time, the Government came down hard on people with socialist ideologies,” said Rohana.



“When you look at the evolution of the party, most PRM leaders (such as Boestamam, Kassim Ahmad and Syed Husin Ali) have been detained in prison.”

In 2003, PRM was thought to have been dissolved when it merged with Parti Keadilan Nasional to form Parti Keadilan Rakyat.

“At that time, the party leadership was quite ‘tired’ because society would not accept us as they saw PRM as left-wing and there was a popular movement which was Keadilan, so they decided to merge.”

However, like the seladang, PRM stubbornly refused to become extinct.

“The only problem with the merger was that we should have had a last delegates’ meeting to dissolve the party in an honourable manner,” Rohana recalled.

But in the haste to merge, the leadership “forgot” to do so.

In 2005, die-hard supporters convened a national congress and “resurrected” the party as it was never de-registered.

During the interview with Rohana, PRM supporters would quietly slip RM10 or RM50 to the party president as they bid goodbye to her.

“This is our culture,” she explained. “We are a very poor party and we rely on financial support from our members. Usually what we do is pay with our own money for an event we organise and then our members will give donations.”

It is heart-warming for Rohana to see die-hard supporters climb the steps to attend the party’s event.

“For example, there was a 70-something member who came from Sungai Tembiling (in Pahang) by boat and bus and he told me, ‘Parti Rakyat is my party and I will never change’,” Rohana related.

“And even among the young the spirit is there. Our party is rejuvenated by the young who are interested in left-wing politics.”

The young, she said, were fed up with the infighting in Parliament between the Government and the Opposition.

“There is no compromise or middle ground in any issue that the two coalitions can’t see the trees for the forest.”

The party is seeking relevance in the next election.

It is targeting to contest in seats like Selayang, Balik Pulau and Petaling Jaya Selatan.

The seladang, which can’t be put to pasture, is hoping left-wing politics will make a resurgence.

Judicial diversity creates confidence

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Comment By Roger Tan

Judicial diversity and meritocracy should go hand in hand. A judiciary that does not reflect society’s diversity will ultimately lose the confidence of that society.

ENGLAND’S senior judiciary has often been described as “pale, male and stale” – that is a white, male-dominated bench.

This is understandable because despite many calls over the years for more diversity in judicial appointments, women and ethnic minorities are still sorely under-represented in the highest echelons of England’s judiciary.

Today, Lady Brenda Hale still remains the sole woman justice out of 12 places in the highest court of the United Kingdom, now known as the Supreme Court. First appointed to the House of Lords as a Lord of Appeal in Ordinary (Law Lord) on Jan 12, 2004, she was reappointed to the new Supreme Court when it replaced the House of Lords in 2009.

In October this year, Rabinder Singh became the first Sikh, a non-white, to be appointed a High Court judge of England and Wales. There is no law lord from an ethnic minority. This year two more white men, Jonathan Sumption, QC and Lord Justice Wilson, were appointed to the Supreme Court.

Holding court: Former Chief Justice Tan Sri Zaki Azmi (front row, second from left) chairing a meeting of judges from Kuala Lumpur and Shah Alam. The Judicial Appointments Commission should always encourage a diverse judiciary which is more representative of the make-up of our country. — Bernama
 

The President of the Supreme Court, Lord Phillips, did remark recently that he would like the Supreme Court to be 50/50 men and women from the point of perception, but he stressed that it was more important to consider judicial selections based on merit.

Lord Hope, the Deputy President, was more hopeful, however. “It’s a great mistake to rush it forward and say that diversity must prevail over merit. The system depends on skilled people who can actually do the job and we can’t afford to have passengers here, just in the name of diversity,” he said.

But is this insistence on merit reasonable when actually it is a non-issue? Or is it simply an excuse not to effect judicial diversity speedily? If so, then perhaps the very definition of what is merit should be re-examined.

In fact, leading the call for more women and ethnic minority judges in the courts is none other than Hale herself. She said she was rather tired of being repeatedly told that change was “a matter of time”, but change never came.

Recently, Hale told the House of Lords constitution committee that “the lack of diversity on the bench is a constitutional issue”.

On Nov 3, the Guardian newspaper reported Hale as arguing before the committee that judges would approach issues differently based on their background, and that a lack of diversity could also change the substantive results of cases (“Resistance to diversity among judges is misguided”).

She added that in “disputed points you need a diversity of perspectives and life experiences to get the possible results”, particularly how the gender of justices would matter in cases such as child-birth and rape.

In fact, this argument that diversity enriches judicial decision-making and that the outcome of a case is often influenced by a judge’s background is not new.

In 1981, Professor J.A. Griffiths wrote in The Politics of Judiciary that English judges were neither entirely objective nor neutral in their decisions because their decisions often reflected their own political outlook and attitude.



For Malaysia, the above issues are even more relevant as ours is a multi-racial, multi-religious and polyglot society.

So how does Malaysia fare with judicial diversity? Is ours a more representative bench?

The table shows the racial composition and gender of the judges in our superior courts.

As the table shows, there is a fair number of women and non-Malay judges at the High Court level, but not in the appellate courts.

In fact, since Merdeka, only one white, two Chinese, one Indian and one woman were appointed to head the High Court of Malaya. They were, respectively, Tun James Beveridge Thomson (1957-1963); Tan Sri Ong Hock Thye (1968-1973) and Tan Sri Gunn Chit Tuan (1992-1994); Tan Sri Sarwan Singh Gill (1974-1979); and Tan Sri Siti Norma Yaakob (2004-2006).

Further, the members of our Judicial Appointments Commission comprise six Malays, one Chinese, one Indian and one east Malaysia bumiputra, and only one of the nine members is a woman.

To my mind, the situation could be due to a dearth of non-Malays in the Judicial and Legal Services, but overall women still outnumber men in this sector.

Currently, in respect of Sessions Court judges, there are 119 Malays (56 are women), two Chinese (women), five Indians (three are women), nine east Malaysia bumiputras (four are women) and one Others (a woman).

For Magistrates, there are 139 Malays (84 are women), two Chinese (men), one Indian (woman) and four east Malaysia bumiputras (all men).

However, there are probably more non-Malays serving in the Attorney General’s Chambers. But if other judicial officers such as deputy and assistant registrars are added, women would almost double men.

This is not a new phenomenon as, in the last two years, women have doubled the number of men entering the legal profession.

Of course, non-Malay law graduates prefer to enter the legal profession rather than join the Judicial and Legal Services with the view, whether rightly or wrongly, that private practice is more lucrative.

In fact, with the revised remuneration scheme, the current basic pay of a magistrate who is a fresh law graduate is RM1989.45 (with additional perks worth about RM1,000 depending on the location where the magistrate serves). This, of course, is far better off than his predecessor in earlier days, like in the early 1980s when a magistrate’s basic pay was only about RM1,050.

In any event, if the reason for under-representation in the appellate judiciary by non-Malays is due to a lack of meritorious candidates in the Judicial and Legal Services, then resort should be had to the pool of meritorious candidates among senior members of the Bar just like in the case of Jonathan Sumption, QC who recently made history by being the first lawyer to be elevated directly to the Supreme Court of the United Kingdom.

Having said that, let no one mistake me as advocating a quota system or positive discrimination on the grounds of gender, race and religion in judicial appointments because that would go against Article 8(2) of the Federal Constitution.

I am also mindful of the views expressed by some women judges themselves, such as the former justice of the Supreme Court of Canada, Justice Claire L’Heureux-Dubé. She argued that it was not enough to have simply more women or minorities on the bench. “What we need”, as she was quoted by Australian judge, Justice McHugh, “is a change in attitudes, not simply a change in chromosomes.”

I disagree. If there exists a total absence or a huge disproportionate presence of women and minorities at appellate courts, something must be wrong somewhere.

It is my considered opinion that the Judicial Appointments Commission should always encourage a diverse judiciary which is more representative of the make-up of our country.

We must also correct any perception that our judges, who are the arbiters of civil laws, are not fair and independent especially when they adjudicate upon sensitive issues such as race and religion.

It follows that who we appoint to the seat of justice is a matter of life and death. As one of America’s finest trial lawyers, Gerry Spence, put it so trenchantly: “Who are these judges who wield such power over us, a power reserved for God?

Who are these mere humans with the power to wrest children from their mothers and to condemn men to death or cage them like beasts in penitentiaries? Who possesses the power to strip us of our professions, our possessions, our very lives?

“They make law. They may take away your wife or your good name or your freedom or your fortune or your life. They are omnipotent.

And the question is: To whom have we so carelessly granted that power? Are they the kind who would understand you, who from their experiences would know something of the fears and struggles you have faced? Will they care about you or about justice?”

It is, therefore, my honest view that judicial diversity and meritocracy should go hand in hand because a judiciary which does not reflect the society’s diversity will ultimately lose the confidence of that society.

In other words, the strength of any judiciary is primarily dependent on public confidence even if seated on the bench are monolithic judges who are most meritorious.

This is achievable if there is the political will, and one only need to look at how successfully Presidents Bill Clinton and Barack Obama did in bringing diversity to the American judiciary.

The writer is a senior lawyer and a former member of the Malaysian Bar Council.

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Winning over the majority of the Malay Muslim psyches and votes!

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All eyes on the Malay votes

On The Beat By Wong Chun Wai

Of the 222 parliamentary seats, only 46 are Chinese majority. So winning the hearts and minds of Malay voters has become the focus of the competing Malay-based parties.

WHEN Tan Sri Muhyiddin Yassin announced that the government had decided to scrap the PPSMI (teaching of Maths and Science in English policy) in primary schools, there was loud outrage from the urbanites.

This unhappiness has continued with most urban voters refusing to accept the reasons given by the Education Minister, believing instead that politics is the reason behind the decision.

There were subtle threats of punishing the Barisan Nasional government in the polls but PAS and PKR, both Malay-based parties, also quickly stated their stand against continuing the policy.

A Malay non-governmental organisation, Jaringan Melayu Malaysia (JMM), had revealed that its survey of 27,200 parents, mostly Malays, found 55% wanted the PPSMI to be retained compared to only 13% who didn’t. Of these respondents, 15,000 were rural parents. But Malay groups, and certainly Malay-based parties, had found their own surveys telling them the opposite.

With a general election looming, winning the hearts and minds of the predominantly Malay voters has become the focus of the competing Malay-based parties.

The fact is that of the 222 parliamentary seats, only 46 are Chinese majority and there is not even a single constituency with an Indian majority.

The three main parties, Umno, PAS and PKR, have all stepped up their posturing as defenders of the Malay/Muslim votes, well aware that while they need the support of the other communities, they cannot ignore the sentiments of the Malay voters.



So when DAP publicity chief Tony Pua said that if Pakatan Rakyat formed the next federal government, it would trim down the civil service – majority of whom are Malays – his allies had to scramble to do damage control.

Datuk Seri Anwar Ibrahim and senior PAS leaders had to quickly douse the fire, denying that there was such a plan.

The opposition leaders have been on tenterhooks since the fiasco by PAS deputy president Mohamed Sabu, who allegedly described communist guerrillas involved in the 1950s Bukit Kepong incident as freedom fighters.

With many Malay families having at least one relative in the police, army or other uniformed unit, Mat Sabu’s remarks cost the Pakatan Rakyat a huge chunk of votes. Since then, the usually fiery speaker has remained quiet, and PAS is hoping that the anger against him will soon die out.

The Islamist party has also abandoned its attempt to project a more liberal image and has gone back to talking about hudud laws and the Islamic state and banning concerts to retain its core supporters.

As for Anwar, on the one hand, he is telling his Chinese audience that hudud laws are not part of Pakatan’s policy. On the other, he is telling the Malay audience that he backs the implementation of hudud laws, putting the DAP in a spot as PAS has said it couldn’t care less if the DAP agrees or not.

The DAP seems to be helpless over the issue with its leaders saying they have “agreed to disagree” over the implementation of hudud laws. PAS claims it would not affect non-Malays but this is a fallacy because it will extend beyond family and religious laws.

In criminal matters, when a case involves a Muslim and a non-Muslim, if hudud is chosen, it will clearly put the latter in a spot. One example is sex offences where four witnesses are required.

Only DAP lawyer Karpal Singh seems to acknowledge the difficult path ahead.

The fight over Malay votes has continued with DAP’s Lim Guan Eng coming out to say that if Pakatan wins, Anwar will be the prime minister. It is a move to allay fear among non-Muslim voters as PAS is eyeing the post.

There has been muted response from PAS as it is an open secret that its president Datuk Seri Abdul Hadi Awang wants to be PM.

Lim has insisted that Anwar would be PM “even if he is in jail (if convicted for sodomy charges)”, but the point is, if Anwar is going to be PM, then he wouldn’t be in jail.

Most non-Muslims wouldn’t blink over the Seksualiti Merdeka issue as they are aware that the event is not a gay orgy as claimed by some media.

Many of us find the hysterical reaction to be lacking compassion and even ridiculous, but this is the silly season. It was a case of wrong timing and political naivete on the part of the organisers. After all, the event has been held for the past two years without any controversy.

But human rights lawyer Datuk Ambiga Sreenevasan, who was invited to open the forum, is seen as an opposition figure, and with Anwar’s sodomy trial coming to a conclusion soon, the timing could not have been worse.

Well aware of the Muslim psyche and sentiments, PAS swiftly joined in to criticise the gay rights event.

The much-touted 11.11.11 date, which many thought would see the dissolution of Parliament, is over and with Datuk Seri Najib Tun Razak himself saying that polls would not be held this year, the run-up campaign looks set to be a draggy affair.

Even now, the posturing, rhetoric, accusations and lies are becoming tiresome, and the polls could still be very far away, possibly in mid-2012.

'Hudud can create tension'

By Ruben Sario
The Star/Asia News Network

KOTA KINABALU - An umbrella grouping of Chinese organisations in Malaysia has lashed out at PAS over its hudud proposal, saying such laws could lead to tension and miscarriage of justice.

Federation of Chinese Association of Malaysia (Hua Zong) president Tan Sri Pheng Yin Huah said though hudud would be enforced among Muslims, difficulties could surface in multi-cultural, multi-religious and multi-ethnic Malaysia.

If hudud were to be enforced, the question of which court has jurisdiction to hear cases would arise, he said.

"For example, if the accused is a Muslim, the case would be heard in the syariah criminal court.

"In that event, non-Muslim witnesses to the crime would not be allowed to testify.

"And, if the case is to be heard in the normal criminal courts, the accused can challenge the move, with the excuse that religion is supreme above everything else," Pheng said at a dinner to mark the 28th national Chinese cultural festival at the Likas Sports Complex here yesterday.

Also present were Sabah Deputy Chief Minister Datuk Dr Yee Moh Chai and Health Minister Datuk Seri Liow Tiong Lai.

"We in Hua Zong firmly believe that the existing criminal administrative system, in accordance with the Federal Constitution that takes into account the interests of all communities, must be maintained," said Pheng.

In this respect, he said, Hua Zong was relieved that Prime Minister Datuk Seri Najib Tun Razak had said the Government has no intention to implement hudud laws.

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Financial literacy vital when investing in funds

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By LEONG HUNG YEE hungyee@thestar.com.my

 It pays to be updated on investment knowledge

LOOK before you leap. That's the advice experts in the unit trust industry have given to investors, either old or new, when deciding to put their money into any fund.

Their reasoning behind it is that the products being offered to investors are no longer simple and basic. With the ever growing diversity and sophistication of unit trust products, consumers have to continuously enhance their knowledge and capabilities to maximise as well as protect their investments.

Fund managers say unit trust funds offer an option to retail investors especially those looking at the possibility of earning higher returns compared with conventional savings like fixed deposits.

However, a lot of investors do not really have a good understanding on what they are investing in and they think they can simply park the investment in some funds and let it grow.

 

Lim Hong Tat says it is a challenge for investors to stay informed on market movements in today’s environment.

“Over the long term, education on the basics of financial planning was important for the growth of the unit trust industry,” a fund manager says.

MAAKL Mutual Bhd CEO Wong Boon Choy opines that more can certainly be done in investor education. “I am sure the Federation of Investment Manager Malaysia would have probably started working with all relevant parties who are involved in promoting financial literacy.”

Malayan Banking Bhd (Maybank) deputy president and head of community financial services Lim Hong Tat points out that one of the issues it is facing is educating its customers on unit trust investment.

He says it is a challenge for investors to stay informed on market movements in today's environment.

“Educating our customers on unit trust investment is one of the key areas the bank is embarking on. Unit trust investments are meant for a medium to long-term investment horizon, and generally provide better returns according to the risk that accompanies the investment,” Lim says.

The dollar cost averaging concept, he says, is another focus where the bank is highlighting to customers, such as to invest the same amount of money over a period of time, especially now when market volatility is high.

“By doing so, investors avoid entering the unit trust funds at the peak or bottom of the market cycle, and hence spread out the risk,” Lim says.

HwangDBS Investment Management Bhd (HwangDBS IM) chief product officer Steve Lim says that despite the growth of the unit trust industry over the past 10 years, there is still a need to increase investors awareness and understanding about unit trusts and its benefits.



Good returns

“Many of them expect good returns, for example double-digit returns, within a year, hence defeating the purpose of investing in such instruments for retirement and financial planning. Since they have a short-term investment outlook, they tend to time the market. Many of them have a herd mentality and will continue to sell and redeem when bad news flows in.

“Also, mis-selling and lack of product understanding have been the bugbear of our industry,” Lim says.

 

He adds that this had resulted in losses by many investors and a prevailing misconception that unit trust investing as a whole is a highly risky and complicated venture.

“Nevertheless, we believe that with the right financial education, we will be able to address the unit trust industry issues and misconceptions as well as contributing to the growing confidence and popularity of the industry segment.”

Steve says the level of personal financial literacy today is low and with growing consumerism as well as changing customer expectations, there is a need to reinforce greater financial literacy to help people better manage their personal finances. Proper consumer education is needed if new growth engines, such as private pensions, wealth management and asset management, with their more complex and sophisticated products, are to take off.

While industry players are advocating a greater need to increase investor education, some investors do not really have a basic grasp of what a unit trust is or even why they should invest in unit trust.

Lee Khee Chuan, a Securities Commission-licensed financial adviser representative, says unit trust as an investment vehicle has distinct advantages over other asset classes of investment.

He says, for example, unit trust has better liquidity compared with land banking products.

Wide selection

“It (unit trust) can start with a minimum capital of RM1,000 but it is impossible with property or blue chip shares. Unit trust also offers a wide selection ranging from bond funds to aggressive equity funds; furthermore it gives investors exposure to multi regions. It also allows investors to invest regularly using the dollar cost averaging method with a minimum capital as low as RM100 per month through bank account deductions,” Lee says.

Lee cautions that investing in unit trust does carry investment risk; the price of units may go down as well as up.

“It is still prudent to diversify among unit trust funds with differing fund objectives even though unit trust fund sales agents may tell you that unit trust is diversified among different stocks or stock markets.

“One can also check out value-added services provided by some licensed financial advisory companies in Malaysia which offer a model fund portfolio which is effectively diversified to clients because they have an in-house fund manager to construct and monitor the portfolio of unit trust funds,” he adds.


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Investing in Malaysian unit trust industry

Investing in Malaysian unit trust industry

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High fees dampener for unit trust

By DALJIT DHESI daljit@thestar.com.my

Unit trusts are gaining popularity among investors as an important source of investment and retirement savings. But are investors getting a fair deal from the high charges being imposed by the industry and will lower charges really mean better returns for investors?

THERE is nothing that really fazes a seasoned investor. They are used to losing and making money on the stock market. They understand the game.

But if there's one thing that irks veteran investor Jason Yap, who has been a unit trust investor for a decade, is that he already starts losing money before he has a chance to make a profit.

What irritates Yap, who is a retiree, is the high upfront fee he has to endure, and that has a profound impact on the return on his investment.

“The upfront fee of between 5% and 7% is rather high and should be lowered for us to enjoy better returns. The upfront charge one has to pay when buying into a fund will impact the returns received from the fund. It is pointless to invest in something that at the end of the day will bite into' the returns or monies received from the particular investment.

“Many of us have taken out monies from our savings to invest in unit trusts. For unit trust to be effective in boosting retirement savings, the charges should be lowered or even abolished,” he adds.

That argument is as old as the industry itself. Since establishing its roots in 1959, the unit trust industry in Malaysia has grown steadily over the years and has really blossomed since the various periods of market turbulence, especially the Asian financial crisis in 1997/98.

Foo says a dichotomy exists in Malaysia where different rates are being charged to different entities.

 One of the major qualms among investors for some time now is its high sales charges.

The main grouse has been the upfront charges, which is money people have to pay when they buy into a fund. Then there is the exit charges, which are money paid when they cash out of a fund, and the annual management fee, which is a charge imposed by the fund to manage people's money.

The current upfront fee ranges from 5% to 6.5% on the invested amount, except for money from Employees Provident Fund (EPF) to invest in funds (under the EPF Members Investment Scheme) which is capped to 3% since Jan 1, 2008.

The exit fee may be 1% or higher but much depends on the structure of the fund. The annual management fee ranges from 1% to 1.5% and the trustee fees is from 0.5% to 1%.

A call to review sales charges

Is there a need for the industry to review its charges to make the unit trust industry more appealing to investors? Some industry observers think so.

Malaysian Financial Planners and Advisors Association (MFPAA) deputy president Robert Foo thinks front-end fees should be reduced or completely removed so that investors can enjoy higher returns.

The other purpose of such a radical but common practice in matured markets is that the whole industry can then move from a sales push culture to that of a professional advisory culture where investors can work with licensed and professional financial advisors if they so wish.

“It should be noted that in developed countries like Britain and Australia, there is a regulatory push for such financial products to be delivered on a fee for service basis rather than on a high push environment with upfront sales commissions. In Britain, the government has legislated that by Jan 1, 2013, all financial products are not allowed to have commissions attached.



“Agents or financial advisors are required to charge investors directly for services provided, therefore ensuring that their interest aligns with that of the investors,” he adds.

Foo, who is also the managing director of licensed financial planning company MyFP Services Sdn Bhd, says a dichotomy exists in Malaysia where different rates are being charged to different entities.

For money withdrawn from the EPF, people pay 3% to buy into a unit trust, but for walk-in customers, they are charged 6%.

“Does it mean that your EPF money is more valuable than your hard cash?” he asks.

“I think the upfront fee is too high and eats into the returns of investors. The average compounded rate of return of equity unit trusts in Malaysia over the last 10 years is only about 7.5% per annum, and losing 6% upfront is too high a cost for investors,” Foo says.

An industry observer says the Securities Commission should consider compelling unit trust companies to waive the upfront charges, similar to funds under Fidelity Investment, which is one of the largest mutual fund companies in the world with over US$1.46 trillion in assets under management.

Foo says it is cheaper to buy funds through the Internet, for example through www.fundsupermart.com.my or eunittrust.com.my, which imposes an upfront charge of 1% to 2%.

Much higher than regional peers

Licensed financial planner Jeremy Tan of Standard Financial Planner Sdn Bhd says the upfront fee is considered high compared with countries like Singapore and Hong Kong.

Tan says that depending on the sophistication of the product, the unfront fee in Singapore ranges from 3% to 5%, but adds that there is an alternative platform for investing in unit trusts, with upfront fees ranging from 0.75% to 2%, depending on the amount invested. In this latest alternative, there is a wrap fee of up to 1% per annum.

He says the alternative is also available in Malaysia, where the upfront fee is lower than what is currently charged by investing directly through the fund house.

He expects the industry to eventually lower the charges in line with other Asian countries such as Singapore and Hong Kong.

Foo says that due to the open nature of the Hong Kong and Singapore markets, where local funds have to compete with global fund houses at the retail and wholesale market sector, the fund companies can reduce the upfront charges to even zero. Also, there is no tied agency structure in these countries unlike Malaysia.

Lower charges, better returns?

Those arguing for lower charges will undoubtedly look at the average return of 7.5% per annum over the past decade by unit trust firms and say a lower fee will bump up returns.

Tan, however, believes lowering the sales charges will not necessary provide better returns to investor. It depends on the performance of the fund manager or the fund house in relation to the funds invested among others.

Pacific Mutual Fund Bhd executive director and CEO Gary Gan concurs. He says the performance of a fund and its relevance to investors is key rather than merely looking at charges.

At the end of the day, the basic rule of investing is making an informed decision. This means investors need to have sufficient information and knowledge of the product they are investing in, he notes.

MAAKL Mutual Bhd CEO Wong Boon Choy says any attempt to restructure the front-end and back-end charges will require very careful study and strong will on the part of the authorities to make tough changes to the rules and regulations on existing distribution channels which is dominated by a tied-agency system.

“Agent commissions have already been compressed when the EPF capped the maximum service charge to 3%. This translates to more than 50% reduction in the normal service charge. The front-end service charge is the primary means of compensating the agents for the service they provide to investors,” he explains.

Wong, who is also the president of the Financial Planning Association of Malaysia (FPAM), estimates the tied agency force to be over 60,000 at the end of last year.

Meanwhile, Areca Capital Sdn Bhd CEO Danny Wong feels the market should determine the fee structure as ultimately good performance and achievingthe investor's objective are more important.

 

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Tan says the upfront fees are considered high compared with Singapore and Hong Kong

He says there are funds with upfront fees distributed by banks or unit trust companies as well as those with almost no front-end fees being solddirectly by niche fund managers or via online portals. He points out that there is no evidence of superiority of either practice as the choice of investment is left to the investors.

Lowering or abolishing sales charges, says Steve Lim, chief product officer of HwangDBS Investment Management Bhd, will provide investors a quicker path to garnering returns on their investment, but at the same time, might encourage many to make regular withdrawals.

From the perspective of unit trust management companies, the lowering of sales charge to 3% has helped change investors' mindset and allowed them to realise that unit trust is a viable investment and pension planning instrument, Lim adds.

CIMB-Principal Asset Management Bhd CEO Campbell Tupling says the industry fee structure in Malaysia is primarily on the front-end as the back-end fees are not significant.

Alternatives

“Investors know what they are paying for. Fees are transparent and clearly stated. Investors are free to choose how they wish to be serviced. There are other means of investing at a lower cost, for example exchange traded funds (ETFs). However, investors have yet to embrace ETFs in a meaningful way,” he adds.

With high sales charges of unit trust funds, which generally are open ended funds, will it make more sense for investors to switch their investments into close-end funds or other instruments like ETFs?

iCapital.biz Bhd managing director Tan Teng Boo does not think so. Unless the fund manager has an excellent track record, he says it is hard to promote and list a close-end fund like icapital.biz Bhd on Bursa Malaysia.

Tan says any such fund has to go through an initial public offering process and is not so profitable for fund management companies to promote and list close-end funds as there are no entry fees or front-end loadings or commissions, he adds. At the same time, he says investors in Malaysia are not familiar with closed-end funds.

icapital.biz Bhd is the only listed closed-end fund in the country.

From the company's records, icapital.biz Bhd's cumulative returns for the five-year period (between Oct 19, 2005 and Dec 30, 2010) stood at 109%. (Note: the fund was not traded on Dec 31, 2010).

The top half of the Equity Malaysia Funds (equity unit trust funds) returns range from 84% to 196% during the five-year period (Dec 31, 2005 to Dec 31, 2010).

Wong says that in general, unit trust funds are more popular than closed-end funds. With the so-called guaranteed buy-back feature, investors can be assured that the unit trust management company will buy back their units in the event the investors need to make a redemption or liquidation.

“Unlike unit trust funds, the trading price of the closed-end fund is dictated by market force and investor sentiment. In the event the investors of the closed-end funds want to liquidate their holdings, they can only liquidate or sell through the brokers on the stock exchange where the units are subject to the market forces of supply and demand.

“Therefore, the prices can be volatile in the secondary market where investors may sell their units at a discount or premium. In this case, liquidity is one of the major concerns for investors of closed-end funds,” he says.

Foo feels investing in closed-end funds or open-end funds has its pros and cons, but much depends on the skill and capability of the investment manager to deliver the returns by taking advantage of the inherent features of the two structures.

Tan of Standard Financial Planner says more research and analysis on close-end funds is required before investing, compared with unit trust investment where the fund's objectives of distribution policies, inherent risks, minimum investment period are clearly spelt out in its prospectus.

Every investor wants to preserve capital invested and a return corresponding with the risk taken, he explains.

Currently, there are over 580 unit trust funds in the market compared with only five listed ETFs on Bursa, namely CIMB FTSE Asean40, CIMB FTSE China 25, FTSE Bursa Malaysia KLCI ETF, MyETF Dow Jones Islamic Market Malaysia Titans 25 and ABF Malaysia Bond Index Fund.

For example, returns to date (Jan 1 to Oct 31) of FTSE Bursa Malaysia KLCI ETF stands at -0.16%. The FTSE Bursa Malaysia KLCI was down 2.71% during the same period.

Lim says ETFs can be a good choice for investors who have knowledge of the stock market and have the expertise to make investment decisions on their own. For the normal saver, however, unit trusts tend to be more appropriate as the investments are managed by professionals who have the skill sets to make complex investment decisions.

Gan, however, feels investors should consider other factors rather than solely relying on returns data. Factors like volatility of the instrument and fund size are equally important when investing in a particular fund.

Growth momentum and key challenges

With the current uncertainties in the global economy coupled by the eurozone debt crisis, is the unit trust industry able to ride out the global economic slowdown to continue its growth path?

Industry players generally think the industry will continue to grow albeit at a slower phase. CIMB-Principal's Tupling projects a low single-digit growth for the rest of the year and anticipates the industry's asset under management to grow about 5% to RM104bil this year.

In terms of net asset value (NAV), the investments in unit trust funds held by 14 million account holders stood at RM240bil last year compared with RM44bil in 2000, an increase of about 45% per annum.

Wong feels the market should determine the fee structure as good performance and achieving objectives are vital.

He says that new investment in equity funds has slowed but it is not a significant drop, adding that redemptions are also lower than expected.

The growing risk aversion, he says, will result in higher demand for more defensive and conservative asset classes like dividend-yielding equities and fixed income securities.

Lim of HwangDBS expects single-digit growth this year due to poor market sentiment and high risk aversion in view of the uncertainties in the global economy.

He says the main challenges faced by the industry is the need to address the question on how growth momentum can be maintained as well as to promote unit trust fund as a staple in building long-term wealth. He says there is also a need to change the short-term investor mindset.

Gan says while the current gloomy outlook may have impacted equity funds, not all can be lumped in the same boat. Funds like Islamic and money market are thriving and the factors that will ultimately attribute to industry growth is how well funds perform and deliver products that meet investor needs.

Areca Capital's Wong expects the industry to continue growing at a double-digit rate. With investment markets getting more volatile, he says investors may find it harder to grow their investments resulting in migration of more funds into the fund management industry.

Competition from international players is the other main challenge for local players, he notes. To face the challenges, Wong adds innovativeness and excellent service standard is needed.

It is therefore important to allow different types of business models and strategies to combat that threat, especially when facing the establishedgiant international players, so that each player will continue its role and find its niche within the industry, he says.

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