Inovatif

Category: Cash Management

  • Emergence Of Tech-Based Financial Planning Solutions – Is It A Threat Or An Enabler?

    Emergence Of Tech-Based Financial Planning Solutions – Is It A Threat Or An Enabler?

    Islamic finance is growing at a remarkable rate. The impressive performance of Islamic finance is due to the vigorous development of infrastructures focusing on financial support in the industry. Malaysia is a hub for Islamic finance with the dominant sectors being Islamic banking, takaful and Islamic capital market, which includes Islamic financial planning solutions.

    With the growing demands for modern-day Islamic finance, Islamic financial planning solutions is seen as a service that best caters to these ever increasing needs and covers the wealth cycle to cater to the financial needs of individuals.

    Muslims may obtain advice and benefits from Islamic financial planning professionals on a wide range of issues, including cash flow and risk management, investment, self-managed retirement funds, zakat, taxation, takaful and legacy planning. All these tasks require specific knowledge and expertise in legislation, regulations, and market practices.

    Unnerving as it may sound, the importance of Islamic financial planning once again received sporadic attention when COVID-19 severely impacted many Malaysians, especially Muslims. The Movement Control Order (MCO) caused many people to contemplate having proper and structured emergency funds – prompting them to undertake financial planning.

    Technology – Emergent Requirement

    Technology is everywhere and evolving rapidly. Whether we are financial planners or consumers, it will become harder to thrive and survive without technology in constructing holistic financial planning solutions. According to McKinsey Global Survey, consumers have moved dramatically towards technology during the pandemic. The survey results confirm the rapid shift toward interacting with customers through digital channels.

    A piece of automated advice on financial planning solutions and applications is no longer (by right) a threat to financial planners, but rather an enabler for the industry to be competitive. The well-informed clients call for a wide selection of economical and practical financial planning solutions, whether online or through a mobile platform. Responding to this type of consumers, it is imperative to adopt financial technology as a channel for distribution.

    Technology is an agnostic tool that can significantly change the financial planning industry. By using technology, financial management’s efficiency and effectiveness will increase, making it easier for customers to deal with financial institutions through various activities and financial products.

    On the other hand, technology in the context of Islamic financial planning must be seen in compliance with Shariah guidelines.

    The Role Of Technology In Islamic Financial Planning Solutions

    It is essential to understand that financial planning solutions is not simply limited to the distribution of inheritance upon death, buying family takaful or investing in unit trusts. Developing a comprehensive financial plan is a personal journey for a true Muslim, and an excellent Islamic financial planner plays a critical role in this process.

    The client needs to have confidence that financial planners are up-to-date on the current financial planning landscape and current Shariah-compliant financial technology (fintech), diversification of halal investment selections via digital platforms, and other latest solutions to be considered.

    As technology advances, we have been able to automate parts of financial planning services, with vast improvements in the tracking of documents and records of advice. Access to information and keeping clients well-informed regarding their investments are part and parcel of technology’s role. However, without technology to complement, one might find things a little hard going as we drift deeper into the 4th Industrial Revolution.

    To overcome the industry’s technology disruption, financial planners must be nimbler to apprehend new technologies and employ them for innovation on existing solutions that are in great demand.

    For example, a few years back, the emergence of robo-advisor was regarded as a threat in the financial services sector. A robo-advisor is an automated platform running with a computer algorithm functioning to manage assets in investment. During that time, people were uncertain about the role future human advisors would fulfil as usage of robo-advisors gained traction.

    Threat Or Enabler?

    The COVID-19 pandemic is the most significant catalyst for digital transformation, and this change will lead to exciting insights into Islamic financial planning that will reshape its approaches. Technology can never entirely replace a human’s touch and skills.

    In years to come, both humans and technology are vital to serve clients better and modernise our financial planning profession. Technology exists to support, simplify, and create efficiency, instead of threatening the industry. Technology allows financial planners and clients to have a more engaging and meaningful advice conversations.

    A more robust framework of competency and consistent efforts for Islamic financial planners, including technical knowledge on the latest technology, would develop a more agile professional, who will safeguard the public’s interest, uphold the industry’s professionalism, and ultimately receive the rewards in the Hereafter.

    About the Author

    Dr Haji Shahizan Haji Md Noh is a licensed Islamic Financial Advisor (IFAR) for ASWA Advisory. He obtained his Doctor of Philosophy in Economics and Muamalat Administration from Universiti Sains Islam Malaysia (USIM). He also holds a Certified Qualification in Islamic Finance (CQIF) from IBFIM and Islamic Financial Planner (IFP) from the Financial Planning Association of Malaysia (FPAM). As an experienced practitioner, he has served numerous institutions in different aspects.

  • 6 Ways To Deal With Inflation

    6 Ways To Deal With Inflation

    Inflation literally makes us all poorer by eroding the value of our money. The problems we have been facing in the two-and-a-half years due to the pandemic has made matters worse, as we have find ways to deal with inflation.

    As the cost of living continue to rise, what should we prioritize when it comes to our monetary budget? Will we have to retire later? Do we have to change our children’s tertiary education plans?

    In a Facebook livestream on 7 September 2022, conducted in conjunction with World Financial Planning Day 2022 (WFPD2022) by SmartFinance (SmartFinance.my) with the support of the Financial Planning Association of Malaysia (FPAM), Rajen Devadason, a licensed financial planner, offers some strategies we can use to deal with inflation.

    Here is his tips on how to deal with inflation:

    1. If You Don’t Have A Budget, Please Create One

    If a budget only exists in your head, you are strongly urged to have it written down, whether on paper or as lined items on a spreadsheet. Getting the tactile sensation of writing things down will get you more invested in the numbers and provide you with a road map of your finances.

    2. Prioritize Nourishment

    When it comes to budgeting for yourself and your family, do not compromise on nutrition. Make sure nutritious food that meets caloric content is taken care of and no one goes hungry. Everything else can be set aside.

    3. If It Possible To Accelerate The Repayment Of Debt, You Are Advised To Do So

    retirement debt free

    Many of us have debt that flow. So, when interest rates rise, the cost of our borrowings will go up. One way to deal with inflation is to pay down debt you can, as fast as you possibly can.

    Each time you get rid of a liability to your name, the monthly repayment disappears for life (unless you take on an equivalent loan). This will clear up additional cash flow, give you a breathing room and let you do more with your money in an inflationary environment.

    4. Exercise Delayed Gratification

    Used to changing cars every 5 years or going on two overseas vacation a year? Don’t be too quick to spend your earning on the things you want.

    You are likely to have surplus money to save up if you can cut back on some luxuries, until your financial goals are met. Delayed gratification is another way to deal with inflation.

    5. Work Harder, Work Longer, Bring In More Money, And Tighten Your Belt Like You Have Never Done Before

    Image by yanalya on Freepik

    Unless you wish to stay poor, you cannot stay static. Most of us can only improve on our situation by working harder, and then by working smarter. If you are not earning enough, get a second or third stream of income. One of the saving graces is internet connection is now better than 5 years ago, which enables anyone with online access to participate in the gig economy and earn a side income.

    For those who are under the age of 35 and in good health, you’ve got more energy; your youth, stamina and vigor will give you the ability to work beyond your normal 40-hour work week, if you are willing to pay the price.  

    6. Save And Invest More

    Saving and investing are two different things. We save for peace of mind, knowing we will be able to deal with emergencies. Meanwhile, we choose to invest to try – though without guarantees – to beat taxes and inflation. If you have been successful, you have grown your money faster than taxes eats into it and faster also than inflation. 

    With so much going on in the world; the pandemic, geopolitical conflict, economic crisis etc, there is tremendous volatility, especially for the riskier investment spaces. Nevertheless, volatility is the friend of the long-term, life-long, consistent investor and saver.   

    As such, those who are wise enough to work harder, rework their budget, build up their surpluses, pay down debt, exercise delayed gratification, and try to save even though it’s very tough. Rajen’s advice is to take advantage of dollar cost averaging.

    To stand to benefit in the long-term, invest in a manner that meets five specific criteria:

    1. Invest in an asset of high quality (that are good hedges against inflation)
    2. That asset should fluctuate in price
    3. Invest in equal amounts
    4. Invest at regular intervals
    5. Invest regardless of market conditions

    Finally, never put all your eggs in one basket. Diversify your investment across three distinct dimensions: diversify across different asset classes, different geographic regions, and over a very long timeline.

    6 Ways To Deal With Inflation

    There you go with 6 ways to deal with inflation that you can start implementing in your daily life. It might not be easy, but it will be worth it in the end.

  • 5 Easy Steps to Achieving Financial Merdeka

    5 Easy Steps to Achieving Financial Merdeka

    On a Facebook livestream held on 31 August 2022 by SmartFinance (SmartFinance.my) in an effort to promote financial literacy on World Financial Planning Day 2022 (WFPD2022), Linnet Lee, the CEO of the Financial Planning Association of Malaysia (FPAM) shares the five steps anyone can take to achieve financial freedom or financial merdeka.

    Here are the five steps in a nutshell:

    Step 1 – 2:30

    For the first two years you start working, set aside 20-30% of your income to invest in yourself (to buy clothes, gadgets, things you need for work etc.) From the third year onwards, start saving 30% of your gross income for retirement. EPF contributions (employer 12% and employee 11%) already make up 23%, leaving 7% left for you to start investing into retirement in other avenues (stocks, private retirement schemes etc).

    Now let’s move on to the second step to achieving financial merdeka.

    Step 2 – Rule of 72

    investment

    Dividing 72 by the interest or dividend will give you a rather accurate estimation of how many years your money will either double up or shrink by half. Use the rule to help when managing your finances and keep an eye on inflation rate as well.

    For example:

    72/6% (interest/dividend) = 12 years (duration for your money to double up)

    72/5% (inflation)=14 years (duration for your money to shrink by half)

    Step 3 – Rule of 78

    Not all loans are created equal, and this rule is a tip to keep in mind when handling your debts. Financing methods that allocate pre-calculated interest charges are meant to favor the lender over the borrower on short-term loans. The borrower would pay a greater portion of the interest rate in earlier part of the loan cycle than regular loans.

    A car loan, for instance, is calculated using the Rule of 78 (the number comes from the sum of monthly term on a one-year loan, by adding the numbers 1 to 12). What that means is the lender has calculated the interest and put most of interest in first and second year of your loan. Hence, there’s no benefit to paying the loan off early because the interest has already been calculated and you have paid most of it already.

    So, if you have a car loan, don’t be in a hurry to pay it off. It is better to pay on time to avoid the penalty.

    This is different with a housing loan. As you pay off your housing loan, the interest will be calculated based on the outstanding amount for the beginning of that year. It therefore makes sense pay it off quickly because you will be paying less interest.

    Before you do though, check with your bank if there is any penalty rate for paying off earlier.

    Step 4 – Six Months Emergency Money

    Have up to 6 months’ worth of monthly expenses saved up. This will buy you time you need to get back on your feet. When you tap into your emergency fund, be sure to top it up again as soon as you can.

    That said, a credit card should not be treated as emergency money.

    Are you ready for the final step to achieving financial merdeka?

    Step 5 – RM1 Million In Retirement Fund

    If you add RM500 per month to an initial sum of RM1,000, starting from the age of 25 to 61, with an interest or dividend of 7% and an inflation of 3%, you will have RM1 million in 36 years. Assuming you stay in good health, you will be able to fund 20 years in retirement. Of course, this is just a simple calculation. Over the years, you can always add to your retirement fund as you earn more.

    And now we are at the end of the 5 easy steps to achieving financial merdeka.

    Congrats, You Are On The Road To Financial Merdeka

    If you need help working through the numbers, do not wait too long to seek the help of a licensed financial planner. To brush up on your financial literacy and connect with a financial planner, go to SmartFinance.my. Wish you all the best in your pursuit for financial merdeka. 

  • Futureproofing Malaysians With Financial Know-How

    Futureproofing Malaysians With Financial Know-How

    As Malaysians recover from the COVID-19 pandemic, the topic of money is on everyone’s minds for various reasons. These range from rising inflation, which is quickly eroding our purchasing power, to concerns about retirement security as a result of a significant reduction in our savings after two years of the pandemic.

    Many in our community are still struggling to replenish their savings. Those whose savings are at a critical level, have expressed concern about how they will survive when they retire, stating that they need to continue working or start small businesses in order to make ends meet in the years to come. To make matters worse, these vulnerable people are often preyed upon by unscrupulous scammers.

    According to the Royal Malaysian Police (PDRM), a total of 71,833 scams were recorded between 2020 and May 2022, with losses amounting to RM5.2 billion. These include bank scams, loan scams, as well as investment scams which fall under the purview of the Securities Commission Malaysia (SC). The SC received 1,800 complaints and enquiries related to investment scams and unlicensed activities in the first nine months of this year.

    The SC’s work extends well beyond regulating and developing the Malaysian capital market. They are also responsible for safeguarding the interests of investors, by among others, educating investors on how to make better investment decisions by providing them with key financial knowledge and tools, so they can make informed investment decisions.

    They also teach the public how to identify red flags of investment scams and illegal activities in the market. Being more financial literate means that investors can take better control of their own finances and stop them from falling victim to the sweet promises of scammers.

    With these considerations in mind, the SC will be hosting the InvestSmart Fest at the Kuala Lumpur Convention Centre (KLCC) from 14 to 16 October 2022. Themed ‘Silap Labur Duit Lebur’, InvestSmart® Fest is a one-stop event for all your investment needs, showcasing not only a wide array of investment opportunities, but also valuable lessons on financial planning for individuals who would like to improve their financial wellbeing.

    Visitors to InvestSmart Fest can take advantage of InvestSmart®’s #Finplan4u initiative, where they gain free consultations by licensed financial planners on how to better plan their investment and retirement.

    InvestSmart Fest will also be investing in the youth segment, who are regarded as key stakeholders for the long-term sustainability and success of the capital market. According to the findings of the SC’s survey titled “Youth Capital Market Survey: A Malaysian Perspective 2022”, Malaysian youth tend to prioritise emergency funds and savings to support their families and pay off debts above building wealth and investment. Therefore, it is important for younger generations to have a head start in investing and saving so they can enjoy greater financial stability in their later years.

    This year, InvestSmart Fest brings together more than 40 exhibitors, showcasing some of the most cutting-edge technologies, products, services and solutions available in Malaysia’s capital market today. The 3-day event will also feature expert speakers and key opinion leaders, who will share their perspectives on various aspects of Malaysia’s capital market and how investors can stay ahead of the game and plan for the future.

    For more information about the InvestSmart® Fest event, please visit www.investsmartsc.my. Additionally, if you would like to get the latest updates, you may follow their various social media channels at:

    FB: https://www.facebook.com/InvestSmartSC/

    Twitter: https://twitter.com/InvestSmart_SC?s=20&t=QqkJ8M5M1gcp_ANbcJ1Phw

    Instagram: https://www.instagram.com/investsmartsc/?hl=en

  • RM5.2 Billion Lost To Scams In Malaysia Over Two Years

    RM5.2 Billion Lost To Scams In Malaysia Over Two Years

    We read about individuals losing money to scams in Malaysia almost on a daily basis. The losses are staggering, and even though the warning signs are all around us, the number of victims keep piling up. According to the Inspector-General of Police, Tan Sri Acryl Sani Abdullah Sani, there were 71,833 fraud cases recorded since 2020 until May 2022, with a loss amounting to RM5.2 billion.

    The most prevalent financial scams in Malaysia as revealed by the Royal Malaysia Police (RMP) are:

    • Bank / Government Impersonation
    • Illegal Loans
    • Money Mules / Account / ATM
    • Card Rental
    • Investment Scams
    • E-Commerce Scams
    • Romance Scams

    Since we want to become a smart investor, we will be taking a closer look at investment scams, with the hope that we are able to identify them and take the necessary actions to avoid becoming a victim.

    Common Types Of Investment Scams In Malaysia

    1. Get Rich Quick on Social Media Platforms

    Usually, the scammer will ask for a small investment with a promise of very hight returns. For example, 100% return in three hours or RM1,000 in 30 minutes. Since the initial ‘investment’ is small, investors would have no problem giving away the money to start.

    Once we see the gains in our account, we will be tempted to put in more money. And when the time to cash out the gains or to take out the capital, normally the scammer will ask us to pay certain fees. By the time we realise that we have been scammed, the damage had already been done.

    2. Clone Firm Scams

    Another famous scam that is going around is done where scammers use legitimate investment firms, but misuse their name and logo to dupe victims. It looks so real that you can’t easily tell them apart.

    For example, the real business is Smart Investor, but the clone uses the name Smart Investment. It even uses the same logo, so you will genuinely
    mistake it for the real deal.

    The Modus Operandi Of Scams In Malaysia

    Operators of illegal internet investment schemes lure unsuspecting victims to make online investments or receive investment advice online, by offering investment opportunities with unusually high returns with zero or very low risk.

    When questioned about their legitimacy, most scammers operators will claim to be foreign operators that do not require licensing from Malaysian regulators to operate their business.

    In truth, these operators have no legitimacy whatsoever; they are not licensed to receive deposits by Bank Negara Malaysia or licensed to offer investment advice from the Securities Commission (SC) related to fund management, securities and futures.

    Unsuspecting victims would then be enticed as scammers will pay them the high returns during the initial stage, and this is used as a tactic to lure and recruit new investors. The survival of this scheme actually depends on new depositors.

    The funds obtained from new depositors will be used to pay dividends to the existing depositors. Therefore, the scheme will fail when there is no contribution of funds from new depositors.

    However, the scam operator will eventually abscond deposits collected when they feel that the scheme is about to fail, thus leaving the depositors at the losing end.

    With So Many Legitimate Investment Schemes, Why Do People Still Fall For Scams In Malaysia?

    “Scammers employ various means to manipulate their victims including promising high-returns, illusion of safety and inducing fear-of-missing-out (FOMO),” said Bryan Zeng, CEO of FA Advisory, a financial planning service provider.

    Bryan Zeng, CEO of FA Advisory

    On the other hand, legitimate investment schemes are highly regulated with clear guidelines on what is permissible or not. These guidelines are designed to protect the investors but may make the legitimate investment appear as less attractive.

    But then again, the promise of getting rich quick in these situations is hard to resist. Scammers will promise crazily high returns in a very short time, which makes no sense once you think about it. But at the spur of the moment, we feel that it is too good to pass on such an opportunity – and we tend to make decisions based on our emotions.

    As emotional beings, we are often easily manipulated when we are at our most vulnerable, which makes us easy prey for scammers. When we are not able to think clearly, that is when we make ill-informed decisions that will come back to haunt us.

    Always remember the old adage: “If something is too good to be true, it is most likely a lie.”

    Hence, a healthy dose of scepticism, emotional restrain, and critical thinking can go a long way. You can also check with the relevant authorities before investing or depositing money into someone else’s bank account.

    Some useful links:

    Those are just some of the facts that you should know about the scams in Malaysia, hope we are well-educated enough to detect and avoid it.

    Make sure you also read:

    With knowledge, we can actually avoid from becoming a victim of scams in Malaysia.

  • 4 Ways To Save Money When Making International Purchases And Transactions

    4 Ways To Save Money When Making International Purchases And Transactions

    Have you been surprised by your credit card statement at the end of the month after purchasing something from an international online store? Does it seem that the total charged to your credit card was not the same as the amount you saw during checkout?

    Online shopping has become more popular in recent years because it enables us to purchase various items with just a few clicks from our electronic devices. However, many Malaysians remain susceptible to hidden fees and unfair charges when making international purchases, travelling, and transferring funds.

    This is where having a multi-currency account can help streamline how you send, spend or receive money. Whether you are using it personally or for business purposes, a global currency account provides added freedom and removes borders.

    Here are a few ways on how a multi-currency account and card can help make your life easier.

    1. Spend in local currency while shopping internationally

    We all know that Malaysians love to shop. When the pandemic hit, many Malaysians transitioned from shopping in malls to online stores, both locally and internationally.

    The transition to online shopping was spurred out of necessity but it helped many Malaysians to purchase their favourite items even from the comfort and safety of their homes. However, it can be frustrating when dealing with uncertain conversion rates and hidden fees.

    Hence, a great way to navigate this is by choosing to pay in the currency of the country you are buying from – here’s where your multi-currency account comes in. Pay like a local to save on extra fees and get a better exchange rate! 

    2. Be in control of your finances when travelling abroad

    With countries opening their borders after the pandemic, many Malaysians have been hit with the travel bug and are planning their vacations meticulously. As such, if you are looking to travel overseas, owning a multi-currency card will help you to spend in multiple currencies whichever country you are in, with better exchange rates that are often lower than your traditional bank.

    You don’t have to worry about fraud as you are always in control when using a multi-currency account, with instant transaction notifications and the ability to freeze your card instantly. You can also spend like a local as you can use your card to withdraw money from your multi-currency account at ATMs worldwide. 

    3. Get paid like a local even from overseas clients

    Top view of woman using laptop computer

    Freelancing is a great way to support a lifestyle outside of the traditional office job. For many, it is also an opportunity to work with exciting companies in different countries. It also means having the liberty to go about your day, but at the end of the day, you are responsible for maintaining a continuous flow of work.

    Expanding your horizon to regional or global clientele could yield better results and maybe even better pay. But it brings up the question of how do you actually get paid? Most companies seek to pay their freelancers in their local currency.

    So that’s where a multi-currency account comes in, allowing you to receive your salary and invoice payments in their local currency, which can then be converted to your local currency for use. No more hefty bank fees or unfair exchange rates on both sides!

    4. Manage your overseas property remotely

    Once you purchase properties abroad, you may find yourself thinking about the most convenient way to pay utilities, taxes, and other mandatory fees. It is often stressful trying to decipher the uncertain and hidden charges that come from doing a bank money transfer.

    After all, no one wants to pay more than necessary, as it would only result in loss of money. This is especially true if you bought the property as an investment and turned it into an Airbnb or event rental space.

    A great option to manage these properties is with a multi-currency account, where you can pay in local currency and receive money locally as well, and then convert it into your desired currency when the rates are right. Make it simple and take the hassle out of property management — and save money in the process.

    It is important to select a multi-currency account which allows you to hold, receive or convert various different currencies at the lowest rates possible. With Wise, you will be able to enjoy the mid-market exchange rate for transfers, conversions and more without hidden fees. Another

    feature to look out for is 3-D secure authentication, which ensures every transaction is safe. So, if you want to make international transactions from the comfort of your home or travel the world to see for yourself, it would be wise to own a multi-currency account.

  • Raising Awareness Of Financial Literacy And Financial Planning In Malaysia

    Raising Awareness Of Financial Literacy And Financial Planning In Malaysia

    The month of October is that time of the year where the financial planning profession come together to raise awareness of financial literacy and financial planning in Malaysia among the public.  

    Vincent Kwo, President of the Malaysian Financial Planning Council (MFPC), weighs in on the state of financial literacy and financial planning in Malaysia, why one should engage a financial planner and what MFPC is doing to uphold the best standards of practices in the industry. 

    Vincent Kwo, President of the Malaysian Financial Planning Council (MFPC)

    Smart Investor: Are there any recent initiatives, campaigns or events by MFPC to promote financial literacy and financial planning in Malaysia this year?

    Vincent Kwo: The Malaysian Financial Planning Council’s objectives include promoting the development and enhancement of the financial planning profession in the country, as well as elevating financial literacy and financial planning in Malaysia.  

    To meet the first objective, we conduct professional financial planning programmes that lead to qualifications recognized by the Securities Commission (SC) and Bank Negara Malaysia (BNM). This ensures Malaysians access to the highest quality of financial planning services provided by qualified and knowledgeable financial planners.

    As for meeting our second objective, we continually embark on various initiatives, conduct programmes and events for the Malaysian public at absolutely no cost to promote financial education. The aim of these initiatives – all of which are devoid of any commercialization – is to stay in the forefront to raise the financial literacy and financial planning in Malaysia for the rakyat, which is at a worryingly low level.

    We are immensely proud that our initiatives have reached out to and benefitted thousands of Malaysians, empowering them with financial knowledge for their and their families’ financial well-being.  

    The first half of 2022 saw us hold four of our award-winning My Money & Me workshops virtually for  youths in KL, the east coast zone, the northern zone and the southern zone. These programmes are a regular feature in our itinerary, which are evidence of our efforts in contributing to the rakyat’s financial well-being and ultimately advancing the development of the nation.

    The workshops are cross-collaborative programmes with Bank Negara Malaysia, SC, OFS and SIDREC, EPF, AKPK, LIAM, MTA, FIMM, LHDN and MFPC.

    The topics at our basic financial literacy My Money & Me workshops include asset protection, asset accumulation, asset management and asset distribution, vesting Malaysian youths with financial knowledge. The workshops will also empower youths to practise positive financial behaviour and gain strong financial capability well into adulthood and their retirement years, ensuring their financial and emotional wellbeing.

    During the My Money & Me workshop in March, we launched an e-learning portal https://mymoney.mfpc.org.my/ with free access for the public. The self-paced learning available will ensure resources are available to build the financial knowledge of the public. The portal comprises of subjects related to conventional and Shariah financial planning.

    In addition, we conducted numerous series of Pocket Talks covering financial planning topics, free for the public. These aim to raise public awareness of the importance of financial education and planning.

    Raising Awareness Of Financial Literacy And Financial Planning In Malaysia

    We have conducted 20 talks to date in conjunction with our MFPC Industry Talk with local universities. The talks are conducted in collaboration with financial planning firms, financial institutions and trade associations to promote the importance of financial planning, and to instil interest in financial planning as a profession in young adults.

    In the pipeline are three more My Money &Me workshops for the year, for Sabah, Sarawak and Selangor.

    Other programmes in the pipeline include an e-Tournament 2022 in October 2022 entitled Game for Money. 20 universities will participate in the event. The aim of the tournament in to provide financial education as well as to instil interest in financial planning among undergraduates.

    We will also participate in Bersama InvestSmart® in Sarawak, in September. This is an event initiated by SC that seeks to create more informed investors who are self-reliant and able to make investment decisions that are right for themselves. 

    MFPC is confident that our numerous financial education programmes have made and will make a difference in the lives of Malaysians, enhancing their upward mobility and creating lasting and positive changes.

    SI: What is your take on the state of financial literacy and financial planning in Malaysia, especially given the past couple of pandemic-fuelled years?

    VK: The recent pandemic drove home the fact that financial planning and literacy are essentials, not options. Many people lost their income unexpectedly and matters were made worse for those who did not have a comprehensive financial plan.

    Unfortunately, financial literacy and financial planning is very low among Malaysians, which worsened the financial problems brought on by the pandemic. MFPC’s various free financial education programmes to raise public awareness and literacy aim to aid the public to improve their situation.

    We plan to continue working to this end, so many more Malaysians understand the importance of financial planning and education, and will be better equipped to withstand any similar circumstances that may arise.  We look forward to working with our partners in the effort to improve the financial well-being and lives of the rakyat.

    SI: Why does one need a licensed financial planner in their life?

    VK: Various studies, including the Capital Market Development Fund (CMDF) report on Financial Literacy and Utilisation of Financial Advisory Services in Malaysia, reveal that Malaysians generally have a worrying low financial capability, do not know how to manage their money, and do not plan ahead. This does not bode well for their financial sustainability and makes them prone to falling into the bankruptcy trap, and become prey to loan sharks and get-rich-quick scams.

    We recommend that one should have a complete financial plan for oneself, and if you don’t have a plan, to seek assistance from a licensed financial planner to develop a plan.

    A licensed financial planner can help one to establish a personal financial plan, give measurable goals to work toward, track progress, reduce doubt about decision and make better financial decisions. This will help one to manage cash flow and manage debt efficiently.

    Planning can be tailored to suit every personality type and meet different needs at different times of one’s life stages. A licensed financial planner can provide the necessary advice on changes and adjustments to support one’s lifestyle, resulting in peace of mind and general well-being.

    SI: What should a person look for in a financial planner?

    VK: It is most important that we seek the services of a licensed financial planner. A financial planner with the Registered Financial Planner (RFP) or Shariah RFP designation is licensed with Bank Negara Malaysia and the SC, and holds the Financial Adviser’s Representative (FAR) and Capital Markets Services Licence (CMSL) respectively. We can also check against the list of licence holders provided by Bank Negara and SC.

    As for the other qualities, the following should be considered:  trustworthiness, ability to provide evidence of a good track record of success, ability to provide independent advice, compatibility with the client, the ability to provide up-to-date information and the ability to refer to other specialists if required.

    In short, one should look for professionalism in a financial planner. MFPC provides an evolving set of Best Practice Standards and Code of Ethics for adherence by our RFP and Shariah RFP designees. This is to ensure professionalism in financial planning services providers, prevent exploitation of clients, and to preserve the integrity of the profession.

    This is also to ensure Malaysians will benefit from the highest quality of financial planning services. It demonstrates clearly the importance we place on ethical behaviour in the profession. At the same time, this will help in raising awareness of financial literacy in Malaysia.

  • Syed Saddiq: 3 Powerful Tips For The Youths In Malaysia

    Syed Saddiq: 3 Powerful Tips For The Youths In Malaysia

    Smart Investor recently have the honor to interview Yang Berhormat Syed Saddiq bin Syed Abdul Rahman, the Member of Parliament for Muar. There were lots of very insightful and powerful thoughts that are outside of the box which can be used to power Malaysia into the future.

    You can read more about it here: Syed Saddiq: On Education Reform, The Gig Economy And His Vision For A Future Malaysia

    Among other things, he also shares with us 3 tips for the youths in Malaysia.

    3 Powerful Tips for the Youths in Malaysia

    1. Don’t Be Afraid To Make Mistakes

    “Young people today are expected to work two or three different jobs to earn a decent living as the average wage has stagnated for the past ten to 20 years, while inflation has only gone up.”

    – Syed Saddiq

    We will be making a huge mistake if we stand still, whereas others are making progress by leaps and bounds.

    “The fear to even begin doing something because you are afraid to make mistakes, makes you suffer from paralysis analysis,” stresses Saddiq.

    We can afford to make mistakes when we are young, as there is ample time to learn from them.

    2. Invest In A Good Mentor

    Mentor is an experienced person who has gone through lots of trials and tribulations. By having a mentor, we can take a shortcut and learn the tips and tricks, while avoiding the mistakes.

    A mentor will be able to hand-hold you through the journey, mingle and learn from their networks, and learn directly from their experience which is invaluable. By investing in a good mentor, you can accelerate your progress by 10 to 20 years, as compared to earning a high salary.

    3. Think Outside The Box

    Being young doesn’t mean you have to follow the steps of previous generations that makes them successful. You will have to compete with others who have more experience and stronger capital, which inevitably causes you to be more creative to take on the giants in the industry.

    This is where you need to be disruptive and use ways that were unimaginable previously. Even though the journey is hard, this is an important recipe of success.

    “It is about using unconventional methods to achieve conventional outcomes,” quips Saddiq.

    There you have it, 3 tips for the youths in Malaysia. It is our hope that Malaysia will improve by leaps and bounds, powered by the younger generation.

  • Tax On Foreign Income

    Tax On Foreign Income

    Over the years, Malaysian corporations have grown and expanded their business footprint, not only to neighbouring countries, but also to other continents in many parts of the world. It is not uncommon to see many Malaysian companies receiving income from their business and investment
    ventures in foreign countries, hence we need to understand about the issue of tax on foreign income.

    These income sources include sales from exports of goods and services, dividends and interest income from foreign investments, royalty fees from licensing of intangible assets, rental from properties located overseas, and commission from acting as agents.

    Generally, income received from out of Malaysia has been exempted from tax. However, in the Budget 2022, the Government announced removal of the tax exemptions on such income.

    The rationale quoted for the removal, other than a measure by the Government to raise revenue collection, is that it is a step taken by the country to comply with the global tax standards on harmful tax practices.

    Tax On Foreign Income

    Malaysia adopts a territorial principle of taxation in that only income accruing in or derived from or received in Malaysia from outside Malaysia, is subject to income tax in Malaysia pursuant to Section 3 of the Income Tax Act, 1967 (ITA). Nevertheless, Malaysian tax residents enjoy tax exemption on the “income received in Malaysia, from outside Malaysia”, also called foreign sourced income (FSI), under Paragraph 28, Schedule 6 of the ITA (Para 8).

    In short, while the FSI received by Malaysian tax residents are taxable under the Section 3 of ITA, the amount are exempted under Para 28. (Note:
    the exemption excludes those engaged in banking, insurance or sea or air transport businesses)

    However, not all FSI income received are exempted as it has to be truly “sourced from outside Malaysia”.

    Generally, whether the income is sourced within or outside Malaysia would depend on the location where the related income-generating activities
    had taken place. For example, export sales of goods by a trader are not exempted because the personnel who carried out the various business functions are located in Malaysia.

    In contrast, it is argued that interest income from investment funds placed and managed outside the country is foreign sourced and thus, exempt
    under Para 28.

    Tax Treatment On FSI From 1 January 2022

    Effective 1 January 2022, the tax exemption for FSI received by Malaysian residents provided for under Para 28 was removed, following the Budget 2022 made on 29 October 2021. The implementation of the legislation is staggered into two remittance timeline of FSI into Malaysia:

    January to June 2022 @ 3%:

    Taxpayers are given this 6-months transitional period to remit their foreign sourced income in order to enjoy the lower tax on foreign income rate of 3% calculated on the gross income remitted (Part XX, Schedule 1 of the ITA)

    Subsequent to 30 June 2022:

    Remittance will be subjected to the normal tax rates.

    In summary, the tax treatments for the income of a person residing in Malaysia are depicted as follows:

    Special Remittance Programme Terminated

    In November 2021, the Inland Revenue Board of Malaysia (IRBM) introduced the Special Income Remittance Programme (Program Khas Peremitan Pendapatan or PKPP) to help taxpayers in the transition to the new FSI regime.

    The FSI remitted during the PKPP period (between 1 January 2022 and 30 June 2022) would be accepted in good faith by the IRB without any audit
    nor investigation be conducted on the taxpayer. In addition, there will be no penalties imposed for the remittance during the PKPP period.

    However, this programme is shortlived and was revoked on 11 March 2022, as it is deemed not relevant, after the Ministry of Finance (MOF) announced in December 2021 on a concession to exempt certain categories of FSI for a period of five years from 2022 to 2026.

    Concession: 1 January 2022 – 31 December 2026

    The removal of exemption under Para 28 has been highly debated and criticised with regard to, among others, its timeliness of implementation, vagueness on the scope of FSI, and lack of clarity on claiming of double tax relief if the income had suffered foreign tax.

    It is also seen as a stumbling block to attract foreign direct investment (FDI) in Malaysia, thus affecting Malaysia’s competitive position in the global trade map.

    On 30 December 2021, MOF made an announcement to defer the full implementation of the new Para 28 to 1 January 2027. The official rules were issued by the Government by way of exemption orders dated 19 July 2022, in the Income Tax (Exemption) (No.5) Order 2022 and Income Tax (Exemption) (No.6) Order 2022 (“Exemption Orders”), applicable to individuals, partners in conventional partnerships, limited liability partnerships (LLP) and companies.

    The exemption period granted is from 1 January 2022 to 31 December 2026.

    Individuals are exempted on all categories of income including income from employment, dividend, rental and interest. Meanwhile companies and
    LLPs are exempted on foreign dividend income only.

    However, there are the preconditions set in the Exemption Orders to qualify for the exemption during the fi ve years concession period, whereby:

    • FSIs received by individuals, LLPs and companies “shall have been subjected to tax of a similar character to income tax under the law of the territory which the income arises”.
    • For foreign dividends received by individuals from conventional partnerships, LLPs and companies, the added condition is that “the highest rate of tax of a similar character to income tax charged under the law of the territory which the income arises at that time is not less than 15%”.

    IRBM is to issue the relevant guidelines on the applicable tax treatments, which are yet available at the time of writing. Clearly, taxpayers will need to meet certain conditions to enjoy the tax exemption during the five years concession period as it may not be as straight forward to qualify.

    The limelight is now on the IRBM to expedite the issuance of the relevant guidelines, which are expected to provide the much-needed administrative details surrounding the reporting of FSI, including documents required to provide evidence for exemption of FSI, tax calculations of non-exempt FSI, the claiming of double taxation relief on FSI, especially foreign dividends, etc.

    Tax Exemption Of FSI From 1 January 2022 To 31 December 2026

    Taxable FSI Received By Corporate Investors

    For now, FSI other than dividend income received by Malaysian corporate tax residents will be subject to tax in Malaysia. Notably, where the foreign dividends are received by a legal corporate structure other than a company incorporated under the Companies Act 2016, there is no exemption provided during the 5 years period on the income.

    A list of the more common situations of tax on foreign income is set out below:

    Common Situation Of Taxable FSI

    Double Tax Relief On Foreign Tax Suffered

    The tax on foreign income received in Malaysia may be reduced by the foreign tax credit paid. Where a Malaysia tax resident has suffered foreign tax on the FSI, the taxpayer is given bilateral or unilateral tax credit relief against the Malaysian tax payable on the same FSI.

    Bilateral relief is given under Section 132 of the ITA when the foreign country has a double tax agreement with Malaysia eg Singapore, Indonesia, Japan, China, Australia, South Africa, United Kingdom, France, etc. Under a double tax agreement, a full relief may be possible based on the calculation of a prescribed formula, but the relief amount is only up to the Malaysian tax suffered.

    On the other hand, unilateral relief is given under Section 133 of the ITA when there is no or limited double tax agreement by Malaysia with the foreign country eg British Virgin Islands, Taiwan, United States of America, etc. For such relief, the foreign tax recognised is automatically halved.

    One is required to substantiate the amount of tax paid overseas with the relevant supporting documents from the tax authorities in the foreign
    countries, in order to claim the aforementioned tax relief in their tax return.

    Capital Receipts Are Non-Taxable

    The tax on foreign income will only affect gains that are “income” in nature. Receipts that are “capital” in nature (also known as capital gains) will not be subject to Malaysian tax. Capital gains include proceeds from the disposal of foreign stocks, foreign properties, foreign assets, foreign currencies, and foreign investment papers. However, these assets have been held as long-term investments.

    Whether the gains are “income” or “capital” in nature, the onus of proof lies with the taxpayers. If the remittances are found to be income in nature instead of capital as claimed by the taxpayers, the same shall be subject to income tax.

    Action Plan

    The year 2022 marks an impact on investors with foreign asset holdings, in navigating a new tax landscape going forward with the removal of tax exemption under Para 28. The imminent measures include evaluation of the financial returns on their existing overseas investments, net of all tax costs. In sourcing new investment opportunities overseas, such investors shall need to factor in the additional tax costs in Malaysia.

    Here are a few suggestions on the action that affected investors should look into:

    1) Review the Malaysian tax impacts on all taxable FSI from investments outside Malaysia- tax simulations may be useful for the investment selection process.

    2) Maintain proper records of the foreign assets, including tracking of the funds retained in foreign bank accounts vis-à-vis those repatriated to Malaysia. On the amount remitted into Malaysia, ascertain the nature as to whether they belong to “income” or “capital”, which will have different
    tax implications.

    3) Where the funds are mixed, distinguish between foreign source income and domestic source income for proper reporting of taxable income for Malaysian tax purposes.

    4) Conduct a comprehensive review of the current investment structure and strategise the most optimal approach to undertake future investments. This review may involve international tax planning to mitigate tax exposure involving multiple countries.

    5) Examine the existing intercompany loans and undertake possible steps, including debt restructuring exercises, or rescheduling repayments to reduce the tax impact on remittance of interest income into Malaysia. On this note, any proposed changes will need to include transfer pricing
    considerations to avoid tax pitfalls in the future.

    If guidance is required on the issue of tax on foreign income, consider seeking professional advice from a tax consultant. This would help you avoid stepping into potential tax landmines that could be uncovered in the future, when the company is audited by the IRBM.

    About the Author

    Dr. Voon Yuen Hoong, Executive Director, Tax Compliance
    Michael Cheah Liat Sheng, Senior Manager, Tax Advisory
  • Financial Stability Begins With Financial Literacy And Planning

    Financial Stability Begins With Financial Literacy And Planning

    Each year in October, the global financial planning profession comes together to help raise awareness of financial literacy, the importance of having a financial plan, and working with a trusted financial planner to formulate plans towards one’s long and short-term financial goals for financial stability.

    Smart Investor takes a look at the current state of financial literacy in Malaysia, how the past two pandemic-fueled years have impacted Malaysians, and why a financial planner is an invaluable ally in working towards your financial goals.

    Tough Times Called For Financial Stability

    Vincent Kwo, President of the Malaysian Financial Planning Council (MFPC)

    “The recent pandemic drove home the fact that financial planning and literacy are essentials, not options. This came about as many people lost their income unexpectedly and matters were made worse for those who did not have a comprehensive financial plan. Unfortunately, financial literacy is very low among Malaysians,” says Vincent Kwo, President of the Malaysian Financial Planning Council (MFPC).

    Furthermore, Kwo reveals that, “Various studies, including the Capital Market Development Fund (CMDF) report on Financial Literacy and Utilisation of Financial Advisory Services in Malaysia, reveal that Malaysians generally have a worrying low financial capability, do not know how to manage their money, and do not plan ahead. This does not bode well for their financial sustainability, making them prone to falling into the bankruptcy trap, and becoming prey to loan sharks and get-rich-quick scams. The problems arising from the low level of financial literacy have been magnified by the recent pandemic, which greatly affected the financial well-being of many Malaysians.”

    As the body representing financial planning and service providers, MFPC’s objectives – along with developing and enhancing the financial planning
    profession in the country – include elevating financial literacy among Malaysians with various initiatives for the public at no cost.

    One of the initiatives of note to promote financial planning and literacy, observed globally on 6 October each year, is World Financial Planning Day (WFPD). This year’s theme, ‘Live Your Today, Plan Your Tomorrow’, is very relevant to Malaysians as we continue to face various challenges requiring better financial literacy and planning for a better financial stability.

    Ooi Beng Cheang, Financial Literacy Manager at the Financial Planning Association of Malaysia (FPAM)

    “As we live with post-COVID challenges, many are now faced with uncertainties as they might have drained their EPF savings, facing difficulty in servicing their loans again after the end of the moratoriums, dealing with rising healthcare costs, and overall inflation causing cost of living to rise. Adjustments must be made to our current personal finances to adapt to these challenges for us to achieve our future goals,” explains Ooi Beng Cheang, Financial Literacy Manager at the Financial Planning Association of Malaysia (FPAM).

    As an affiliate of the Financial Planning Standards Board (FPSB), the global organizer of WFPD, FPAM has rallied its stakeholders and financial planners to take part in this year’s WFPD2022 to promote financial literacy and the financial planning industry.

    Licensed Financial Planners Are Here To Help

    In the forest of questions about money, a licensed financial planner is an invaluable guide in finding the best path for your life’s journey. No one
    path is alike, and a financial planner will be able to chart the best roadmap for each individual as they aim for financial stability.

    “Malaysians are dealing with many pressing issues related to inflation that may derail their life goals. Plans for retirement or their child’s education
    fund may not seem feasible anymore. Will they have to push back their retirement age by working longer? Will their child still be able to afford tertiary education overseas? These are pertinent questions that one should sit down with a financial planner to hash out a plan together,” says Ooi.

    He further adds that, “Financial literacy is a life skill that if not picked up early on, may result in personal finance mistakes that may have lifelong repercussions. The earlier one engages a financial planner in their life, the better, as they will have a proper financial road map of where they are headed in life. With a proper financial plan, one is much more prepared in facing the variables and uncertainties of the future as opposed to someone stumbling along, making knee-jerk reactions to major changes in their life. Should they encounter adversity, the financial planner will be there to guide them through the storm.”

    Kwo concurs, saying, “A licensed financial planner can help one establish a personal financial plan, set measurable goals to work towards, track progress, reduce doubt and make better financial decisions. This will help one manage cash flow and debt efficiently. Planning can be tailored to suit every personality type and meet different needs, at different times of one’s life stages. A licensed financial planner can provide the necessary advice on changes and adjustments to support one’s lifestyle, resulting in peace of mind and general wellbeing.”

    If one is looking to engage a financial planner soon, make sure that the financial planner is licensed under Securities Commissions Malaysia (SC)
    to practice as a Licensed Financial Planner (LFP). This can easily be done by going to SC’s website (https://easy.seccom.com.my:8222) and searching for the full name of the LFP under Licensed and Registered Persons.

    The result should show their license number and the name of their financial planning firm. As for the other qualities in a financial planner, Kwo suggests the following should be considered: trustworthiness, ability to provide evidence of a good track record of success, ability to provide independent advice, compatibility with the client, the ability to provide up-to-date information, and the ability to refer to other specialists if required.

    “In short, one should look for professionalism in a financial planner,” he concludes.

    It won’t be easy to achieve financial stability, but it is also not impossible to do so.