Financial Planning
Process, not a product
Financial planning is advice on a person's overall financial affairs - cash flow, protection, investment, retirement, tax and estate planning - delivered as a plan and reviewed over time. The exam tests the process, the ethics, and the line between planning and product selling.
- A CMSL for financial planning is required, with a CMSR for the individual planner. Holding out as a financial planner without the licence is an offence.
- Standard process: establish the relationship, gather quantitative and qualitative data, analyse, draft and present the plan, implement with client consent, then monitor and review.
- Suitability: the recommendation must fit objectives, time horizon, income stability, existing liabilities, risk tolerance and capacity for loss - not the product paying the highest commission.
- Disclosure: fees, commissions and other benefits disclosed in writing before the client acts; conflicts managed; confidentiality preserved.
- Where the plan calls for insurance or unit trusts, the planner must be licensed for that activity or clearly refer; planning cannot be a hook for an unlicensed product.
- Documentation: needs analysis, risk profile, recommendations with rationale, review dates.
Worked example
A couple earning RM8,000 a month with RM3,000 saved and no medical cover asks about retirement. The planner prepares a cash-flow statement, sets an emergency fund of three to six months' expenses, quantifies the protection gap, records existing debts, then allocates surplus to retirement savings. The recommendation is documented, commissions disclosed and a review scheduled. Recommending a savings-linked investment product before the emergency fund and protection gaps are addressed fails the suitability test.
Traps
- Calling a product sale a financial plan.
- Advising on tax or law beyond competence and licence.
- Ignoring capacity for loss because the client 'said they were aggressive'.