MALAYSIAN WEALTH MANAGEMENT

Foundation for Islamic WM Services

Sizeable and growing pool of local consumers provide economies of scale for Islamic financial services. Market include non-Muslims.

Constant innovation to introduce competitive Islamic financial products and services, which Malaysia seems to have built a forte in.  Sizeable pool of latent international Islamic capital with potential to be attracted here in line with Malaysia’s goal to be an international Islamiccapital market centre.

State of Affairs of Islamic WM

In nascent stage of development compared to conventional market. Islamic WM parallels of conventional WM products already available – savings, equities, debt, unit trusts, private equity, insurance, wills and trusts.

Advisory capability lagging – shortage of financial advisors with sound understanding of Islamic investing principles i.e. Syariah expertise on advisory council level has not cascaded down to other levels yet. Platform for delivering Islamic WM service to be further developed.

Challenges in Islamic WM Services

Improving platform to offer the service and building Islamic investment advisory capabilities.
Continued product innovation to fill gaps compared to conventional WM e.g. in developing alternative investments and hedging / riskmanagement instruments.

Developing Malaysia as an offshore centre for international Islamicfunds. Continued collaboration with other Islamic jurisdictions so that products created here are acceptable to them.

Product Challenges Currently Faced in WM

To properly help enhance, protect and distribute wealth, service providers need adequate:

• tools for hedging e.g. using futures and options;
• diversification – across markets, asset classes and currencies;
• trust service options – including choice of jurisdictions;
• instruments to help clients enhance returns under varying market conditions, using products custom-made to their needs.

The situation until very recently:

• products limited to single market and single currency;
• service providers missing out on international product innovation due to inability to import products.

Landmark Events for Local WM

Product limitations will become less of an issue thanks to two recent developments. These will enable new Wealth Management products to be introduced at an unprecedented pace.

The two developments:

• Liberalization of Forex Administration Rules;

• Revised Guidelines on Investment Linked to Derivatives (Structured Products) allowing greater flexibility and wider ranger range of products.

Liberalization of Forex Measures*

Aside from the obvious effect of allowing Malaysians to invest offshore, the liberalization has far-reaching effects on the local WM industry:

• Foreign currency accounts now available locally;

• Local fund managers can set up international funds for local and regional distribution;

• Foreign products e.g. international unit trusts can be registered and distributed locally, and alternative instruments e.g. hedge funds and structured products;

• Local intermediaries can offer trading in regional equities and bonds – once further regulatory amendments are made.

* - with effect from 1 April 2005

Structured Products – Key WM Offering

Revised Guidelines introduced this year:

• allowing wider range of underlying assets based on onshore and offshore interest rates, indices and asset prices;
• Lowered minimum transaction amount from RM1m to RM0.25m.

Structured products are hybrid securities combining fixed income with derivative instruments and offers exposure to non-traditional asset classes and instruments.

A key Wealth Management offering as:

• they can be customized to meet specific investor needs;

• they also give investors the opportunity to earn enhanced returns at all phases of the economic and investment cycle.

WM Products Available Locally

ASSET CLASSES

Cash Equities Bonds Real estate Forex Commodities

Unit trusts Managed Private Hedged REITs Structured

Funds Equity Funds products

Indirect Investment Instruments

Available locally Not Available Yet Source: CIMB PB

Next Stage – Regional WM Centre?

Can Malaysia develop into a regional Wealth Management Centre?

The more developed regional financial centres enjoy a head-start and certain structural advantages, but:

• with earlier barriers already lifted, product availability and funds mobility will no longer be a handicap to providing holistic wealthmanagement solutions in Malaysia;
• Malaysia’s Islamic financial services capabilities could be a more telling factor differentiating it from other markets.