Joseph Kwok: President, Financial Planning Association of Singapore

Be prepared for potential turbulence

Q What were the best and worst things (financially) that happened to you this year?

A 2017 was a good year for equity investors, with many markets giving "high-teens" returns. On the other hand, the fixed income space seems subtle with the United States Federal Reserve continuing its normalisation of interest rates.

The best thing for me financially is to continue to pay down my mortgage in preparation for a higher interest rate environment. In addition, I am accumulating cash so that I can take advantage of investment opportunities should they arise in the coming year.

I continue to invest via a dollar-cost averaging strategy, by investing a fixed amount in a globally diversified portfolio of stocks and bonds. I have also continued to contribute to my Supplementary Retirement Scheme (SRS) Account to take advantage of the tax benefits, which I believe is a good way of generating returns.

The worst thing that happened to me was to miss the opportunity of getting into cryptocurrencies, which have seen prices skyrocket.

Also, I missed benefiting from the current collective sale fever as I did not increase my investment in Singapore property.

Q How has 2017 been for the financial advisory (FA) industry?

A The FA industry did well this year. From January to September, total weighted new business premiums for life insurance policies increased 18 per cent, amounting to about $2.85 billion.

There was a robust sale of unit trusts as investors jumped on the bandwagon, riding on the strong equity market performance with assets under management growing steadily from $82 billion (as at end-2016). There is also more awareness of cost-effective financial advisory services, with more people being aware of online platforms and also the entry of robo-advisers, which could disrupt the industry.

There is more awareness among Singaporeans on the importance of financial planning as the population ages, especially for their retirement and estate planning. Insurance and unit trust products continue to be important instruments for ordinary Singaporeans to meet their financial goals.

However, more can be done to help lower the cost of financial products amid such low interest rates and low investment returns, so that Singaporeans can achieve their financial goals.

Q How do you see 2018 panning out?

A It has been about two years since the Monetary Authority of Singapore rolled out the Financial Advisory Industry Review to the industry and there has been positive impact. However, more can be done to continue to lift the competency and professional standard of financial advisers.

Consumers are still paying high commissions for certain financial products and the quality of advice can still be improved.

There should also be more drive for more unbiased financial planning via fee-based models that align the interest of financial advisers with that of consumers.

The development of the fintech industry, especially robo-advisers, will require financial advisers to demonstrate their value to clients to stay in business.

Advisers who rely on product pushing without giving holistic financial advice will find that they may not be able to keep up. This rapid change could be disturbing for some and there will be casualties, with a large number of advisers finding that the industry is no longer suitable for them.

However, I am optimistic that the result will be a stronger FA industry with highly competent financial professionals.

Next year, to recognise those who demonstrate exemplary planning for their clients, the Financial Planning Association of Singapore (FPAS) is organising its inaugural Financial Planner Awards in partnership with leading institutions like Mercer and the Institute of Banking and Finance. Financial advisers from different channels (for example, banks and tied agencies) are encouraged to take part.

The basis of the awards will not be on sales but the thought process and dedication behind the financial planning and advice. Through the awards and various other initiatives of FPAS, we hope to start a movement to further professionalise the industry. With more competent and professional financial advisers, Singaporeans will benefit with better financial advice.

Q Going into 2018, please offer some tips to retail investors.

A It has been a fantastic year for the global equity market, and many investors, especially the younger ones, may feel that the good times will continue.

In 2018, it will be 10 years since the last major financial crisis and there are many risk factors, such as how orderly will Brexit pan out, how China can manage its massive debts and the North Korea nuclear tension.

I urge financial prudence, and investors should be prepared for any potential market turbulence.

I would also like to sound a word of caution to investors who are contemplating investing in alternative asset classes like cryptocurrencies amid the current frenzy.

It is important to learn from history that fundamentals will prevail, and it is important to undertake proper study before getting into any investment.

Nevertheless, stay invested and do rebalance your portfolio, but get ready to exploit investment opportunities using the dollar-cost averaging method.

Lorna Tan

A version of this article appeared in the print edition of The Sunday Times on December 31, 2017, with the headline 'Be prepared for potential turbulence'. Print Edition | Subscribe