Wednesday, 24 June 2015

Sales Charge From Unit Trust Investing, Are You Getting Your Money's Worth?

I've been wanting to write about whether an investor should or should not pay the current sales charge incurred when investing into Unit Trust (UT). As a matter of fact, I've been wanting to write about this topic for quite some time now but never really had the opportunity to sit and put my thoughts into a post. Fortunately thanks to a long weekend, I finally had the chance to think, write and finally post this article.

Current Scenario in our Unit Trust Industry
Before we go into the part about sales charge, I would like to share (in my opinion of course) about the current practice in our Unit Trust (UT) industry, Here's how normally it normally goes:

  1. A consultant approaches a potential investor (your average Malaysian). 
  2. The consultant will attempt to give an educational presentation on what unit trust is all about, provides the historical performance of the fund being promoted, explains the risk of investing in UT and to some extent provide basic financial planning advice that will relate to the need to invest into the fund in order to capitalized on compounding gains. 
  3. Once the potential investor client is fully convinced and ready to invest, the consultant would conduct a risk profile for the client. The risk profile would determine the type of unit trust fund that is suitable for the investor. The consultant then recommends the best fund from their fund house to the investor.
  4. Once the investor is all convinced and ready to invest, the consultant needs to explain to the investor the sales charge incurred when investing into UT. 

The Issue?
Now the biggest challenge faced by a consultant is to justify to a potential client the need to pay Sales Charge that ranges from 5% - 6% of the amount to be invested. I'm referring to cash investment here. (FYI, if an investor invest via EPF withdrawal, the sales charge is 3%) 

Now the issue is that many Malaysians invest into unit trust funds and pay the sales charge incurred without actually demanding for better services from their consultant! 

Say for the example below:

You are a potential client and you decide to invest RM50,000 (cash) after hearing a compelling presentation by a consultant. The sales charge incurred to invest in the recommended fund is 5%. That boils down to approximately RM2,380 in Sales Charge. 

Would you pay RM2,380 worth of sales charge to a consultant for an hour of presentation and be done with it? Or do you actually feel that the sales charge your pay gives you the right to ask for more then that? 

However I must make clear that not all consultants in this industry are like that. In fact a number of consultant do follow the codes of ethics of being a Unit Trust Consultant (UTC) and try their very best to provide good service and advisory to their client. Kudos to them!

The sad part is that the remaining majority of consultants have become so sales oriented that they turn into master salesman or saleswoman. In other words, by pursuing sales and target, consultants have forgotten their actual role which is to provide consultation.

Some may argue that they are still able to provide proper consultancy despite the growing client base. But honestly tell me with a client base of say 1000 people, how personal can one consultant be in terms of providing consultancy to his or her clients? Secondly, would a consultant be able to allocate fair amount of time for each and everyone of his/her client? Will he or she spend the same amount of time advising a client with RM100,000 invested as compared with another client that only invest RM1,000?

When You Pay Sales Charge, What Should You Expect from Your Consultant?
Now that you have read the issues highlighted above, I believe it is time for you to seriously reevaluate your Unit Trust Consultant (that is if you invest into UT through a consultant). 

With the sales charge you are paying each time you invest through your consultant are you obtaining the equal amount of services and advisory? 

Here's what FIMM, the association that supervises Unit Trust practices in Malaysia has to say:

Take from FIMM FAQ

Here's a more specific list of qualities that I believe an Unit Trust Consultant should have in order to serve his or her client:
  1. Identify clients' financial goals and investment objectives, analyse their financial conditions and propose suitable unit trust investment portfolios to help achieve their financial goals and investment objectives
  2. Continuously monitor economic conditions, identify opportunities and threats and rebalance clients' unit trust investment portfolios accordingly
  3. Build lasting relationships with clients and leave lasting impressions on the industry
  4. Continuously develop and enhance relevant skills and knowledge through in-house trainings
  5. Provide independent, objective and competent advisory services
  6. Meet the client personally at least twice a year to review Item 1 and to explain to client on the strategy for Item 2 of the above.
Now try comparing your Unit Trust Consultant with the above mentioned qualities. How many qualities does your consultant has and practices?

If the consultant does not even have more half of the above mentioned qualities, I would seriously advice that you reevaluate whether to continue parking your retirement savings with them.

Paying Too Much Sales Charge Yet Not Getting The Service That You Deserve?

Feeling disillusioned by the fact that you're paying hard sales charge but not getting the services that you truly deserve? 

Then I believe it is time that you seriously consider managing your own Unit Trust investments.

You may feel that unit trust is a complicated investment because you have no prior knowledge on unit trust investing, the types of funds available, the strategy to apply, the risk involved and many more. 

Well fret not as I'm going to empower you with knowledge and the know how on Unit Trust investing absolutely FREE. You won't need to pay a single cent to start learning because I strongly believe that knowledge is meant to be shared freely. 

In all honestly, I was once in that position too. Financially blind and seeking to understand what is this complicated term which we refer to as investing. It took me a year just learn everything about unit trust investing. I read articles about unit trust, studied fact sheets and annual report. In fact I even took the Unit Trust Consultant Exam (and passed) just so that I have an in depth exposure on how Unit Trust works.

The good news for you is that you don't need to go through what I've been through just to learn. Just head on over to my blog and check the Recommended Reads section. You'll find a large collection of articles that I've written about unit trust investing!

How to save on Sales Charge??
Now that you know where to learn and obtain knowledge, the next thing is to seek an avenue (without depending on consultant) to invest into Unit Trust!

With this avenue, you need not pay exorbitant sales charge for sub standard consultant services anymore.

Instead, start taking control of your own investment, manage your own buy and sell and ultimately benefit from occasional promotions whereby you can even invest as low as 0% sales charge!

To find out more how you can make use of this avenue, just click HERE!

To the stray consultants: I'm pretty sure a number of consultants would find this post offensive and somewhat belittling. But as the saying goes "Siapa yang makan cili dialah yang terasa pedas". If you've been pocketing sales charge all this time without offering equivalent services to your clients, then I believe it is time to make some changes to your approach. It is still not too late to return to the right path of being a consultant instead of a salesman or a saleswoman.

To the ethical ones: For consultants that shared the same ideals of providing excellent services and advisory, kudos to you and keep up the good work! Appreciative and loyal customers will never mind paying the extra sales charge if they've been given the best service and advice. That is how a consultant should be, continuously bringing value and tirelessly guiding your clients towards their financial goal.

To Malaysian whom invest in Unit Trust: My advice remains the same as above. Either you ask for better services from your consultant for the sales charge you are paying or you may choose to start empowering yourself by learning and taking control of your own investment.

Realizing that many Malaysian face the problem of poor service and at times severe malpractice by certain consultants, I'm offering you two (2) key tools to help you help yourself;

The choice is yours and only yours to make!

Cheers and Happy Investing!

P.S :
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