tag:blogger.com,1999:blog-30760010486395854212024-02-08T04:54:09.704-08:00ART OF MANAGEMENT & ENTREPRENEURSHIPTHIS BLOG SPACE IS CREATED BY DOMINIC SHUM TO SHARE AND EXPAND THE KNOWLEDGE OF MANAGEMENT ESPECIALLY TOPIC WHICH ARE USEFUL FOR ENTREPRENEURS.Dominic Shum FIPA FFA FInstLM FICA MCCShttp://www.blogger.com/profile/07113110794040152081noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-3076001048639585421.post-61527578967485423362009-02-24T22:31:00.000-08:002010-02-18T22:24:30.104-08:00Director's Responsibilities Revisited<span class="Apple-style-span" style="font-size: large;">DIRECTOR’S RESPONSIBILITIES</span><br />
Is Legislation in Malaysia sufficient post Enron & Worldcomm?<br />
<br />
<div style="text-align: left;"><span class="Apple-style-span" style="font-weight: bold;">Abstract</span></div><div style="text-align: left;"><span class="Apple-style-span" style="font-weight: bold;"><br />
</span></div>Directors being pillars of corporate governance (Cowan, 2004) should at all times act honestly and use reasonable diligence in the discharge of their duties. This is more so in light of recent major corporate issues like ENRON & Worldcomm in the United States and the Transmile case in Malaysia. In essence directors are agents of the company and as agents, they owe a duty of trust to the company and shall do their utmost to put the interest of the company first before personal ones.<br />
<br />
<div>Cowen (2004) wrote that since directors are agents of the company, they are accountable to shareholders and to stakeholders in various guises. It is also clear that as a custodian of something that does not belong them, directors owe a fiduciary duty of care to safeguard the company’s assets and maximize returns for shareholders and to ensure that the other stakeholders needs are met as well. The principle that a company is a legal entity by itself and separate from its shareholders, directors and managers also lent to the need for directors to act honestly and diligently in the position that they are entrusted to.<br />
<br />
<span class="Apple-style-span" style="font-weight: bold;">1. INTRODUCTION</span></div><div><br />
The statement in Section 132(1A) of the Companies Act 1965 in Malaysia states that a director of a company shall exercise reasonable care skill and diligence. Section 132(1) of the same act further states that a director of a company shall at all times exercise his power for a proper purpose and in good faith in the best interest of the company. The statement is more obvious when seen in the context that a company is a legal entity and it exists independently from both shareholders and staff. Playing the role of the middleman, directors are the link between the providers of capital and the company together its operational management team. </div><div><br />
</div><div>However, it must be noted that a director can also be a shareholder because although physically one person, the director plays the role of two distinct legal identities. This principle of separate and legal entity between the company and shareholders was first established in the landmark case of Salomon vs Salomon & Co. Ltd.(1985) where the term “Veil of incorporation” was established.<br />
<br />
</div><div>Fok (1996) , mentioned that a director is a person elected by the shareholders or appointed by the board to participate in management of the company. It goes without saying then that directors should safeguard the shareholders’ investment in the company and at all times act honestly and use reasonable diligence in the discharge of his duties to shareholders. Cowen (2004) wrote that since directors are agents of the company, they are accountable to shareholders and to stakeholders in various guises. It is also clear that as a custodian of something that does not belong them, directors owe a fiduciary duty of care to safeguard the company’s assets and maximize returns for shareholders and to ensure that the other stakeholders needs are met as well.<br />
<br />
<span class="Apple-style-span" style="font-weight: bold;">2. NEED FOR DIRECTORS</span></div><div><br />
Directors are stewards of the company and who provide the company with leadership, guidance and directions. Directors of a company would include the following positions or designations;</div><div><br />
• Managing Director<br />
• Executive Director<br />
• Chairman<br />
• Independent non-executive Director<br />
• Non-independent no-executive Director<br />
<br />
All companies in Malaysia are required to have a board of directors and the minimum number is two. In essence the two originating directors of a company would most likely also be the shareholders as well. It is also common for shareholders to continue to hold office as directors and the board to be filled with trusted associates and relatives. Therefore we tend to take the issue of due diligence and honesty on the part of directors as a non-issue. Why would someone cheat themselves or their relatives? </div><div><br />
However, when a company grow and it attracts capital apart from the original shareholders, the responsibilities of directors to act honestly and with proper diligence cannot be taken for granted any longer. They are now working for others rather than just themselves or family members and the need for them to act honestly and diligently is quite real. In most countries, specific laws relating to companies are enacted to govern the administration of such companies and the role of company directors is usually part of the enactment. In public listed companies this becomes even more pronounced as public’s funds are involved.<br />
<br />
<div><span class="Apple-style-span" style="font-weight: bold;">3. FRAMEWORK GOVERNING DUTIES OF DIRECTORS</span><br />
<br />
</div><div>3.1 Legislation and Corporate Governance code.<br />
<br />
</div><div>The Finance committee on Corporate Governance in Malaysia wrote that every listed company should be headed by an effective board which should lead and control the company. Directors have a dual role of both leadership and control. Some of the duties of the directors include strategic planning, managing risk, ensuring internal control compliance, reporting to shareholders on the affairs of the company and guiding the company in achieving the objectives of the company. In smaller companies the directions and actions of the company usually mirrors that of the owner or major shareholders. In larger companies and public listed companies there are often no correlation between the values and personality of shareholders and the action that the company takes.<br />
<br />
</div><div>Shareholders are often passive investors and have little or no understanding at all about the operations of the company. In order for the company to get the public to invest in the company, the board of directors must act honestly and diligently as the shareholders rely on them run the company properly and provide shareholders with adequate returns on their investment. Directors must ensure that all shareholders are treated fairly and not just the significant or majority owner(s). Directors also do not need to report on a daily basis to shareholders so it is important that directors act professionally, with proper diligence and honesty.<br />
<br />
</div><div>To safeguard shareholders various provisions were made in laws related to duties and responsibilities of directors and in particular of listed companies. For example; Companies Act 1965 of Malaysia including sections to prevent bankrupts from acting as directors (Sect (125(1), restraining certain persons from managing companies as directors (Sect 130(1) ) and the disqualifications of directors of insolvent companies (130A(1)). Similar provisions exist in company enactments in most countries. There are also adequate provisions in the Penal code to prosecute director for not acting honestly and such provision related to the agency relationship between the directors and the company. For example, Section 409 of the Penal code in Malaysia deals if criminal breach of trust which applies to directors as well as agents in general.<br />
<br />
</div><div>Some companies also have provisions in their memorandum or articles of association which provides for the appointment of directors who are required to hold a specified numbers of shares as prequalification for board membership. In Malaysia, Section 124 of the Companies Act 1965 states that if the articles of association of the company requires that a directors must hold a specific number of shares to ‘qualify” as director. This is to ensure that the value of other shareholders are looked after since the director, as a shareholder himself, will have every reason to discharge of their fiduciary duties and maximize shareholders funds.<br />
<br />
</div><div>However, not all issues can rely on legislation to ensure that directors act in the best interest of shareholders. Some issues are caused by director’s lack of dedication or capability and this brings us to the issue of accountability.<br />
<br />
</div><div>3.2 Sense of Accountability<br />
<br />
</div><div>Sometimes directors fail to achieve shareholders or company’s object for reasons which may not come under any legal purview. Sometimes directors fail just because of attitude or ineptitude or both. Cowan (2004) commented that given that directors are acting on behalf of the company’s owners and it is clear that the first level of accountability is to the shareholders. Just as other employees can be terminated by the company due to poor performance and directors too can be terminated by shareholders at shareholders meetings. . Removal of directors can be touchy affairs but the one can rely on provisions in various company laws and acts to do so. In Malaysia, removal of directors can be done under section 128(1) with the use of an ordinary resolution at the annual general meeting (AGM), Extraordinary General meetings (EGM) or any properly constituted shareholders meeting<br />
<br />
</div><div>However, it must be noted that it since reports to shareholders are not very frequent and not in full details, it might be sometimes too late for shareholders to take appropriate actions . It is therefore incumbent on directors to act diligently to ensure that they lead the company well thus achieving the company’s objectives and ensuring a reasonable rate of return for the shareholders. Directors must dedicate themselves fully to the company’s cause and to ensure disclosure and transparency to all shareholders.Cowan (2004) states that shareholders have contributed their funds to the company and, in return, have the right to expect reasonable treatment and protection in exchange for the risk exposure of their funds.<br />
One of the remedy for wayward directors is to have independent non-executive directors providing alternative views and oversight capacity. In addition they might bring in additional skills and expertise to complement the executive directors in improving the board’s performance and in doing so spurring the company to greater heights.<br />
<br />
</div><div>Paragraph 1.01 of the Listing requirements of Bursa Malaysia Securities Berhad and Practice note No 13/2002 noted that an independent director is one who is independent of management and free from any business or other relationship, which could interfere with the exercise of independent judgement or the ability to act in the best interest of a listed company .<br />
<br />
</div><div>However, we must also bear in mind that many independent non-executive directors have other positions in industry as well and may not be in position to understand the business let alone improve performance of the company. However, it must be noted that listing requirements nowadays requires the appointments of independent non-executive directors. Furthermore they are expected to form the majority of members in audit committees and other oversight board level committees.<br />
<br />
<span class="Apple-style-span" style="font-weight: bold;">4. SUMMARY</span><br />
<br />
</div><div>In summary, it is clear that directors should act honestly and diligently in discharging their duties especially in listed company or in instances where directors are not shareholders. Not doing so would mean that they are not fulfilling the professional and legal responsibilities that they are paid for. Various legislation and acts have been formulated in many countries to ensure that directors act honestly and diligently although in some cases it is just as simple as to terminate the directors or hope that they change their ways. Recent cases like the ENRON affairs and Worldcom’s collapse illustrates to us how important it is for directors to act honestly and diligently in their duties towards shareholders. It can also be seen that there are many safeguards available to ensure that directors carry out their duties honestly and diligently and these measures carry both legal and moral bearing on the errand director.<br />
<br />
<br />
Bibliography<br />
1.Cowan, Neil 2004, Corporate Governance that Works!, Prentice Hall, Jurong, Singapore<br />
2.Lee, Mei Pheng 2005, General Principles of Malaysian Law 5th Ed., Oxford Fajar, Selangor, Malaysia.<br />
3.The Institute of Internal Auditors Malaysia, 2006, The Professional Practices Framework, The Institute of Internal Auditors, Kuala Lumpur Malaysia.<br />
4.Fok, William, 1996, A Practical handbook on Company Secretarial Practice, Leeds Publications, Kuala Lumpur, Malaysia.<br />
5.Legal Review Board, 2008, Penal Code (Act 574) as at 15th January 2008, International Law Book Services, Petaling Jaya, Malaysia.<br />
6.Finance Committee on Corporate Governance, 2000, Malaysian Code of Corporate Governance, Malaysian Institute of Corporate Governance, Kuala Lumpur, Malaysia.<br />
7.Ministry of Finance Malaysia, 2007, Companies Act and Regulations- Amendments up to September 2007 26th Edition, MDC Publishers Sdn. Bhd., Kuala Lumpur Malaysia<br />
<br />
</div></div><div class="blogger-post-footer">Something for small timers www.servicescape.net</div>Dominic Shum FIPA FFA FInstLM FICA MCCShttp://www.blogger.com/profile/07113110794040152081noreply@blogger.com0tag:blogger.com,1999:blog-3076001048639585421.post-75779610993379247592009-01-14T03:24:00.001-08:002009-01-14T03:25:01.050-08:00Outsourcing the Training Function<span class="Apple-style-span" style="font-family: Arial; -webkit-border-horizontal-spacing: 10px; -webkit-border-vertical-spacing: 10px; "><p><b><span style="font-size:130%;color:#35679a;">Why Outsource Training?</span></b><br /><i><span style="font-size:85%;color:#808080;">by Shum YL 12 April 2007</span></i><br /> </p><p><span style="font-size:85%;">The speed of which the internet is imposing itself on activities in this planet is nothing if not amazing. More and more activities are now done online. For example; banking, shopping, government transactions , education etc. It is of no surprise then that professional associations and institutions have started outsourcing their training activities to 3rd parties who specializes in such services.</span></p><p><span style="font-size:85%;">What are the advantages of outsourcing? Well, for one, the exercise can be quite <b>rewarding </b>for the association/institute as such activities will general income without the necessity of investing in manpower and facilities. For example, the The Institute of Financial Consultants outsource its training to two entities called Widelearning<span style="font-family:Times New Roman;">™</span>.com and PASSOnline. refer to <a href="http://www.ifconsultants.org/page5.htm">http://www.ifconsultants.org/page5.htm</a>.</span></p><p><span style="font-size:85%;">Having qualifying training and continuous professional education schemes within the association/institution enhances the credibility of the institute and its members. This will demonstrate to the general public that the association/institute is strict in its admission standard whereby only persons who pass their training courses will be accepted. Such training can be both classroom based or distance learning/online based.</span></p><p><span style="font-size:78%;"><b>© 2007 Shum Ying Loon. All Rights Reserved</b></span></p><p><span style="font-size:85%;">--------------------------------------</span></p><p><i><span style="font-family:Californian FB;">The author is the principal consultant of DRC Services which offers management consultancy , educational services and training. Mr. Shum has many years of senior experiences in financial management and business planning. He has held positions such as director, financial controller, group finance manager and regional business planning manager for multinationals and listed companies. Mr. Shum can be contacted at <a href="mailto:shumyl@drcservices.biz?subject=PLEASE%20SEND%20ME%20MORE%20DETAILS%20ABOUT%20YOUR%20DISCOUNTS%20FOR%20COURSES">shumyl@drcservices.biz</a></span></i></p></span><div class="blogger-post-footer">Something for small timers www.servicescape.net</div>Dominic Shum FIPA FFA FInstLM FICA MCCShttp://www.blogger.com/profile/07113110794040152081noreply@blogger.com0tag:blogger.com,1999:blog-3076001048639585421.post-29453860792160502442009-01-14T03:21:00.000-08:002009-01-14T03:27:40.072-08:00What to do during Interviews<span class="Apple-style-span" style=" -webkit-border-horizontal-spacing: 10px; -webkit-border-vertical-spacing: 10px; font-family:Arial;"><p><b><span style="font-size:130%;color:#35679a;">What to do during interviews</span></b><br /><b><span style=" ;color:gray;">By Shum YL , March 2006</span></b></p><p class="MsoNormal"> <span class="Apple-style-span" style=" ;font-family:Verdana;"><span class="Apple-style-span" style="font-size: small;">Perhaps the most important function of managers is to manage people or human resources. Human resources management is not the primary function of HR Managers but all managers. Although called “</span><u><span class="Apple-style-span" style="font-size: small;">Human Resources</span></u><span class="Apple-style-span" style="font-size: small;"> Managers”, such positions normally only provide the technical expertise in hiring, training and disciplining of human resources. The job of managing human resources are mainly in the hands of line managers and middle managers. This is especially true when hiring new staff.</span></span></p><span style="font-family:Verdana;"><p class="MsoNormal"><span><span class="Apple-style-span" style="font-size: small;"> </span><span class="Apple-style-span" style=" ;font-family:Arial;"><span style="font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;">Recruitment is an important managerial task because managers usually have to live with the results for a considerable time</span></span></span><a name="_ftnref1" title="" href="http://www.servicescape.net/Articles/Hiring%20New%20Staff.htm#_ftn1"><span class="MsoFootnoteReference" style="vertical-align: super; "><span style=" ;font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;">[1]</span></span></span></span></a><span style="font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;">. It is therefore imperative that managers hone their interviewing and selecting skills to the best they can as the task can really seldom be delegated. From my experience it is necessary to prepare before any interview and I normally take around 10 minutes or so to research the candidates resume and background. For senior positions you probably can “google” his or her background online as well. Here are some issues in staff hiring and selection for those who want to select good staff.</span></span></span></span></span></p></span><span class="Apple-style-span" style="font-size: small;"><span style="font-family:Verdana;"></span></span><p class="MsoNormal"><span style="font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;">a)</span></span></span><span style="font-style: normal; font-variant: normal; font-weight: normal; font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;"> </span></span></span><span style="font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;">First of all, managers must ask themselves if the new hire is really necessary. Often when a staff resigns the first thing the manager does is to submit a request for hire form to the personnel manager immediately without looking whether the staff’s tasks can be shared among other staff. For example, when we start a company there are usually a lot of work to be done in the set up phase and the number of staff is normally not enough. However, after the setup stage staff generally have it easy as the number of tasks dwindles down. In this scenario, the most like action if a staff leaves is to redistribute the tasks to other staff or just outsource some of it.</span></span></span></p><span class="Apple-style-span" style="font-size: small;"><span style="font-family:Verdana;"></span></span><p class="MsoNormal"><span style="font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;">b)</span></span></span><span style="font-style: normal; font-variant: normal; font-weight: normal; font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;"> </span></span></span><span style="font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;">It is imperative for the manager to read through the resume and cover letter of the applicant first before the interview. This will ensure that the manager is familiar with the candidate and does not ask questions which answers are already in the resume. This can also be a form of prescreening the applicants. There is no point in interviewing someone, if it can be read through the resume that the applicant is not qualified for the job.</span></span></span></p><span class="Apple-style-span" style="font-size: small;"><span style="font-family:Verdana;"></span></span><p class="MsoNormal"><span style="font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;">c)</span></span></span><span style="font-style: normal; font-variant: normal; font-weight: normal; font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;"> </span></span></span><span style="font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;">During the interview the manager must be in control of the process while making sure that he or she is not hindering or intimidating applicants from presenting themselves as much as possible. The keyword here is “guiding”. Interviewers must learn how to guide the applicants during interviews so that they can extract useful information from the applicants. For example, do not keep asking questions that requires just yes no answers. The interview is not a court session nor an police interrogation session.</span></span></span></p><span class="Apple-style-span" style="font-size: small;"><span style="font-family:Verdana;"></span></span><p class="MsoNormal"><span style="font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;">d)</span></span></span><span style="font-style: normal; font-variant: normal; font-weight: normal; font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;"> </span></span></span><span style="font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;">Some form of screening before the actual interview is recommended. For example, applicants for a typist position may be tested on their typing speed first before they are selected for interviews. It may be also in the form of a personality test for applicants appluing for senior positions in order for judge their compatibility with the job and the corporate culture in general.</span></span></span></p><span class="Apple-style-span" style="font-size: small;"><span style="font-family:Verdana;"></span></span><p class="MsoNormal"><span style="font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;">e)</span></span></span><span style="font-style: normal; font-variant: normal; font-weight: normal; font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;"> </span></span></span><span style="font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;">The manager should refrain from bringing in his or her personal biases to the interview. This will allow the selection to be fair and just.</span></span></span></p><span class="Apple-style-span" style="font-size: small;"><span style="font-family:Verdana;"></span></span><p class="MsoNormal"><span style="font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;">f)</span></span></span><span style="font-style: normal; font-variant: normal; font-weight: normal; font-family:Verdana;"><span><span class="Apple-style-span" style="font-size: small;"> </span></span></span><span style="font-family:Verdana;"><span class="Apple-style-span" style="font-size: small;">If there are no candidates who fit the bill, do not make the mistake of choosing the best available. Hiring is a long term commitment on the part of the manager and should be done properly and not in a haste to met short term datelines.</span></span></p><div><hr align="left" size="1" width="33%"><div id="ftn1"><p class="MsoFootnoteText" style="font-size: 10pt; font-family: 'Lucida Sans'; margin-left: 0cm; margin-right: 0cm; margin-top: 0cm; margin-bottom: 0.0001pt; "><a name="_ftn1" title="" href="http://www.servicescape.net/Articles/Hiring%20New%20Staff.htm#_ftnref1"><span class="MsoFootnoteReference" style="vertical-align: super; "><span style=" ;font-family:'Lucida Sans';"><span style="font-size:78%;">[1]</span></span></span></a><span style="font-size:78%;"> </span><span style=" ;font-family:AGaramond;"><span style="font-size:78%;">Ernest & Young, <i>The Manager’s Handbook(revised edition), </i>London, Warner Books, 1994</span></span></p></div></div><p><i><span style="font-family:Arial Unicode MS;font-size:78%;">The author is the business consultant of DRC Services which specializes in management consultancy and training. Mr. Shum has many years of senior management experiences in various functional areas. Mr. Shum can be contacted at <a href="mailto:shumyingloon@gmail.com">shumyl@servicescape.net </a> for assignments on project basis in the field of human resources management and Business management</span></i></p></span><div class="blogger-post-footer">Something for small timers www.servicescape.net</div>Dominic Shum FIPA FFA FInstLM FICA MCCShttp://www.blogger.com/profile/07113110794040152081noreply@blogger.com0tag:blogger.com,1999:blog-3076001048639585421.post-23892199951107848892009-01-14T03:19:00.000-08:002009-01-14T03:20:26.386-08:00Business Planning for Success<span class="Apple-style-span" style="color: rgb(51, 51, 51); font-size: 13px; line-height: 20px; "><p><span style="font-family: 'courier new'; font-size: 180%; "><strong>Business Planning</strong></span></p><p><em><span style="color: rgb(102, 51, 255); ">By Shum YL</span></em></p><p>Business planning is many things to various people and although elements of business planning appears in most management literature it has rarely been accorded the status of a stand alone management field.</p><p><br />Some of the reasons why people do business planning:-</p><ol><li>Trying to get a bank loan to start a business or a project</li><li>Trying to impress an investor</li><li>Preparation for listing the company in the stock market.</li><li>Planning for the budgets of the next financial year</li><li>Taking stock of the company's financial and feasibility status</li><li>Strategic planning for the future</li></ol><p><br />A company can actually do business planning for more than one of the reasons above over a period of time. However, the process is more or less the same which requires the following steps.</p><p>Below is the my own Business Planning process:-<br />-Setting broad missions or goals<br />-Analyzing information<br />-Setting objectives and targets<br />-Deciding on strategies<br />-Commandeering resources<br />-Implementing the strategies<br />-Reporting<br />-Monitoring the progress<br />-Take corrective actions<br /></p><p>While the above is a bit more harder to remember than the often used "PDCA" cycle used in taking action or solving problems it provides a better understanding of what real businesses do. We postulate the above process in order to ensure that no issues are left out in the process and makes the plans awry. For example; in our model the act of reporting is included. Although it make sense and is commonsensical most models in planning ignores this with the result that most companies fail to emphasize in management accounting.</p><p>It is sad to see that a lot of companies pay top money to hire accountants who are actually not contributing any effort to improving business decisions but just to produce reports to adhere to accounting regulations and tax requirements.</p><br />The author is the business consultant of DRC Services which specializes in management consultancy and training. Mr. Shum has many years of senior experiences in financial management and business planning. He has held positions such as director, financial controller, group finance manager and regional business planning manager for multinationals and listed companies. Mr. Shum can be contacted at <a href="mailto:shumyingloon@gmail.com" style="color: rgb(85, 136, 170); text-decoration: none; ">shumyingloon@gmail.com</a> for assignments on project basis in the field of business planning.<br /><br /><span style="font-size: 85%; ">The article above is an independent work submitted by the above author and does not reflect or represent views of the management, owners and agents of this website.</span><br /><br /><span style="font-size: 78%; ">© 2001 Shum Ying Loon. All Rights Reserved Updated 03/09/01 By Clicking on any hyperlinks on this page you hereby agree by our terms and conditions of using this website. Disclaimer: While every effort is made to provide accurate and timely information in this website may contain errors or omission or factual error The owners does not warrant any information in this website and therefore cannot be liable for any claims or losses by users on this site. The owners also does not have control of any materials and information found in sites linked to this website and cannot be liable or any loss or claim resulting in the use of information and materials used in linked sites. Please consult your lawyer, broker, accountant or financial consultants before making any investment or financial decisions.</span></span><div class="blogger-post-footer">Something for small timers www.servicescape.net</div>Dominic Shum FIPA FFA FInstLM FICA MCCShttp://www.blogger.com/profile/07113110794040152081noreply@blogger.com0tag:blogger.com,1999:blog-3076001048639585421.post-11843182128002224162009-01-14T02:34:00.000-08:002009-01-14T02:36:22.371-08:00Financial Planning for Personal Investments<span class="Apple-style-span" style="color: rgb(51, 51, 51); font-size: 13px; "><h3 class="post-title entry-title" style="margin-top: 0.25em; margin-right: 0px; margin-bottom: 0px; margin-left: 0px; padding-top: 0px; padding-right: 0px; padding-bottom: 4px; padding-left: 0px; font-size: 140%; font-weight: normal; line-height: 1.4em; color: rgb(204, 102, 0); "><span class="Apple-style-span" style="color: rgb(51, 51, 51); font-size: 13px; line-height: 20px; ">Financial Planning is one of the building block to “investment”. No matter what we invest in, it is important that we manage our financial position properly first. Proper management allows us to do the following;</span><br /></h3><div class="post-body entry-content" style="margin-top: 0px; margin-right: 0px; margin-bottom: 0.75em; margin-left: 0px; line-height: 1.6em; "><p>-Accumulating a war chest for investment<br />-Reduces the cost of investments<br />-Enhances our risk profile<br /><br />In order to manage our finances, what we need is a financial plan. In general usage, a financial plan can be a budget, a plan for spending and saving future income. This plan allocates future income to various types of expenses, such as rent or utilities, and also reserves some income for short-term and long-term savings. A financial plan can also be an investment plan, which allocates savings to various assets or projects expected to produce future income, such as a new business or product line, shares in an existing business, or real estate.<br /><br />This blog will not be a full fledge financial planning or management guide and we will not cover the various investment techniques and methods of valuation. It is sufficient at the moment to highlight to the reader, what needs to be done rather than how it is done and what are the issues that should be understood in financial planning or investment planning.<br /><br /><strong>What is financial planning?<br /></strong><br />Essentially, a financial plan offers us a road plan that can be useful for us to navigate our financial journey and to certain extend our life with greater peace of mind. A good financial plan has the following elements<br /><br />-A set of financial goals and objectives<br />-A current net worth report<br />-A personal risk profile<br />-And an investment plan<br /><br />Before you embark on doing a financial plan make sure you are aware of all your current financial details and make a list of all possible expenses and income that you may have. For expenses, it is helpful if you can classify them into what is “nice to have” and what are necessities. You may also get a good book on local taxation requirements and practice or get professional tax advice on possible taxation issues.<br /><br /><strong>Who can help you with financial planning?<br /></strong><br />Most insurance agents and unit trust consultants can help you in your quest to do a financial plan. However, local legislation only allows certain qualified professionals to give professional advise on financial planning, do a financial plan for the client and charge a fee for the service. Two qualifications are current approved for this purpose are the RFP qualification from the Malaysia Financial Planning council and the CFP® qualification from the Financial Planning Standards Board via Financial Planning Association of Malaysia. If you are not based in Malaysia find out from local authorities about the availability of licensed financial planners in the local market. Here are some of the qualifications that are involved in financial planning.<br /><br />1. Certified Financial Planner®/Malaysia/ Financial Planning Association of Malaysia /www.fpam.org.my</p><p>2. Certified Financial Planner®/Singapore/Financial Planning Association of Singapore/ <a href="http://www.fpas.org.sg/" style="color: rgb(85, 136, 170); text-decoration: none; ">http://www.fpas.org.sg/</a><br /><br />3.Certified Financial Planner®/Australia /Financial Planning Association Australia /http://www.fpa.asn.au/<br /><br />4.Certified Financial Planner®/ United States /Financial Planning Association / <a href="http://www.fpanet.org/" style="color: rgb(85, 136, 170); text-decoration: none; ">http://www.fpanet.org/</a><br /><br />5.Registered Financial Planner / Malaysia /Malaysian Financial Planning Council / <a href="http://www.mfpc.org.my/" style="color: rgb(153, 153, 153); text-decoration: none; ">http://www.mfpc.org.my/</a><br /><br />6.Chartered Financial Consultant / Malaysia / Malaysian Association Of Chartered Financial Consultants / <a href="http://www.machfc.org/" style="color: rgb(85, 136, 170); text-decoration: none; ">http://www.machfc.org/</a><br /><br />7.Registered Financial Planner /United States / Institute of Advanced Financial Planners /http://www.iafp.ca<br /><br />8.Certified Financial Planner® /UK / Institute of Financial Planning / <a href="http://www.financialplanning.org.uk/" style="color: rgb(153, 153, 153); text-decoration: none; ">http://www.financialplanning.org.uk/</a><br /></p><br /><p>9.Certified Financial Planner®/ Canada /Financial Planning Standards Council / http://www.cfp-ca.org/<br /><br /><strong>Net Worth</strong><br /><br />For an individual, the net worth is the value of a person's assets, including cash, minus all liabilities. The amount by which the individual's assets exceed their liabilities is considered the net worth of that person. The net worth statement is then a report of an individual’s financial standing or position. This is similar to the balance sheet of a company.<br /><br />In order to do financial planning for oneself, the person my have some idea of what his financial position is. This include things like balances in bank accounts, pension funds (Ie; EPF balances) , investments etc. Follow the link below to see a life example of how to calculate your net worth. <a href="http://www.fincalc.com/bud_07.asp" style="color: rgb(85, 136, 170); text-decoration: none; ">http://www.fincalc.com/bud_07.asp</a></p><br /><p><strong>What is your risk profile?</strong><br />“Managing risk is a combination of art and science that incorporates a number of basic characteristics. It involves continually searching out and understanding risk, measuring and managing them.”<a title="" name="_ftnref1" href="http://www.blogger.com/post-create.g?blogID=6596782849308840027#_ftn1" style="color: rgb(85, 136, 170); text-decoration: none; ">[1]</a><br />We cannot avoid risk. However, we can face it head on and manage it so that it does not affect us too much. We must constantly look for risk, understand it and find ways to circumvent it or manage it effectively. Even, putting money in fixed deposits have certain risk involve. There is the risk of the return from FD not been able to overcome inflation which effectively devalues the investment.</p><p>We must also assess our risk tolerance. How much risk can we take? Basically, there are 3 types of risk profile;<br />-Risk indifferent people<br />-Risk Averse people<br />-Risk seekers<br /><br />However, our risk profile depends a lot which stage we are in our life cycle. Older people will most likely to be risk averse because they cannot afford to loose all their money in investments as they will not have the means or time to earn it back. Lastly, when it comes to managing risk we need to exercise caution , be disciplined and proactive. The need to be proactive is vital because if we get it wrong the impact can be quite big, financially and often irreversible. Like the saying goes, there’s no crying over spilt milk.</p><p><br /><strong>Some issues to know in financial planning<br /></strong>As mentioned earlier, this article is not meant to be a comprehensive guide on investment and if you are interested in one you can refer to some of the literature listed at the reference section at the end of this article. Here we would like to highlight some salient points in financial planning which we think could be useful in your understanding of financial planning and investment so that maybe you might be able to enjoy another passive source of income.</p><p>Goal Setting- Set realistic, challenging and achievable goals. Do not set out to be a Warren Buffet or Bill Gates. You will be very disappointed later. For one, these guys have a totally different financial and risk profile than your own profile. Chase your own dreams not others.</p><p>Know what you want – Set out in general terms what you would like to achieve in managing your finances. Some of us are more concerned about retirement planning while others may be planning for their children education.</p><p>Set Priorities – This point can never be mentioned enough. Do what is important and urgent and not what catches your fancies. For example; many give precedence to their child education than their own retirement planning just to keep up with the “Jones”. In this case, the correct priority is to ensure that you plan for retirement planning first because it is 100% sure that you will retire and it is 100% sure that you will need the income from investments after your retire. Education needs are more flexible and in some cases are not very crucial anyway. For example; the child may get a scholarship, mike prefer apprenticeship rather than going to college or may not event want to do a post secondary education at all.</p><p>Explore your tax positions – You need to determine your tax positions so that you can take advantage of any tax breaks or tax treatment methods to reduce your tax liabilities. For example, having investment income in a private limited company may have different tax implications than investing under your own name. Consult a tax consultant or your financial planner to ensure you are ware of the opportunities and threats which exist in your tax situation.</p><p>Set your planning time frame properly – In doing your financial plan, you will need to ensure that the time frame you use is correct and accurate. If you do it wrongly, you might be way short of achieving your targets. For example, if you are investing in unit trust, ensure you factor in the distribution charge and management fee over the entire period of investment.<br />Read the prospectus (or terms and conditions)- In what ever you invest in, the prospectus is a very important document as it sets out the fund's goals, investment strategies and policies and the risk-reward position it takes. It may be hard reading being full of legalese, but you must go through the fine print to ascertain that your goals and expectations match that of the fund. The financial accounts will show if the fund is sticking to its game plan and how well it is performing within the plan.</p><p>Seek professional advice – Do not be under the illusion that you can do it alone. Even professionals in the financial planning line cannot be expected to be master of everything financial. They would still need to consult tax experts, accountants, stock brokers for specific information.</p><p><strong>Where to invest?<br /></strong>Once we are done with financial planning and management and are able to set aside some extra cash then we can start looking into the type of investments available to us. We will cover these possible passive income streams in the next few lessons but we would like to end this article with a list of possible investments vehicles that you can consider.<br />a.Stocks/shares<br />b.Mutual funds or unit trust<br />c.Real Estate Investments Trust<br />d.Money market instruments<br />eForeign exchange deposits<br />f.Fixed Deposits<br />g.Collectables and precious metals<br />h.Commodities<br />i.Derivatives<br />j.Bonds and debentures<br />k.Real Estate properties<br /></p><br /><p>Footnotes:<br /><a title="" name="_ftn1" href="http://www.blogger.com/post-create.g?blogID=6596782849308840027#_ftnref1" style="color: rgb(85, 136, 170); text-decoration: none; "><span style="font-size: 85%; ">[1]</span></a><span style="font-size: 85%; "> Quoted by Grace Kang CFP® in her article “Managing Risk” appearing in the 4E journal published by the Financial Planning Association of Malaysia., Vol.4 No. 1 March 2004.</span><br /></p><strong></strong><br /><p><strong></strong></p><br /><p><strong>References:</strong><br /><br />1.Maximize what you got…No Matter How Much You Have Now, Yap Ming Hui, Whitman Independent Advisors, Selangor, Malaysia, 2006<br />2.Personal Money, Issue #55 March, 2006 The Edge Communications Sdn. Bhd.<br />3.Financial Freedom 2, Through Malaysia Equities and Unit Trusts, Cheah, Wong et al, Kuala Lumpur Mutual Fund Berhad, Kuala Lumpur, Malaysia, 2000<br />4.Malaysian Master Tax Guide 2006, 23rd Ed., Veerinderjeet Singh,Dr & Teo Boon Kee, CCH Tax Editors, CCH Asia, 2006<br />5.Managing Risk, 4E Journal Vol 4 No.1, Financial Planning Association of Malaysia, 2004<br />6.Securities Commission Website <a href="http://www.sc.com.my/" style="color: rgb(153, 153, 153); text-decoration: none; ">http://www.sc.com.my/</a><br />7.Wikipedia <a href="http://www/.wikipedia.org" style="color: rgb(85, 136, 170); text-decoration: none; ">http://www/.wikipedia.org</a></p></div></span><div class="blogger-post-footer">Something for small timers www.servicescape.net</div>Dominic Shum FIPA FFA FInstLM FICA MCCShttp://www.blogger.com/profile/07113110794040152081noreply@blogger.com0