mohd razif bin abd kadir : reaping opportunities as financial advisers keynote address by mr mohd razif bin abd kadir, deputy governor of the central bank of malaysia, at the financial advisers seminar, kuala lumpur, 18 october 2008. * * * it is with great pleasure that i welcome all the participants to the seminar today, which is organised by bank negara malaysia, with the assistance from the malaysian financial planning council, the financial planning association of malaysia and the malaysian association of chartered financial consultants. in this regard, i would like to express my sincere appreciation to the three associations for their commitment and effort in facilitating and ensuring the success of the seminar, for the benefit of the financial planning industry. the chosen theme, “ reaping opportunities as financial advisers ”, is a fitting indication of the potentials and prospects as a financial adviser and i hope that this seminar would inspire you to achieve your full potential in a career in the financial services industry and for those not already in the industry to be aware of these opportunities. today ’ s dynamic environment is marked by a more competitive financial services industry, increasing access to financial services, broader range of financial products and services, and more complex financial transactions. in such an environment, the need and demand for sound financial planning will continue to increase. with the proliferation of financial products from basic risk protection to more sophisticated financial products for retirement and asset accumulation, it is important for consumers to have access to professional advice to help them work through the wide range of financial solutions which involve increasingly complex structures, and to avail themselves on solutions that will best suit their needs and capacity. for this purpose, bank negara malaysia has introduced the framework for the licensing of financial advisers in 2005 in response to the increasing demand from malaysian consumers for professional and specialised advisory services to meet their financial needs. the growing affluence and sophistication of consumers have created the demand for more complex financial products and services, specifically insurance products. the introduction of financial advisers, as a new distribution channel for the insurance and takaful industry, will complement the services of the existing professional intermediaries in the financial markets in providing holistic financial advisory services which range from insurance protection, savings for education, investments and retirement planning. in the long term, financial advisory business is only sustainable if its operations are transparent and focused on providing value added services rather than simply selling products. financial advisers must provide the highest service levels and professional standards in order to

this perspective, the key analytical question is whether, by accepting somewhat larger deviations of employment and inflation from the levels otherwise attainable, we are able to sufficiently enhance financial stability in a way that significantly reduces the probability of a very severe financial crisis and the attendant serious economic costs. in my view, the theoretical and empirical models that would underpin this approach and its implementation are not adequately developed. particularly in the absence of reliable models to guide us, policymakers attempting to conduct such a policy would confront serious challenges in identifying threatening imbalances and in calibrating and timing effective and appropriate policy actions. moreover, a cursory review of the evidence is not encouraging regarding the direct use of monetary policy to promote financial stability. for example, would a small adjustment in policy rates damp the optimism or complacency that was feeding the speculative excesses producing an asset or credit bubble? we don't know. but the impression from our experience in 1999 is that tightening policy had no effect on the intensity of dot - com speculation. and the housing bubble and the spread of lax mortgage lending practices built up for several years after we began raising interest rates in 2004. if policy adjustments intended to deflate asset prices or credit expansion only reduced inflation and output without affecting the bubble, they will have ultimately moved the economy further from its sustainable path when the bubble breaks. and if large adjustments are necessary to damp speculation, medium - term variations in the economy will be commensurately greater. in addition, timing policy action accurately is critical to realizing greater benefits than costs in leaning against potential speculative excesses. adjusting policy shortly before a bubble breaks, when its existence will be most evident, is not likely to be optimal, as it will do little to damp the excesses and will add to the downward pressure on the economy. central banks would need to spot these threats very early, when they may not be generally recognized as divergences from fundamentals. efforts to spot emerging imbalances early would raise the odds on identifying developments as threats to stability, when in fact they are natural and sustainable adaptations to changing relative prices, for example, from shifts in technology. even with the access to the wide range of data, sophisticated models, and market analysis enjoyed by central banks, our ability to discern deviations of asset prices from fundamental values is very limited. the difficulties i've just outlined lead me to a strong preference for using prudential regulation to deal with potential problems in credit and asset