• THE NEW NATION-BUILDERS

    FMAP seeks nothing less than a transformed Philippines

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    NOT TOO LONG AGO, Fund Managers Association of the Philippines (FMAP) founding president Marvin Fausto was the chief investment officer of BDO, the nation’s largest bank, managing the largest investment in the country. These days, he’s set his sights on an even bigger target.

    “I climbed that mountain,” said Fausto, a marathoner who has three sons. “Now I’ll climb another mountain, run another race. I have all boys; they’ll be heads of their own families someday. We’re teaching them to manage their money well. When we teach all the heads of families to manage their money well, we’ll have a better Philippines. That’s my big dream.”

    Fausto and his colleagues started on the road to that lofty goal 20 years ago this month with the founding of FMAP, an organization of local equity and fixed income fund managers that describes its primary mission of being one to “uplift the investing public economically through the practice of professional fund management that adheres to ethical standards and recognized practices globally.”

    The group, whose membership is presently composed of 48 fund-managing institutions represented by 298 individual fund managers, had modest beginnings. Fausto related that FMAP grew out of informal discussions among 10 equity fund managers in 1995 and 1996—gatherings over lunch or coffee to share experiences and best practices—that gradually became more regular. “We eventually decided to formalize our organization to have more of a collective voice,” Fausto explained.

    In April 1997, FMAP was established and gained recognition from the country’s three primary financial regulators, the Bangko Sentral ng Pilipinas (BSP), Securities and Exchange Commission (SEC), and the Insurance Commission (IC).

    Public focus
    While it is an association of investment professionals, FMAP’s primary focus is on the investing public, a perspective that was a clear theme in Fausto’s description of the group’s work and is reflected in its stated mission “to foster the growth of investment professionals according to the principles of ethics, trust, and excellence to best serve the investing public.”

    He described the work of FMAP in simple terms as fostering more capital market development, helping people understand investment, and building the fund management industry’s own skills and practices. To those ends, FMAP has three broad functions: first, to work with the three regulating bodies in the formulation of policies and regulations to improve the efficiency and effectiveness of the fund management industry; second, to contribute to the formulation of laws or amendments to laws affecting investors or the industry; and third, to educate both members and the general public.

    Improving the investment environment and creating more opportunities for ordinary individuals to invest is a critical focus of FMAP. “No one thinks more about the future than we do,” Fausto said, stressing that the role of FMAP “is coming at a very critical time for the Philippines.”

    The Philippines is at an interesting place in its development, Fausto observed. One-quarter of the population is by definition living in poverty, while less than 1 percent is invested in the stock market, at a time when the country is at the beginning of a “demographic window”—a period in which a majority of the population will be of working age.

    “If we don’t do anything in this first 10 years … we’re going to be in the population’s most productive period,” Fausto explained, suggesting that now is the time to create an appetite for investing among the Philippines’ relatively youthful public. “We’re very far away in terms of development of that market,” he continued. “There are about 2 million investors, out of a population of 100 million.”

    He said the public needs the tools in terms of knowledge and assistance to invest for their future and reach their financial goals, which is why continuous development and improvement of the fund management industry is important.

    It is not an easy task, he added, but the consequences of not carrying it out can be dire. “According to studies, by the time today’s 25-year-olds reach age 60, 63 percent of them will be broke” if they don’t change their spending and saving habits, he explained.

    Fausto, who has a degree in management engineering (a discipline that combines a substantial amount of both math and psychology) from the Ateneo de Manila University, pointed out that humans are not naturally designed to think in terms of investing.

    “We’re not all put together well to think much of the future,” he stressed. “If you have 20,000 pesos today, you know what that means in practical terms, but 20,000 in the future is an abstraction. That’s why education—financial literacy—is so important. We’re only just scraping the surface so far.”

    A large part of the problem, as Fausto sees it, is that it is not easy for ordinary Filipinos to invest. The mandatory framework for retirement savings—pension funds such as SSS and GSIS, and the mandated one-half month per year of service contribution (managed in trust funds) from employers—is not sufficient, he said. “Only a few people ever get to retirement age with one company,” he pointed out. “People change jobs, or stop working, and whatever has been built up disappears.”

    One potential solution—the PERA (Personal Equity and Retirement Account), or Republic Act 9505, which FMAP contributed to and was passed into law in 2008—has been problematic. “It’s not really been implemented yet, because it’s voluntary, and the requirements are too much trouble for most people,” Fausto said. “Banks are doing it as a compliance thing, but not really as a business, because the costs are too high to set up the accounts.”

    (It wasn’t until late July 2016 that the Bureau of Internal Revenue, or BIR, finally resolved its issues with the PERA law and gave it the go-ahead.)

    “Design of the products is critical, to make investing easier,” Fausto continued. “If you have to think about it every month, it won’t be successful.”

    Building tools
    Apart from working on laws like PERA, the Real Estate Investment Trust (REIT), and the not-yet passed Collective Investment Fund (CIF) scheme intended to create wider opportunities for investors, one significant way that FMAP can help is by improving its own industry. The organization is working on two paths in that respect: first, by working with the government to create a more efficient environment for fund management; second, by continuously increasing the skills and professionalism of practitioners.

    Under the current regulatory framework, fund managers of the three main types of investment funds—trusts, mutual funds, and insurance—are regulated separately by three different authorities, the BSP, SEC, and IC, respectively. A fund manager for mutual funds, for example, is licensed and overseen by the SEC, but cannot sell trust or insurance funds. The CIF scheme, which FMAP was instrumental in creating and is currently working its way through the legislature, was described by Fausto as the “mother law” that would harmonize the three separate investment areas and allow fund managers to cross over from one to another.

    “For all intents and purposes, managing a trust or managing a mutual fund is the same discipline,” Fausto explained. Getting the CIF passed into law would finally recognize that; so far, it has cleared the committee level in Congress. “It’s a work in progress,” he said, when asked about its prospects for implementation in the near future. “Maybe in a year or two.”

    In the meantime, FMAP is putting much of its focus on “building up the professionalism among our profession,” Fausto said, including providing better, more practical education for young fund managers, something that the expanding industry critically needs.

    “There is a dearth of fund managers” in the Philippines, Fausto observed, something he attributed in part to the Asian financial crisis, which happened just about the time FMAP was founded. “For a period of about five or six years, no one wanted to get into the business,” he said. “Then it started to grow again around 2001 with the new administration at that time.” Thus a major goal of FMAP is to recruit new people to the fund-management industry, and guide them in the right way.

    Along those lines, the next big thing for FMAP is the launch of the Fund Managers’ Certificate Program, which Fausto is directing. Conducted through the Ateneo Graduate School Center for Continuing Education, the program would provide fund managers and would-be fund managers the tools to effectively manage any sort of investment fund.

    The program is built on practicality. “I’m building a curriculum on theory, what’s in the book, but then expanding it with the experience of actual practitioners,” Fausto explained. “These aren’t professors, but experts who can teach from their experience in real-life situations.”

    The practice is just one side of the coin, however, and FMAP’s focus on professionalism is a key part of the program. “It’s not just teaching the skills, but the ethics behind it,” Fausto said. “Our goal overall is as much as possible to raise the standards of our industry” through education and the organization’s code of conduct, which all the member institutions and their representatives must adhere to: To act in a professional and ethical manner at all times; to act for the benefit of clients; to act with independence and objectivity; to act with skill, competence and diligence; to communicate with clients in a timely and accurate manner; and to uphold the rules governing capital markets.

    Down the line, FMAP would like to see the Fund Managers’ Certificate become a formal legal license to practice fund management. “We’re moving toward that,” Fausto said. “We have to get the regulators to agree to it, and there will be some steps involved.” Once approved, the certificate would be portable between investment fund specialties, which Fausto obviously sees as a huge advantage for the industry.

    It would also be a boon for the Philippines in terms of regional business, particularly in terms of the ongoing economic integration within the Asean or the Association of Southeast Asian Nations, he explained. Already recognized here, FMAP is seeking similar endorsement throughout the region, in line with the Asean fund passporting initiative, which will harmonize investment rules across the region and allow fund managers to be recognized by other authorities to sell the same fund in multiple countries. The recognition of adherence to international standards is also a benefit to foreign investors.

    “Say, you’re an investor from the US,” Fausto continued, “and you know that FMAP is aligned with US practices (which are generally considered global practices), so you can easily understand the investment environment and invest here.”

    The grand plan
    All of this, which lies in the near future for FMAP, is ultimately for the benefit of the individual investor and his future, Fausto stressed, returning again to his main advocacy. His 30 years in the business was inspired by his mother, he related, a rural bank manager who instilled in him the mantra, “It’s not how much you earn, but how much you save that counts.”

    Fausto’s own mantra is slightly different, however. “I’ve changed that a bit,” he said. “I believe it’s not how much you save, but how much you save and invest that matters.” His new “mountain to climb” after leaving BDO was to found IFE Management Advisers, Inc.

    “IFE stands for ‘Investing for Everyone,’ ” he explained, describing how his intention was to make investing accessible to anyone. Currently, he is also serving as a consultant for COL Financial, the country’s largest online stock brokerage, where he helped set up the country’s first “fund supermarket.” COL is noteworthy for having a significant number of small cap investors. “There are about 20,000 customers with an average investment of P10,000,” he said, with just a hint of pride.

    He added, “I believe everyone has a role to play in God’s grand plan. This is my purpose, I believe. Investing is for everyone because everyone deserves a better life. That is the point of the Fund Managers’ Association and working to build professionalism among practitioners, so they can help more people invest and secure their future.”

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