Joseph G. P. Bonello, chairman and managing director of Financial Planning Services has spent a lifetime in financial services and is celebrating 50 years working in this sector. He has witnessed many changes and has seen this segment become a pillar of the Maltese economy.
“When I started working with the National Bank on 1st September 1960, a bank was a bank, an insurance company was an insurance company and a stock broker was a stock broker. With the liberalisation of markets, which started with Thatcher and Reagan – and it happened here with the change in government in 1987 - today all these come under the umbrella of financial services.
“When I began my career in 1960 people had started to think about saving or investing their money instead of hiding it under their mattress. I remember seeing farmers coming into the bank with their King George bank notes which stank of humidity to have them deposited – some even insisted on going down to the safe deposits, believing that their money would remain there,” he says.
Mr Bonello says he never imagined that the financial services sector would develop to what it is today but says he “was a pioneer in the unit-linked concept”.
“I would never have imagined the National Bank crisis; I don’t need to go into the politics of it, but we all know the origins of Bank of Valletta. This was preceded by the BICAL crisis, and followed by the 1973 – 1975 market crash when OPEC quadrupled the price of oil, causing UK inflation to soar to 25 per cent and the yield on undated UK government bonds to skyrocket to a never-since-repeated 18 per cent.”
Mr Bonello has no qualms about pointing out which ideology encouraged the growth of financial services in Malta.
“Within three months of Mr. Mintoff’s election in June 1971 we had a ‘let’s soak the rich’ (and the not-so-rich!) policy, with the appointment of a commission entrusted to revamp the 1918 Succession & Donation Duty Ordinance. This œuvre was christened the Death & Donation Duty Act 1973, effective January 1, 1974. In contrast, three months after the Nationalist Party’s victory in May 1987, I and some other fellow practitioners were asked to draw up a report by the Confederation of Private Enterprise on the introduction of a stock exchange for Malta. So we can see a very different political ideology here between these two governments,” he says.
In June 1965 Mr Bonello started working part time with a company that had pioneered the equity linked life insurance concept in Malta. Two years later he resigned from the Bank and on August 1, 1967, aged 23, he became self employed in financial services.
In 1975, he set up as an independent, trading as Financial Planning Services, which became a limited liability company on February 9, 1977. This was the first Maltese company to offer clients a holistic financial planning approach, co-coordinating all aspects of personal finance and estate planning, and based on the understanding of clients’ objectives and the establishment of well-defined risk profiles.
“Personal financial plans were then effectively and efficiently implemented, drawing upon the company’s most reputable international contacts in the fields of banking, portfolio management (equities, bonds and commodities), retirement planning, tax and succession duty mitigation, life assurance and personal pensions,” he says.
In 1991, in line with the requirements of the Malta Stock Exchange Act 1990, Financial Planning Stockbrokers Ltd was set up. As a founder member of the Malta Stock Exchange, the company was one of the seven stock broking firms present on the Stock Exchange trading floor at the first trading session held on January 8, 1992.
In 2003, following the Malta Financial Services Authority’s becoming Malta’s single regulator, the stock broking company was merged into its parent company, Financial Planning Services Limited.
How important is it for investment advisors to match the right instruments with the right clients?
“It is very important. It is also vitally important for practitioners to be conscientious in making clients aware of the risks involved; to practice ethics as a verb of conviction, not pay lip service to it as a noun of convenience.
“Institutions which ‘manufacture’ and market their own products, have 50 ‘shops’, and employ 1,500 employees with a sales target to hit, can hardly be referred to as financial advisors or planners,” he says in an obvious reference to banks, “as they are there to meet their employer’s production quota – and employees’ promotion is linked to sales performance!”.
He adds: “There are also other financial institutions which market their own products – so you can’t have an employee who says he is giving you ‘advice’, because his role is to sell his employer’s products. Banks that operate in wealth management, for example, invest a very sizeable percentage of clients’ assets in mutual funds created and managed by the same bank’s fund management subsidiary. This happens everywhere, not only in Malta, and this was recently highlighted in an article in Forbes magazine.”
“At Financial Planning we believe that prescription without proper diagnosis is malpractice.”
Asked if he believes the world learnt anything from the global financial crisis, he answers: “The financial crisis had its origins in the US where people were sold mortgages they could not repay and did not want in the first place. In Bill Clinton’s first term as President he put people on the boards of Fannie Mae and Freddie Mac telling them that their job was to ensure that funds were made available to poor people - so the concept of a commercial loan, with adequate borrower repayment capabilities, went out of the window. That turned Barack Obama’s victory champagne goblet into a poisoned chalice as he had to introduce a trillion dollar bailout, or preside over financial Armageddon.”
What about the future? “A keynote speaker at the Million Dollar Round Table’s annual meeting in Vancouver last June was Joshua Cooper Ramo, once the youngest senior editor in Time Magazine’s history, now managing director of Kissinger Associates. When he asked Dr Henry Kissinger if he could identify a parallel in world history to developments from 2001’s September 11 to ‘September 14’ (i.e. 2008 and the Lehman bankruptcy), and new fears of sovereign default, Dr Kissinger laconically replied: ‘The decline and fall of the Roman Empire’!
“I sincerely hope that was a reflection of Kissinger’s sardonic sense of humour!” he says.
Mr Bonello says that while progress has been slow in getting equities to list on the Malta Stock Exchange, corporate bonds have been extremely successful. “Regarding equities I think the mentality among the Maltese business community is that this is still a closed family affair where you don’t want outsiders coming in and telling you what to do. But the culture change is happening.”
A strategic partnership between the Malta Stock Exchange and an international stock exchange would definitely put Malta on the map, he points out, but will not guarantee that there will be international listings here, at least not at this point in time.
“In fact we’ve had the reverse situation where for example IHI plans to list on the London Stock Exchange mainly because of the lack of liquidity on the local market. That in turn is caused by the lack of a market maker which the College of Stockbrokers has made great strides in achieving. The most liquid listing on the exchange is government bonds because the Central Bank broker’s sole function is to guarantee a price – we look forward to the equivalent in the corporate bond and equity markets,” he adds.
He says Maltese investors prefer to buy government bonds because they offer security and people like their regular half yearly cheque. However, he points out, corporate bonds are also very popular even if they are unsecured, which is not uncommon abroad.
Mr Bonello says Malta’s membership of the European Union has been good for the financial services sector “as it put us on the map and paved the way for big reforms in this area.”
He is particularly full of praise for then Finance Minister John Dalli’s final axing of the Death and Donation Duty Act, and its replacement by a Capital Gains Tax, and, in particular, the introduction of the 15 per cent final withholding tax on bank deposit and bonds interest which was “an excellent move because it provided government with instant revenue, at a very incentivised rate of tax for taxpayers”.
He is still concerned about the situation in Greece and other eurozone countries and queries why certain EU countries should have to bail out other EU states which have been irresponsible with their public finances.
“Why should other countries have to pay for the irresponsible behaviour of states who fudged their returns? I think it would be better if Greece had to leave the eurozone,” he says.
Mr Bonello says the legislative framework covering the financial services sector is absolutely brilliant when it comes to encouraging companies to register in Malta. However, he says “there has to be a balance in the regulatory framework governing our investment advisory sector. No doubt the regulators have done a good job in getting rid of the cowboys, but a balance is needed between encouraging entrepreneurship and too rigid an implementation of regulations.”
He is concerned about the so-called “pensions time bomb” saying the fact that the government is the biggest employer in the country makes it obligatory for it to take the pensions situation seriously.
“At the start of my financial services career in the 1960s, up to the first £200 of one’s contribution to a private pension plan was tax deductable. That was a lot of money then – and a significant incentive to build your own nest egg. Today there are no such incentives. In 1979 the socialist government, at the stroke of a pen, did away with all private pensions and we are suffering the consequences today. Let’s see what the report being drawn up by IMF experts will come up with. Life expectancy today has increased by 50 per cent since 1978. Project that another 30 years, while factoring in huge developments in medicine and pharmacology, and you see why we need to get cracking over pension reform,” he says.
What about his plans for the future? Is he planning his retirement? He laughs and says he has no plans to retire, but “might retire early… at 88 or 90!”
“Both my children, and co-directors, Matthew and Elaine, who are qualified financial practitioners in their own right, have each been working with the company for more than 20 years, and built their own client base, thus guaranteeing all our clients continuity with confidentiality. We pride ourselves on the service we offer our clients, now in the second and third generation, and the genuine independent advice we give. So I am very confident about the future.”