Will expat confidence in UAE financial advisers ever improve?
‘Many international professionals have been burned by taking the wrong type of advice’
The UAE financial advice sector is improving. But it remains haunted by past misdeeds which are still raw in the minds of victims of bad advice.
Consultancy firm Insight Discovery recently surveyed 1,222 UAE residents and found that, by profession, financial advisers in the UAE have the fifth worst reputation in the country.
But when it came to western expats, they lambasted UAE financial advisers as the least trusted group.
Sometimes, there is such a thing as bad press.
International Adviser spoke to several firms in the UAE financial advice space to discuss how advisers can get expats’ trust back.
Before talking about the changes that need to be made, the conversation needs to start around how the industry found itself with this problem.
Stuart Ritchie, director of wealth advice at AES, said: “Many international professionals have been burned by taking the wrong type of advice and feel compelled to share their stories with people in their communities – and so the news spreads.
“The media also plays a big role in this by helping to expose unregulated financial advisers to avoid others falling prey.”
Ross Whatnall, chief executive and founding partner at GSB Capital, said there are “several reasons” for the bad image, including “too many inexperienced and unqualified advisers, plus a growing number of unregulated companies making wild claims like ‘generate annual net returns of 39%’”.
“We continue to see too many advisers using expensive products with opaque structures and poor underlying investments with little or no regard for ongoing servicing or accountability for lack of performance,” he added.
But Sean Kelleher, chief executive of Mondial Dubai, said that the “trust deficit is very much an industry-wide global issue, not a UAE issue in isolation”.
“A 2020 CFA study suggests that 59% of investors do not trust their financial advisers. We might be able to defend against a UAE only attack, but there is little room for counter attack when, clearly, the UAE market faces industry-wide challenges.”
Industry change necessary
Unity is needed. The sector’s image problem is an “industry-wide challenge” as Keheller states.
Stuart McCulloch, market head of The Fry Group Middle East, said: “Fundamentally, all heads of the business here need to do their part in trying to change the reputation of the industry, otherwise people will try and do it all themselves instead of seeking advice, and will undoubtedly make mistakes.
“Focus on doing the right thing and hire the right people with appropriate qualifications and fully disclosed fees and charges would be a great start.
“I also feel product providers should stop providing products and terms to advisers that are not in a client’s best interest.”
Ritchie added: “The UAE could take inspiration from the retail distribution review (RDR) in the UK, which introduced minimum levels of qualification; and a ban on commission on investments and pension products to regulated financial planners.”
But the task of improving its reputation is not only on the shoulders of the advice industry.
Regulators across the UAE need to clear out the problem advisers from the sector.
But such a tough stance will only come with a joined-up regulatory system and stricter compliance.
Mondial’s Keheller said the regulator needs to “enforce exams, qualifications and CPD” and “crack down on unqualified advice”.
“Without local UAE standard and enforcement, you end up with totally irrelevant statements from industry practitioners forced into comments such as ‘in the UK we do it this way’.
“They need a UAE standard. They need local recourse.”
For GSB Capital’s Whatnall, his “wish list” includes:
- Outlaw cold calling;
- Cap upfront commissions/fees;
- Stop trail- and commission paying funds;
- Cap ongoing advice fee to 1% per annum;
- Make it easier for complaints to be made; and
- Introduce a strict timeline and process f0r firms to deal with these complaints, like the UK.
“There is no real oversight here; far too many companies do as they please,” he said. “What’s worse is that unregulated firms can efficiently operate over here and generate business leads through misleading adverts on social media platforms; the whole industry needs to be dragged into the 21st century.”
McCulloch added: “Regulators should consider fining and removing licences of firms and advisers that clearly flaunt the rules and are not treating clients fairly. It is in all our interests to ensure trust in the industry can return.
“Regulators need to be active in assessing firms and using themed audits and flash visits.”
Change can happen. Regulation can be bolstered. Compliance tools can be enhanced.
But memories are long. So, will the opinion of financial advisers in UAE get better?
AES’ Ritchie said: “It has improved massively since I arrived many years ago but financial advice in the UAE still lags behind the UK.”
Whatnall said: “It will take time. However, when more companies like us operate transparently in highly-regulated jurisdictions like the DIFC, the public will slowly but surely become aware of what good wealth management looks like and what it should cost.
“The more publicity around what not to do, get locked into commission products and expensive funds, the better the advice will become. Advisory firms will have no choice but to improve their business practices or leave.”
Fry Group’s McCulloch said: “Recent changes in capping commissions is a step in the right direction, but widespread reform of licences, regulations and active policing can definitely improve things hugely, but it will take time and effort.
“There are firms here, with fully qualified financial planners, that are enjoying a good reputation with their clients and it just takes the public to give them a chance, having completed their due diligence, and they can see that quality advisers do exist here.”
Keheller added: “Absolutely, yes. I say that with full confidence noting the evolution of the regulator and their increasing intensity. However, all regulatory effort will do is to ensure standards in the UAE match global standards. The real issue – as stated at the onset- is the global trust deficit. Don’t pin that on one country.”