Insurers and financial advisers at war over who to blame for poor advice in the UAE

Discussions around poor financial advice in the UAE have ramped up in recent weeks as insurers and advisers battle it out over who is to blame.

Friends Provident International, one of the biggest providers of expensive fixed-term investment plans, has blamed “the quality of financial advice” for “discontent among customers” in the UAE.

In a column penned for The National, Philip Cernik, Friends Provident International's chief marketing officer, says: "The resources of insurers should be invested in improving the standards of the advisers they are working with, for the ultimate benefit of their customers."

His comments come almost a year after he wrote another column stating that contractual savings plans are failing customers and that the company "could do better". FPI, like most insurers, pays advisers high commissions on the sale of its fixed-term products.

Justin Quan, a senior associate at the private equity company Berkeley Assets, which works with advisers, says the UAE’s “under-fire independent financial advisers [IFA]” are being made the scapegoat for the limited supply of investment products such as retirement benefit plans and education savings plans made available in the market by offshore pension providers.

“Consumers are demanding better products and solutions from their IFAs and are far more savvy. As a result, they will no longer accept expensive products with poor returns from advisers who are tied to two or three providers and act as marketing agents rather than independent advisors,” says Mr Quan.

“The top IFAs are the ones who are moving away from the long term, inflexible savings plans offered by life companies and moving to a genuinely unbiased advisory service which offers solutions across the full spectrum of investments and asset classes.”

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Less than a third of UAE investors trust their financial advisers, CFA survey shows

The mission to improve ethics among UAE financial advisory firms

Fixed-term investment plans are failing UAE customers, says Friends Provident

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The financial advisory space has come under fire in recent years due to a surge in complaints from customers frustrated by high fees and poor performance on contractual savings products.

As a result distrust has crept into the sector with a March poll from the CFA Institute, a global association of investment professionals, finding that while 54 per cent of UAE investors use a financial adviser, only 32 per cent consider them trustworthy.

To help bring more transparency and credibility to the market, a raft of new regulations were proposed last year by the UAE Insurance Authority (IA) and the Central Bank of the UAE to clamp down on the mis-selling of expensive savings and investment schemes provided by insurers. However, some experts say the new rules will not come into effect for a couple of years, leaving investors at risk.

Steve Cronin, the founder of DeadSimpleSaving.com, which helps residents invest their money, says insurance providers and financial advisory firms that sell their products enable each other and so are both "equally to blame for consumer discontent in the UAE".

“Most providers offer huge commissions and have structured extremely complex and deliberately opaque long-term plans to be able to do this,” he says.

“Advisory firms typically make their money from commission provided by the plan providers and the fund managers, rather than directly from the clients. So insurers that provide the most commission are usually the ones the advisers push on their clients, as long as they are sellable and within regulations.”

FPI, which was bought by International Financial Group for £340 million last summer, is one the leading providers of fixed-term products in the UAE and other markets in the Middle East and Asia. The plans promise good returns but also come with high costs that include upfront commission fees and charges.

It is these high commissions that can encourage unscrupulous advisers to “churn” through products, securing high commission by selling and cancelling plans to unwitting investors.

This was highlighted in the case of Neil Grant, a British financial adviser who was convicted of running his company without a licence by the Dubai Criminal Court. Investors who lost hundreds of thousands of dirhams from being mis-sold products have launched a civil case to claim their money back, as more victims came forward claiming they were misled.

In his column, Mr Cernik says when the IA publishes its new regulations for life insurance and family takaful, the measure will address “the requirement to meet and maintain minimum professional standards”.

“Advisers will have to carry out annual reviews with customers to ensure they remain on course to meet their goals. This means they will not be allowed to just take their commission and move on to the next customer,” says Mr Cernik.

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Life regulations now expected early 2018

Smaller insurance brokers may be nudged out of the market by new IA regulations

Aviva sells loss-making FPI to IFG for £340 million

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While some firms have stopped selling fixed-term investment and savings plans altogether - offering low-cost alternatives and fee-based advice rather than selling products based on a commission concept - other players continue to market the products.

Mr Quan says the top IFAs are treating their customers’ money "as if it were their own and offering solutions which deliver consistent growth without excessive risk or management fees".

Mr Cernik said the company launched a Financial Adviser Academy in 2015 "to help develop the adviser community and improve customer outcomes".

"Its sole purpose is to educate and train advisers, to help them give better advice to their customers," he says.

Graham Thornton, a partner and compliance manager at Abacus, a financial consultancy firm that has recently banned its advisers from selling contractual savings plans, says: "It’s not FPI’s responsibility to provide the training, the qualifications should come from doing the right exams. For a life firm to train an adviser is the wrong way."

Cornelius Lillis, the managing director of Abacus, says the purpose of having a term applied to an investment contract is put there by life companies to encourage advisers "to sell and be rewarded quite well for selling".

"If you remove the term there is perhaps less incentive for the adviser to sell," says Mr Lillis, adding that life companies "shift the responsibility of the advice away from themselves to the broker".

"If you strip away a lot of the charges, you are going to be stripping away the commissions and then you strip away the distribution so there will be no sales and that’s almost what the life companies rely on. So they are almost nervous to remove this suddenly in case their distribution to market facility disappears completely."

Mr Cronin adds: "To survive in the future, traditional insurance providers must improve the transparency and effectiveness of their products. Financial advisory firms must change their business models to ensure they match their recommendations to clients' needs rather than their commission potential."

In numbers: PKK’s money network in Europe

Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010

Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille

Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm

Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year

Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”

Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners

TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013

HAEMOGLOBIN DISORDERS EXPLAINED

Thalassaemia is part of a family of genetic conditions affecting the blood known as haemoglobin disorders.

Haemoglobin is a substance in the red blood cells that carries oxygen and a lack of it triggers anemia, leaving patients very weak, short of breath and pale.

The most severe type of the condition is typically inherited when both parents are carriers. Those patients often require regular blood transfusions - about 450 of the UAE's 2,000 thalassaemia patients - though frequent transfusions can lead to too much iron in the body and heart and liver problems.

The condition mainly affects people of Mediterranean, South Asian, South-East Asian and Middle Eastern origin. Saudi Arabia recorded 45,892 cases of carriers between 2004 and 2014.

A World Health Organisation study estimated that globally there are at least 950,000 'new carrier couples' every year and annually there are 1.33 million at-risk pregnancies.

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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

German intelligence warnings

2002: "Hezbollah supporters feared becoming a target of security services because of the effects of [9/11] ... discussions on Hezbollah policy moved from mosques into smaller circles in private homes." Supporters in Germany: 800
2013: "Financial and logistical support from Germany for Hezbollah in Lebanon supports the armed struggle against Israel ... Hezbollah supporters in Germany hold back from actions that would gain publicity." Supporters in Germany: 950
2023: "It must be reckoned with that Hezbollah will continue to plan terrorist actions outside the Middle East against Israel or Israeli interests." Supporters in Germany: 1,250

Source: Federal Office for the Protection of the Constitution

Skewed figures

In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.

Ms Yang's top tips for parents new to the UAE

Join parent networks
Look beyond school fees
Keep an open mind

Feeding the thousands for iftar

Six industrial scale vats of 500litres each are used to cook the kanji or broth

Each vat contains kanji or porridge to feed 1,000 people

The rice porridge is poured into a 500ml plastic box

350 plastic tubs are placed in one container trolley

Each aluminium container trolley weighing 300kg is unloaded by a small crane fitted on a truck

Business Insights

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