Massive consolidation predicted in UAE financial advisory sector

Financial advisory firm deVere says it ready to snap up rivals when UAE raises the money they need to put up to stay in business.

DeVere, a global financial advisory firm based in Dubai, said it may acquire some of it smaller rivals as new capital requirements are enforced later this year. The new rules could make it harder for smaller firms to stay in business.

Nigel Green, the chief executive of deVere, estimates that only six of the 160 advisory firms will be able to stay afloat.

“We will look to expand,” said Mr Green. “There are smaller companies that want to join with larger organisations. I am a believer of the UAE and it’s going to continue to expand and continue to grow. We’re in acquisition mode. As November comes, we will certainly be active in the market.”

The UAE insurance authority notified financial advisory firms late last year that to remain in business in the UAE they would need a paid-up capital of Dh3 million instead of Dh1m by November, Mr Green said. An additional Dh1m must also be put down for every additional branch they have and the chief executives of these firms cannot act as financial advisers.

The regulations as a whole will make operating costs for some of these firms too burdensome to keep going by themselves, he said. DeVere has 80,000 clients who have used its platform to place more than US$10 billion into investment funds.

UAE financial regulators have been keen to tighten and improve rules in the financial sector to protect consumers and strengthen the country’s reputation as a financial centre.

And while the UAE has become a safe haven among emerging markets over the past year, there is also a lot of money inside the country that would like to find a home outside of its borders. This has given rise to a buoyant asset-management industry.

“The UAE needs to become a respected financial centre,” Mr Green said. “The more the UAE can build up a credibility in the financial markets, then that’s obviously good because there is a big gap [between Hong Kong and Singapore and] London and Frankfurt.”

Mr Green said the new regulations should help to address some of the biggest hurdles facing financial advisory firms in the UAE. He said many of the complaints that come from clients centre on being sold schemes without being made fully aware of the clauses that govern them, such as penalties for early liquidation.

Often customers of such firms only realise later the scale of the penalties that they will incur when breaking contracts that can bind them for more than 20 years. While the discipline of saving can be good in the long run for clients, Mr Green urges clients of financial advisory firms to read the fine print carefully.

“It doesn’t matter if it’s from an accountant or a lawyer or a financial adviser, you have got to make sure you understand the advice that you are given, because ultimately you sign on the dotted line,” Mr Green said.

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