Why it is important to rebuild trust in the UAE's financial advisory industry

Measures to cap upfront fees, prevent cold calling and outlaw trailing and commission-paying funds will remove the key drivers of mistrust in the sector

Relatively small innovations such as capping commissions at 3 per cent and ongoing advice fees to 1 per cent a year will create a sea change in trust. Getty

As with any business, sector or country, trust is built on accountability, transparency and sustainability. The most successful businesses – and countries – are invariably well-regulated, well-managed and transparent in their consistent application of universally applied rules.

This builds and sustains confidence among all participants by guaranteeing that each have a reasonably fair – and predictable – chance of achieving correctly executed outcomes. Over time, this general confidence aggregates participation, innovation and ultimately capital, building businesses, sectors and societies that lead the world.

Creating such a trust ecosystem within the UAE financial advisory sector has the potential to harness the substantial private wealth latent in the region in the creation of a truly global centre of capital innovation and wealth creation.

It is a two-step process: regulation – and then its application.

Regulation

The UAE already has a sound regulatory foundation, only requiring small tweaks to achieve a disproportionate leap in confidence in the county’s financial advice sector.

Relatively small innovations, such as capping commissions at 3 per cent and ongoing advice fees to 1 per cent a year – and then confirming this in client-agreed advice reports – will promote trust.

Similarly, preventing cold calling, capping upfront fees and outlawing trailing and commission-paying funds would remove, at a stroke, the key drivers of mistrust currently tarnishing the reputation of the sector.

Finally, a clear and functioning system allowing for complaints to be made, while also guaranteeing timely follow-up and visible action will transform confidence across the financial advice sector in the UAE.

Application

The best regulations in the world are meaningless unless enforced.

At minimum, the first step in successful regulation is the removal of unregulated companies and unregulated product providers from operating in the UAE. Removal should be accompanied by fines showing that non-complicate is non-negotiable.

Wild claims promising fantastic returns should be investigated by regulators. Wildly expensive funds with lock-in commissions should be removed from the ecosystem

Ross Whatnall,
GSB Capital

Wild claims promising fantastic returns should be investigated by regulators, especially on social media where the regulator, as in other jurisdictions, should become involved. Equally, wildly expensive funds with lock-in commissions should be removed from the ecosystem.

These routinely victimise clients and damage the reputation of the sector.

Due diligence by financial advisers themselves is also important. Thorough background checks when appointing staff, for example, will guarantee that practitioners have the right qualifications, that past performance is assessed and that ethical suitability – or even past criminal activity – is thoroughly understood.

Trust the long game

Neither trust nor reputation are built overnight.

Instead, the visible and consistent application of fair and transparent regulation by ethical, responsible and compliant financial advisers will show – over time – how effective good wealth management can be.

Fortunately, in the Dubai International Financial Centre, the UAE already has an example of what transparent, highly regulated and responsible financial advice looks like – and what it should cost. Applying this regulation to achieve the highest standards of professional behaviour across the UAE’s whole financial advice sector will lay the foundation for the country to become a leading global financial services hub.

I believe the DIFC is the best place to set up a wealth management company in the UAE. Not only for reasons mentioned above but also because the financial free zone offers the DIFC Courts, which allows investors to seek redress in the event of a complaint.

Ross Whatnall is senior executive officer and founding partner of GSB Capital