When Talal Tabbaa took out a 10-year savings plan from a leading UAE bank and Takaful company in 2015, he thought he was making a wise and prudent move.
The Jordanian had moved to Dubai two years earlier to work in management consulting, and was keen to invest his salary in a disciplined way. "I was told the plan would generate 5 to 9 per cent a year from low-risk income yielding investments, with minimal downside," says Mr Tabbaa, 28.
After a stint living in Switzerland to set up a Blockchain company, the Jibrel Network, he returned to the UAE to roll out the venture in Dubai last year.
Six months ago, he decided to check how much his plan was worth, and emailed his bank. No reply. He telephoned. Again, no reply. Then he visited one of its branches, but that was no use either.
In total he sent 98 emails and received just four responses, none of them helpful. “I even sent the bank a legal notice. Still nothing.”
Four years after starting the plan he finally received his first ever statement, from a sympathetic employee over WhatsApp.
It showed a loss of 23 per cent, even though markets had risen strongly over the period. “Investing in pretty much any market, in either equities or bonds, would have maintained its value at least," says Mr Tabbaa.
The UAE Insurance Authority is firming up regulations to transform the way savings, investment and life insurance policies are sold.
Tom Bicknell, a partner in the Dubai office of law firm Pinsent Masons, said it is looking to emulate developed markets such as the UK where tighter regulations have put a stop to this type of mis-selling.
The IA first proposed an overhaul of the life insurance sector in 2016. At the time, the regulatory body said it had received "an alarming number of complaints" from residents mis-sold lump sum portfolio bonds and contractual savings plans - insurance wrappers that combine a life insurance policy with an investment plan – provided by global insurers and distributed by IA-licensed financial advisers. The products were criticised for their poor performance and expensive fees.
The Central Bank of the UAE also clamped down on mis-selling from banks and finance companies, revealing in September 2017 that 100 clients had money returned to them by banks due to the crackdown.
Friends Provident International, a supplier of fixed-term contractual-saving plans, told The National in July 2017 the life industry "could do better".
Other providers pulled their fixed-term plans from the market altogether: Old Mutual stopped offering its managed savings account and managed pension accounts in January 2017 and Italian insurance company Assicurazioni Generali said in March it was not taking any new business for its Vision and Choice plans from the UAE market.
In March, The National asked Zurich Middle East if it planned to pull its own contractual savings plan, Vista. Chief executive Walter Jopp said: "Products change over time and we continuously change our solutions and that's based on feedback and the market requirements and our own product development."
The March Middle East Investment Panorama study, by consultancy Insight Discovery, found that the poor reputation of financial advisers in the UAE could be improved with better transparency on fees, a tougher stance from local regulators and industry-recognised qualifications.
For those mis-sold products, however, it can take years for their finances to recover, as the losses can be huge.
Mr Tabbaa found the banking staff unhelpful when he tried to understand why his investment had failed.
One senior manager replied to say it would be “ideal if you could leave me off these emails”, before wishing him a great evening. "My emails were bothering this director and it wasn't ‘ideal’. That's when I gave up hope,” Mr Tabbaa says. "To add insult to injury, another bank representative 'comforted' me by saying that I'm not the only one suffering from this."
He tried to withdraw his funds, only to be told there was a cancellation fee of Dh10,000. “I knew that there are mishaps in the UAE financial services industry, but I didn't know things were that bad. I haven’t tried to withdraw my funds due to the losses and fees."
Mr Tabbaa says he was lucky because he is young and can bounce back. “I worked hard for this money and the bank is just taking it.”
Now he is investing for the future with Sarwa, the first robo-adviser regulated by the Dubai Financial Services Authority, which offers flexible, low-cost investment plans with no withdrawal fees. "Investing should be affordable, honest, and transparent," he says. "I want to alert others to the dangers, so they don't fall into the same trap."
Mark Chahwan, co-founder and chief executive of Sarwa, says new clients regularly ask for advice on how to get out of a bad investment plan. “Too many have been burned by commission-hungry salespersons, and poor to non-existent customer support. Unfortunately, the traditional financial industry wasn’t designed to be fair, it was designed to make money.”
While Mr Tabbaa believes he has time for his finances to recover, others duped into poor performing schemes are less fortunate.
Seven years after Briton Martin Boon, 60, transferred his UK financial salary pension totalling £940,000 (Dh4.1 million) into an investment plan on the advice of a well-known international advisory group, he is still battling to get his finances on track.
Against his wishes, the money was locked into an offshore bond promoted by an international insurance group, which had punitive charges stretching for eight years, and heavy exit penalties.
Mr Boon says the adviser earned 12 per cent upfront commission, immediately netting more than £100,000, and charges totalled £18,000 a year. “When we finally got access to our plan we saw it had fallen 40 per cent, even though stock markets were rising.”
After taking advice from UAE advisory group AES International, he has been able to switch to lower charging products, although his losses are still huge.
AES offers fee-based financial advice, with a transparent charging structure, and sells only low-cost, highly flexible exchange traded funds (ETFs).
Director of wealth advice Stuart Ritchie says Mr Boon is just one of many victims he is trying to help, including a new client who was in despair after investing a lump sum of £600,000 (Dh587,600) in an offshore bond. “He had unknowingly locked into a 10-year plan despite only intending to stay in Dubai for three-to-five years.”
His “adviser” received an initial 7 per cent product commission plus a further 4 per cent on the underlying investments. “This cost my client £66,000 on the day he transferred his money," says Mr Ritchie. "Furthermore, he was charged around 5.2 per cent a year in annual fees.”
Mr Ritchie sees similar examples almost daily. “Sadly, rather than leaving the UAE with a pot of tax-free capital many international professionals end up with less than when they arrived.”
Offshore bonds do offer some tax benefits for expatriates says Mr Ritchie: "The problem is that they are often unnecessary and only sold for the generous commissions they offer.”
Tuan Phan, board member of SimplyFI, a non-profit community of UAE investment enthusiasts, is inundated by requests for support, which he provides free of charge. "Hefty upfront commission, high ongoing charges and rotten performance are only the start. Falling into the trap is easy, getting out involves years of legal wrangles."
Being brilliant at mathematics is no defence against a wily financial adviser, as Mr Phan is now helping two university professors who lost $160,000 in upfront commission on an offshore bond and another $40,000 in ongoing administration fees. “That represents 10 years of hard, diligent saving for this couple. Given the bull market run, the opportunity cost could be more than $350,000.”
When Mr Phan contacted the insurance company that provided the plan it blamed the couple for failing to read the fine print before signing.
He recently held a presentation in Dubai with offshore finance specialist Andrew Hallam and 800 attended. "Many were crying out for help after getting trapped in these products and had no idea what to do or where to turn for help. The sheer number of stories was heart breaking."
The grim truth is that there is little most can do apart from minimising their future losses. “Years of saving has gone forever in hidden upfront fees,” Mr Phan says.
New measures from the IA will cap the amount of commission advisers can charge. They will also have to disclose all fees and charges before the customer signs up, and set out whether they are offering a reasonable investment based on the individual circumstances.
Mr Bicknell says the IA's proposals originally caused consternation in the offshore financial industry but now most advisory groups and product providers are keen to clean up its reputation.
He expects the IA to impose stringent fines for mis-selling, ratcheting up the pressure. "Offshore bonds may still offer tax advantages to the right person, but the regulatory move should put downward pressure on charges and squeeze out the dodgy advisers.”