Setting aside budgets to spend with smaller firms can help them to get through a difficult economic climate due to the Covid-19 outbreak. Getty Images
Setting aside budgets to spend with smaller firms can help them to get through a difficult economic climate due to the Covid-19 outbreak. Getty Images

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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Read more:

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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Read more:

UAE financial advisers feel strain of tighter regulations

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."

THE SPECS

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Power: 653hp at 5,400rpm
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Transmission: 8-speed auto
0-100kph in 4.3sec
Top speed 250kph
Fuel consumption: NA
On sale: Q2 2023
Price: From Dh750,000

Company Profile

Name: Direct Debit System
Started: Sept 2017
Based: UAE with a subsidiary in the UK
Industry: FinTech
Funding: Undisclosed
Investors: Elaine Jones
Number of employees: 8

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KEY DATES IN AMAZON'S HISTORY

July 5, 1994: Jeff Bezos founds Cadabra Inc, which would later be renamed to Amazon.com, because his lawyer misheard the name as 'cadaver'. In its earliest days, the bookstore operated out of a rented garage in Bellevue, Washington

July 16, 1995: Amazon formally opens as an online bookseller. Fluid Concepts and Creative Analogies: Computer Models of the Fundamental Mechanisms of Thought becomes the first item sold on Amazon

1997: Amazon goes public at $18 a share, which has grown about 1,000 per cent at present. Its highest closing price was $197.85 on June 27, 2024

1998: Amazon acquires IMDb, its first major acquisition. It also starts selling CDs and DVDs

2000: Amazon Marketplace opens, allowing people to sell items on the website

2002: Amazon forms what would become Amazon Web Services, opening the Amazon.com platform to all developers. The cloud unit would follow in 2006

2003: Amazon turns in an annual profit of $75 million, the first time it ended a year in the black

2005: Amazon Prime is introduced, its first-ever subscription service that offered US customers free two-day shipping for $79 a year

2006: Amazon Unbox is unveiled, the company's video service that would later morph into Amazon Instant Video and, ultimately, Amazon Video

2007: Amazon's first hardware product, the Kindle e-reader, is introduced; the Fire TV and Fire Phone would come in 2014. Grocery service Amazon Fresh is also started

2009: Amazon introduces Amazon Basics, its in-house label for a variety of products

2010: The foundations for Amazon Studios were laid. Its first original streaming content debuted in 2013

2011: The Amazon Appstore for Google's Android is launched. It is still unavailable on Apple's iOS

2014: The Amazon Echo is launched, a speaker that acts as a personal digital assistant powered by Alexa

2017: Amazon acquires Whole Foods for $13.7 billion, its biggest acquisition

2018: Amazon's market cap briefly crosses the $1 trillion mark, making it, at the time, only the third company to achieve that milestone

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April 21-23: Imola
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Sept 29-Oct 1: Mugello
Oct 13-15: Vallelunga

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It was designed by Abdullah Mohammed Al Maainah, 19, an Emirati from Abu Dhabi. 

Mr Al Maainah said in an interview with The National in 2011 he chose the colours for local reasons. 

The black represents the oil riches that transformed the UAE, green stands for fertility and the red and white colours were drawn from those found in existing emirate flags.

UAE'S YOUNG GUNS

1 Esha Oza, age 26, 79 matches

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4 Kavisha Kumari, age 21, 79 matches

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6 Rinitha Rajith, age 18, 34 matches

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If you go

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Despite the extreme distance, flying to Fairbanks is relatively simple, requiring just one transfer in Seattle, which can be reached directly from Dubai with Emirates for Dh6,800 return.

 

Touring

Gondwana Ecotours’ seven-day Polar Bear Adventure starts in Fairbanks in central Alaska before visiting Kaktovik and Utqiarvik on the North Slope. Polar bear viewing is highly likely in Kaktovik, with up to five two-hour boat tours included. Prices start from Dh11,500 per person, with all local flights, meals and accommodation included; gondwanaecotours.com 

Black Panther
Dir: Ryan Coogler
Starring: Chadwick Boseman, Michael B Jordan, Lupita Nyong'o
Five stars

Company Profile

Company name: Hoopla
Date started: March 2023
Founder: Jacqueline Perrottet
Based: Dubai
Number of staff: 10
Investment stage: Pre-seed
Investment required: $500,000

The specs

Engine: 2.9-litre twin-turbo V6

Power: 540hp at 6,500rpm

Torque: 600Nm at 2,500rpm

Transmission: Eight-speed auto

Kerb weight: 1580kg

Price: From Dh750k

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The design

The protective shell is covered in solar panels to make use of light and produce energy. This will drastically reduce energy loss.

More than 80 per cent of the energy consumed by the French pavilion will be produced by the sun.

The architecture will control light sources to provide a highly insulated and airtight building.

The forecourt is protected from the sun and the plants will refresh the inner spaces.

A micro water treatment plant will recycle used water to supply the irrigation for the plants and to flush the toilets. This will reduce the pavilion’s need for fresh water by 30 per cent.

Energy-saving equipment will be used for all lighting and projections.

Beyond its use for the expo, the pavilion will be easy to dismantle and reuse the material.

Some elements of the metal frame can be prefabricated in a factory.

 From architects to sound technicians and construction companies, a group of experts from 10 companies have created the pavilion.

Work will begin in May; the first stone will be laid in Dubai in the second quarter of 2019. 

Construction of the pavilion will take 17 months from May 2019 to September 2020.

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Sector: FinTech
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Funds raised: Undisclosed
Current number of staff: Seven

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COMPANY PROFILE

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Have you been targeted?

Tuan Phan of SimplyFI.org lists five signs you have been mis-sold to:

1. Your pension fund has been placed inside an offshore insurance wrapper with a hefty upfront commission.

2. The money has been transferred into a structured note. These products have high upfront, recurring commission and should never be in a pension account.

3. You have also been sold investment funds with an upfront initial charge of around 5 per cent. ETFs, for example, have no upfront charges.

4. The adviser charges a 1 per cent charge for managing your assets. They are being paid for doing nothing. They have already claimed massive amounts in hidden upfront commission.

5. Total annual management cost for your pension account is 2 per cent or more, including platform, underlying fund and advice charges.

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Transmission: Constant Variable (CVT)

Power: 141bhp 

Torque: 250Nm 

Price: Dh64,500

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THE DETAILS

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Rating: 1.5/5 

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Price, base / as tested Dh525,000 / Dh559,000

Engine: 3.0L V6 biturbo

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Fuel economy, combined: 8.0L / 100km

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Power: 240hp at 5,500rpm

Torque: 390Nm at 3,000rpm

Transmission: eight-speed auto

Price: from Dh122,745

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UAE currency: the story behind the money in your pockets
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Starring:+Alyssa Milano, Sam Page, Colleen Wheeler

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COMPANY PROFILE

Company name: Revibe
Started: 2022
Founders: Hamza Iraqui and Abdessamad Ben Zakour
Based: UAE
Industry: Refurbished electronics
Funds raised so far: $10m
Investors: Flat6Labs, Resonance and various others

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