Dubai-based investment company National Bonds is moving into the financial advisory space with a new digital app offering low-cost investment options, its chief executive has revealed.
The company plans to challenge poor advice, offered by UAE financial advisory firms, by launching an upgraded app in the second quarter of next year to offer customers access to a variety of investment choices - not just National Bonds, Mohammed Al Ali, its chief executive told The National.
“In this country there are few financial planners and they are very expensive, so we are trying to find a solution to this problem by offering our customers detailed financial advice,” he says. “It will be a big shift and we are trying to become a game changer in terms of how to approach the financial advice dilemma in the UAE.”
That dilemma relates to the high number of complaints from UAE customers in recent years over expensive fixed-term investment plans, with National Bonds' new initiative coming at a time when the industry is undergoing an overhaul.
In April. the UAE Insurance Authority said it was pushing ahead with tough new regulations to transform the way savings, investment and life insurance policies are sold - a move initiated after the authority received numerous complaints from residents locked into fixed-term savings products typically provided by some of the world's largest insurance companies.
In September, the Central Bank of the UAE revealed it had also stepped up action against banks following complaints of mis-selling on consumer and investment products.
Nariman Alawadhi, chief manager at the Central Bank, said that 100 clients have had money returned to them by banks thanks to the institution's clampdown after it received "a lot of complaints about investment products".
So how does National Bonds plan to tackle the sticky issue of fees on the investment options it will offer?
"We want to go in the other direction. We want to keep the fees as low as possible because we are talking about financial advice," says Mr Al Ali, adding that the company's existing products have "a very small list of fees".
While the app will be free for customers to use, Mr Al Ali says users that choose more sophisticated investment plans will have a small charge applied.
National Bonds’ decision to enter the financial advice space is a shift from its original mandate. The company first launched in March 2006 as a prize-linked savings scheme offering a minimum bonds purchase of Dh100 and monthly prizes as high as Dh1 million.
Today it has about 820,000 customers, a fund value of Dh6 billion and has evolved into a savings and investment firm with options for both savers and investors. It still offers customers prizes of up to Dh1m and annual profit rates, but the values differ according to the deposit level; those with higher deposits, part of its Prestige programme, earn the best rates.
While its existing investment options are all linked to National Bonds, its new platform will tie up with third-party providers to offer more choice.
"We cannot offer all the solutions under one roof, so National Bonds will be one of the solutions offered to customers," says Mr Al Ali.
The decision to move the sharia-compliant company into a new direction came after National Bonds carried out a survey of almost 400 residents in the first nine months of this year.
According to the poll, 69 per cent of respondents lack awareness about financial planning. And despite the lack of clarity on how to save and invest their money, 53 per cent were most interested in receiving financial advice related to retirement planning.
"We discovered that people are crying for help," says Mr Al Ali. "The No.1 desire of the respondents is retirement planning. They were eager to have something that put them on track for their retirement, especially the expats."
He highlighted two other stats from the study: 42 per cent said they wanted good financial tips and one in three wanted access to good protection solutions such as takaful insurance for life or job loss.
"But they don't know where to start," says Mr Al Ali.
National Bonds hopes to fill that void with its digital app and related website, which Mr Al Ali says it is "working hard on buying the system that will allow us to do that".
The plan is to also offer a basic tracking service that allows customers to set goals and then track their progress towards these goals.
"If someone has put a goal to get married by 28 and he is 22 – he needs to monitor his progress; if someone is married and has two kids then he needs to monitor how they are doing and his saving towards their schooling," Mr Al Ali explains.
“We need to offer such services online and on the mobile because people are on the move all the time and they need access to a solution. As they spend, they can log their expenses to monitor their spending against the plans they have opted for.”
The next step will involve physical financial advisers and investment products with the advice varying from the basic advice on how to set a budget to the more sophisticated investment, Mr Al Ali says.
“They have to start with that, deducting a percentage of their income every month – at least 10 to 20 per cent - regardless of expenses to keep up with their retirement planning.
“They will also progress the investment of their savings, whether it’s growing and earning income as well.”
Sam Instone, chief executive of the fee-based financial advisory company, AES International, says the UAE market needs new players offering different styles of investment advice.
"The current market is dominated by 1980’s style brokerages whose interests and those of their clients are entirely misaligned," he says. "Therefore, there is a desperate need for new professionals and solutions."
Mr Instone, adds that National Bonds' proposition "may be a small step in the right direction", but he feared the digital nature of its offering may not suit all.
"Most people who receive poor advice do so because they are badly informed by financial salespeople, and lack the knowledge and unbiased information to make better, well-informed decisions. The difficulty with technology is adapting it to deal with the complexity of individual needs and circumstances. Many online platforms have highly restricted offerings via preferred partners and do not always represent the best options."
Mr Al Ali says the firm is in talks with "other concerned parties" and stresses that National Bonds will do its "own due diligence" on the products they offer, focusing on those that invest locally.
“We will carefully screen our partners to ensure whatever we offer adds value to our customers,” he says. “We will also seek those that invest in the country as much as we can. One of the challenges that customers face with other investment or retirement funds is that they send the money abroad and a lot of it goes into the equity portfolio which is prone to market conditions.
“We invest about 96 per cent of the fund in the UAE and we are trying to find those providers that invest in the UAE but also with our eye open to external options.”
Once the app has been tested on its existing customers base, Mr Al Ali says it may be rolled out "to a much bigger audience".
But how will the company assess each customer's attitude towards risk? After all, many of the mis-sold plans currently in the UAE market were due to advisers failing to be transparent on fees and mishandling their customers' risk profiles.
In May, the Central Bank issued a circular advising banks and finance companies to resolve all outstanding mis-selling complaints “amicably” and within a deadline of just 90 days.
The mis-selling complaints all have a common theme, with customers sold policies that are “complex in nature and are not well understood”, according to the circular.
Mr Qasim Al Ali says the app will include a survey that assesses each customer’s risk profile.
“It will do an in-depth survey of where they stand on the spectrum, in terms of budget and goals. The app will recommend a plan. They could either go for a generic product or the more sophisticated products we plan to offer," he says.
“This is an ocean for us. Hardly any financial institutions offer financial advice."