Six in 10 UAE investors trust financial advisers but high fees are still an issue

Investors like working with innovative advisers and those employing AI to pick investments, new study finds

High fees is the top reason investors would stop working with an advisory company. Getty Images

Six in 10 UAE investors trust the investment management industry compared to four in 10 globally but high fees is the top reason they would stop working with an advisory company, a new study found.

While 60 per cent of UAE respondents believe their financial advisers are trustworthy, according to the CFA Institute's report, Earning Investors' Trust: How the Desire for Information, Innovation, and Influence is Shaping Client Relationships, the global response is just 40 per cent.

Meanwhile 79 per cent of UAE investors say that trust is driven by technological innovation in the sector, as well as the human touch advisers provide. However, 66 per cent of those polled would consider the use of AI to advise and select investments. The study surveyed more than 4,000 retail and institutional investors in 15 markets across the globe.

In this climate, the need for trust in institutions and in the advisers who act on behalf of investors, as well as the financial system in which they operate, becomes starkly apparent.

“This time of heightened market volatility sets up a very different path for those who will succeed in meeting their investment goals and those who will not. Fear and panic can obscure sound investment decision-making,” said Margaret Franklin, CFA, president and chief executive of the CFA Institute, a global association of investment management professionals. “In this climate, the need for trust in institutions and in the advisers who act on behalf of investors, as well as the financial system in which they operate, becomes starkly apparent.”

The UAE’s financial advisory industry has been hampered by low levels of trust in recent years due to the mis-selling by some advisers of products such as life insurance and contractual savings plans.

Earlier this month, the UAE Insurance Authority postponed the roll-out of its new life insurance regulations until October 16, which are set to offer customers greater transparency and apply commission caps to the sale of protection products.

Mis-selling damaged the industry's reputation, according to a recent report from intelligence consultancy Insight Discovery, with many financial advisory firms employing fewer or cheaper advisers to cut costs at the start of last year as clients turned elsewhere for advice.

However, the Insight Discovery report also found that credit card issuers are considered the least trustworthy among financial services providers in the UAE, with independent financial advisers only coming in fifth position on the ranking.

The CFA survey, meanwhile, found that three-quarters of UAE investors still trust traditional investment advice involving interaction with a human and experts in the industry.

However when asked to choose between technology and humans, half of retail investors value access to technology and two thirds are happy to work with companies that use AI to advise and select investments.

Robo-advisers, which rely on AI to put together an investment portfolio suited to investors' risk appetite, are gaining popularity among young professionals.

Robo-adviser Sarwa in Dubai International Financial Centre, for example, gauges an investor's risk tolerance and assigns them a tailored investment portfolio of exchange traded funds while charging lower fees than traditional financial advisers and wealth managers.

Fees are still a point of contention for the industry with the CFA study citing high fees as the top reason investors give for leaving an investment firm.  Almost 83 per cent of retail investors and 75 per cent of institutional investors agree that one of the most important factors in creating a trusted relationship is fully disclosing fees and other costs.

For retail investors that choose the DIY investment route and manage their own investments, 57 believe they have a fair opportunity to profit from investing in capital markets, However, this  percentage increases to 81 per cent for those with an adviser.

Globally, retail respondents in India have the highest levels of trust in the financial services industry at 87 per cent, while Australia ranked last among the 15 markets, with only 24 per cent of respondents saying they trust the industry.