The poor reputation of financial advisers in the UAE can be improved through more transparency on fees, a tougher stance from local regulators and industry-recognised qualifications, a new study found.
According to the ninth edition of the Middle East Investment Panorama, by consultancy Insight Discovery, 39 per cent of UAE residents believe better transparency on fees and commissions would improve the industry’s image, while 37 per cent demanded a crackdown on scams and unregulated firms by regulators. Fifteen per cent called for better qualifications for advisers, the poll of 1,000 UAE residents in February found.
Nigel Sillitoe, chief executive of Insight Discovery, said the number of advisers working in the sector has shrunk dramatically with anecdotal evidence indicating a “fairly brutal culling in the number of people employed as financial advisers in the region”.
“Financial advisers have been working in a challenging environment, which explains why there are fewer advisers working in the UAE," he added. "One reason is because most advisers rely on new business leads. If this machine stops generating sufficient leads this will impact their ability to stay in the country, especially if they are on a commission-only package."
Earlier this year, the UAE Insurance Authority issued a third draft of its proposed overhaul of the life insurance and takaful (Sharia-compliant insurance alternative) sector on its website, indicating it was pushing ahead with regulations to overhaul how savings, investment and life insurance policies are sold following numerous complaints from residents burnt by buying into long-term products. The proposals include a 4.5 per cent cap on the sale of lump sum offshore bonds by advisers.
According to the report, the new measures will increase the challenges facing financial advisory firms, particularly those licensed by the IA, at a time when many firms have seen their staff numbers contract.
"A number of advisory firms have decreased their total number of advisers – although a couple of well-known firms have attracted new advisers," the MEIP study found. "At one extreme, a firm surveyed reported that the number of advisers it employs had fallen from 40 in January 2018 to just five in January 2019."
This is due to the challenging geopolitical environment including softening energy prices, an increase in the number of expatriates dealing directly with asset managers and international life companies – thereby cutting out the adviser – and lower revenues against a backdrop of increased regulation and compliance costs, the study found.
As residents become better informed and demand more detail about how their financial affairs are handled and the level of transparency they are offered on fees and charges, advisers must improve to compete.
"The worst financial advisers are being driven out by increasing regulation and increasing awareness of problematic long-term savings plans," said Steve Cronin, founder of financial community Deadsimplesaving.com. "This trend is likely to continue as more advisers move to a fee-based service, given the new requirements to reveal upfront and trail commissions."
However, while independent financial advisers are considered to have the worst reputation for 17 per cent of residents - they are not considered the worst profession. According to the study, 24 per cent of respondents think recruitment companies have the worst professional image, followed by call centre operators for 22 per cent. Advisers from banks and real estate agents were perceived almost as badly as financial advisers.
The report also found some financial advisory firms are shifting their strategy, as those that survived the challenges of 2018 did so in part because they responded to client complaints.
“Quality is up even if quantity is down," the report said. "For many, revenues have increased thanks to greater numbers of, or activity by, clients. Rising regulatory costs is a problem for a majority of advisers. However, cost inflation generally is clearly less of a problem than it was in late 2017. Significant numbers of advisers report that expenses have fallen."
As for the advisers themselves, the MEIP research found that many perceive competition as a threat, with some seeing their business contract so much that they have had to move outside of the region. Threats to the business come from expatriates choosing the do-it-yourself approach to investment, such as investing in exchange traded funds via a brokerage, or the emergence of new low-cost robo-advisers as well as wealth managers in the Dubai International Financial Centre catering to high-net-worth clients.