If you’re a British expat, resident in the UAE, you are bound to have received at least one cold call from a very friendly “financial adviser“, offering you a free financial review or perhaps they can make you some great returns with their “exclusive” investments.
Whether you have already used an adviser, or avoid them like the plague, we aim to highlight some points that you should look out for when contemplating whether to use a financial adviser in Dubai to look after your UK pension.
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Let’s first have a look at what financial advisers should actually do.
The role of a Financial Adviser is to analyse your existing financial circumstances, find out your objectives and goals, then present a financial plan to put you on course to achieving your goals. Part of this financial plan is likely to involve the recommendation of a financial product to facilitate you achieving your goal. Financial advisers should always act in your best interests and recommend products or services that meet your objectives, goals and needs.
For example, you meet with a financial adviser, discuss your current circumstances and your future goals and objectives. The adviser then goes away and does his research and recommends a savings product that will help you achieve your future retirement goal. You complete the paperwork for the savings product and commit to paying a certain amount each month until you retire.
Commission paid to Financial Advisers
In the majority of cases, the adviser will be paid a commission from the company that provides the savings product. However the commission is very rarely disclosed to the customer.
The majority of financial advisers in the GCC are remunerated by commission only. This means that they only make money if you buy a financial product through them. This also means that they only tend to recommend products that pay them commission, not always the one that is most suitable for you.
This current structure therefore creates a conflict of interest. How can they provide impartial advice that is in your best interests, if they only make a living by selling you something? They are unlikely to recommend the best products for you if it does not pay them commission, or unlikely to tell you that you don’t need any of the products that they sell.
Here is the typical commission paid for the most common financial products sold by advisers:
A regular savings plan
The typical commission paid to the adviser for this type of plan is 4.2% of the total premiums due over the term of the policy. For example, let’s say you have committed to paying £1,000 per month into the savings plan over the next 25 years.
£1,000 x 12 (months) x 25 (years) = £300,000 total premiums due over the term of the policy
The commission paid for this would be £12,600 (4.2% of £300,000).
A lump sum savings plan (often held within your SIPP or QROPS)
The typical commission paid on this type of plan is 7% of the premium paid into the policy. For example, let’s say you have transferred your pensions worth £150,000 into a SIPP, which is then paid into a lump sum savings policy (such as an offshore investment bond, which is totally unnecessary by the way).
£150,000 x 7% = £10,500
The commission paid for this would be £10,500 (advisers can make even more commission from the investments within these policies, but that’s for another article).
This commission is paid as soon as the first premium goes into your policy. Once it is paid, there is generally no obligation or incentive for the adviser to provide any ongoing service or advice, they have made the sale and they generally move on to their next customer. After all, they don’t make any money unless they make a sale. Not all advisers will have this mindset however.
Do they hold any (meaningful) Qualifications
Financial Advisers in the UK have to hold a minimum qualification equal to level 4 of the Qualifications and Credit Framework (QCF). Most financial services qualifications are provided by the Chartered Insurance Institute (CII) and the Chartered Institute for Securities and Investments (CISI).
There is currently no minimum qualification level for financial advisers in the UAE. That means in practice, anyone can work as a financial adviser in the UAE without completing any proper training or qualifications.
Here is a list of some of the most common qualifications:
QCF Level 3 – equivalent to A levels
- Award in Financial Planning( CII)
- Award in Investment Planning (CII)
- Award in Bancassurance (CII)
- International Certificate in Wealth & Investment Management (CISI)
QCF Level 4 – equivalent to the first year of a university degree
- Diploma in Financial Planning (CII)
- Investment Advice Diploma (CISI)
QCF Level 6 – equivalent to a Bachelors degree
- Advanced Diploma in Financial Planning (CII)
- Private Client Investment Advice & Management (CISI)
You can check the member register for these two bodies here:
- The Chartered Insurance Institute: https://www.cii.co.uk/web/app/membersearch/MemberSearch.aspx
- The Chartered Institute for Securities & Investment: https://www.cisi.org/cisiweb2/cisi-website/join-us/cisi-member-directory
Regulation of Advisers in the UAE
In the UK, financial advisers are regulated by the Financial Conduct Authority. They ensure advisers follow a strict set of guidelines and principles and have strong enforcement powers to ban and bring criminal prosecutions on advisers.
If a customer is unhappy with the service from an adviser, complaints that they can’t settle can be taken to the Financial Ombudsman Service, an external dispute resolution service. They can enforce the adviser to pay compensation to customers of up to £150,000.
Consumers in the UK are also protected by the Financial Services Compensation Scheme. This pays compensation when authorised financial services firms collapse.
In Dubai there are three main financial services regulatory bodies that oversee financial advisers:
- The Dubai Financial Services Authority – The Dispute Resolution Authority is the external dispute resolution service, however, there is no compensation scheme in place. You can check their register of companies here: https://www.dfsa.ae/Public-Register/Firm
- The UAE Insurance Authority – There is no external dispute resolution service and no compensation scheme in place. You can check their register of companies here: https://ia.gov.ae/en/services/registered-insurance-companies-and-related-professions
- The Emirates Securities and Commodities Authority – There is no external dispute resolution service and no compensation scheme in place. You can check their register of companies here: https://www.sca.gov.ae/English/Opendata/Pages/financialservices.aspx
Summary
So, if you do feel like you require advice from a financial adviser in Dubai, you may want to follow these steps to ensure that you are receiving trustworthy and unbiased financial advice:
- Before your first meeting, or in the first meeting if this is free of charge, you should discuss your requirements and agree a fee for the advice. You may initially only want to pay a fixed amount for a financial review. If you then subsequently feel you would like further advice, or even ongoing advice, you can agree a fee for this with the adviser. You could either pay them a fixed amount each month, or a percentage of the value of your investments. As a guide, most advisers in the UK will charge between 0.75% to 1% of your investments each year for ongoing advice and this usually covers all areas of financial planning such as ISAs, Pensions, Life Insurance, Inheritance Tax Planning etc. If the financial adviser will only be providing ongoing advice on your pension, perhaps you will want to pay less for this. As part of this discussion, you should also agree on the ongoing service you will receive. Will it include monthly, quarterly or annual meetings for example?
- Ask about details of the regulatory authority that they are part of and what compensation and dispute resolution schemes are in place. Dealing with a regulated adviser should provide you with protection in the event that something goes wrong and you need to make a complaint. Unfortunately however, some regulatory bodies are not as strict as others, so even this sometimes isn’t enough.
- Ask the adviser for proof of their industry qualifications. This should ensure they have the necessary knowledge and experience to be able to provide you with competent financial advice.