Toxic Investment Providers In The Middle East Face Tough Questions

 

I’ve always wanted to be in the same room with a group of toxic offshore pension providers.  I had my chance yesterday.  The moderator, at The National, did a good job to keep the conversation civilized.  But I enjoyed explaining the horrific investment platforms that are sold in the Middle East. It was great to see the head of DeVere (Middle East) at the round-table discussion. I’m sure our questions made some of these people squirm.  

 Andrew


The Money Roundtable: Do long-term savings products serve their customers or their sellers?

Published February 6, 2017. Updated February 7, 2017

and

Read it on The National

A group of experts on Monday gathered in The National’s newsroom in the capital to discuss whether long-term savings and investment plans offer UAE residents the best route to meet their financial goals.

The event was the first of a series of discussions aimed at ensuring our readers receive the most accurate and up-to-date advice on their personal finances.

It came in response to the Insurance Authority’s announcement last year that it plans to introduce tough regulations to fundamentally change the way savings, investment and life insurance policies are sold to residents in response to “an alarming amount of complaints” from policyholders.

 The National has also received numerous letters from readers anxious about being locked into long-term products that see any gains swallowed by up heavy upfront commission fees and which impose harsh penalties for exiting the plans early.

The Money Roundtable brought together six leading figures from the financial services industry to garner their thoughts on the effectiveness of the contractual savings plans, which are produced by insurers and sold to UAE residents via financial advisors.

Among them were representatives from financial advisory companies that sell the plans, a lawyer representing the insurers that provide these plans and a personal finance author.

Discussion points included whether UAE residents are receiving the best advice and the need for more regulation and transparency in the market.

A hard sell

Long-term savings and investment plans sold in the UAE are “the most expensive financial products available anywhere in the world”, according to Andrew Hallam, the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned at School, at the roundtable.

Insurers that operate the plans – Zurich International, Generali Worldwide, Friends Provident International, RL360 and Hansard International – were all invited to attend the event but declined.

Last year, the UAE Insurance Authority announced its intention to introduce tough new regulations that will fundamentally change the way the plans are sold after receiving an “alarming” number of complaints from policyholders.

Circular No (33) of 2016 (Life Regulations) will compel sales advisers to provide a detailed breakdown of all fees and commissions for the life of the pol­icy, among other protections.

Peter Hodgkins, a partner at the law firm Clyde & Co, said that the implementation period of the new regulations “is critical”.

“Some of this can be very quick,” he said. “Development of disclosure requirements and product illustrations can be done quickly, but developing products that reflect changes to the way intermediaries are remunerated will take a little longer.”

Savers who have contacted The National said that they were persuaded to pay into long-term products on the promise of good returns, only to be stung by high commission fees and heavy exit penalties. According to experts, advisers are motivated to push the plans on the back of large commissions they receive when they make a sale, which could be about US$24,000 on a policy worth $2,000 a month for 25 years.

Analysts claim savers stick with them for just 7.6 years on average, but policyholders receive little back for exiting their plans after five, 10 years or even longer.

It is estimated that barely one in 20 completes the 25-year term. And those who do continue to the end often receive disappointing returns.

“To give you an example, if we have financial products that all in [cost] 4.5 per cent per year – and that is what we are seeing, 4.5 per cent, 5 per cent, sometimes higher – and the adviser is not doing anything silly and building a globally diversified platform, and if markets end up making, let’s say 7 per cent a year, and the investor is losing 4.5 per cent in fees, what do we have left?” said Mr Hallam, who is currently on a speaking tour of the Middle East.

“We have 2.5 per cent. But we have inflation historically, which has run historically 3 to 3.5 per cent per year. So it is my belief that you cannot retire effectively with the platforms that I have seen being sold prolifically throughout the Middle East.”

Mr Hallam likened the Middle East market to the “Wild West”. “I haven’t seen anything like this anywhere in the world,” he said.

David Hughes, a regional director for the Gulf at deVere Group, said that compared to the UK or the US, the Middle East “may be” the Wild West but not when it is compared to other parts of the world.

“There are many, many countries around the world where these are fully licensed products in a licensed environment,” said Mr Hughes.

“But if it is that product or no product, I would rather the client went into a structured savings plan. But can they be improved? Yes. Show me one industry, one sector, one product that can’t be improved.”

Tim Searle, the chairman of Globaleye, said there is “no problem” with the 25-year plan, but there is a problem with advisers being paid for a 25-year plan on day one.

“That’s the issue,” he said. “Because then you have your fee for execution. [They think] I got paid to execute. I didn’t get paid to come and see you every quarter. So the plan needs to change so there are certain milestones along the way.”

Nigel Sillitoe, the chief executive of Insight Discovery, said his main concern was the number of unregulated advisory firms operating in the UAE.

“It is estimated that there may be 1,000 advisers who are not regulated by anybody running around the UAE. So the first thing that needs to happen is the authorities need to defini­tely clamp down on these individuals and advisory firms that have no licence whatsoever”

———————

The National’s Money Roundtable participants:

  • Nigel Sillitoe, chief executive of Insight Discovery
  • Peter Hodgins, partner at Clyde & Co
  • Tim Searle, chairman of Globaleye
  • David Hughes, regional director (Gulf region) of deVere Group
  • Sam Instone, chief executive of AES International
  • Andrew Hallam, personal finance writer, author and speaker
  •  Alice Haine, The National’s Personal Finance editor

Read the article on The National





Andrew Hallam

I’m a financial columnist for Canada’s national paper, The Globe and Mail, as well as for AssetBuilder, a financial service firm based in Texas. I’m also the author of Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School (2nd Ed. Wiley 2017) and The Global Expatriate’s Guide To Investing: From Millionaire Teacher to Millionaire Expat (Wiley 2015). My mission is to educate, motivate and inspire people on basic retirement planning and best practices for investing, using evidence-based strategies. I’m happy to comment on your questions. However, please read the Terms of Use, Privacy Policy and the Comments Policy.

You may also like...

13 Responses

  1. Amanda says:

    Vanguard are selling ‘life strategy’ portfolios of ETF’s that can be weighted to the individuals risk appetite. Have you had any experience of this product and how does it compare to investing yourself in a range of EFT’s?

    • Mark Zoril says:

      Hi Amanda. I am an adviser that Andrew recommends. I work with many people in helping them setup low-cost ETF or index portfolios.

      Vanguard’s Lifestrategy funds are great! In fact, I use a very similar type of fund called a Target Date fund myself. Both of these are excellent choices. However, the Life Strategy funds are only available to Americans with residence in the US. American expats can easily build similar portfolios using ETF’s.

      • Monica Nguyen says:

        Hi Mark, I’m a Canadian expat. I sent you an email. I’d like you to build a low-cost ETF or index portfolio for me. Please check in your other folders/junk mail if you didn’t get it in your inbox. I’m looking forward in hearing from you. Kind Regards, Monica

  2. Oz says:

    Would love to have been a fly on the wall at this!!

  3. Ola says:

    I pulled my money out of Friend’s Provident last year. Very painful experience and had to leave nearly $5,000 in there but honestly didn’t care. I just wanted to extract the maximum before I got screwed over more. I advice everyone I see to stir clear of all of them.

  4. Jason says:

    Nice job, Andrew! Thank you for being present and advocating all of our behalf.

    Best regards,

    Jason

  5. M T says:

    Hi Andrew.. you came to my school today to talk but unfortunately I was unable to attend. Is there any way I could speak with you? I know you are already booked tomorrow.
    Thank you

  6. Jen says:

    Well done-a step in the right way! How some of the ‘financial advisors’ can even sleep at night I don’t know! Perhaps the thinking is that expats working in the M.E get good money so who cares if they cream it off them-they have so much now! But when those advisors are old n grey perhaps their minds will wonder back to those expats and guilt might fill them imagining those people now also old n grey–but living in poverty-helped to that state by their advice and empty promises. Andrew has consistently tried to counter this and open people’s eyes-and we too must take up the battle and indeed rights for ourselves and our M.E expat community money and our future financial health.

  7. Anonymous says:

    Hi Mark Zoril
    may I contact you in private?
    Let me know, my mail is [redacted]
    Thanks in advance
    Regards
    Saulo

  8. Felicia tearse says:

    Hey Andrew, Hope you are well. I was wondering do you offer one on one sessions? Or are you doing any seminars in Abu Dhabi. We live in al Zeina, Cant wait to hear back from you. thank you, felicia

Leave a Reply

Pass the Test *