Abu Dhabi, UAEMonday 10 December 2018

Landmark court case will hearten victims of rogue financial advisers

But until new regulations are implemented, would-be investors must be extra wary

A stock image of Dubai Courts. Photo: AFP
A stock image of Dubai Courts. Photo: AFP

This week the tactics of rogue financial advisers, who mislead clients and misappropriate their life savings, are once again under the spotlight. The victims of Neil Grant, convicted last month of operating his business without a licence, have taken their case to Dubai Civil Court to reclaim their money, setting a new precedent that will hearten many victims. Ahead of strict incoming regulations, the landmark case is another clear sign to unscrupulous independent financial advisers that there are consequences to their actions. The UAE is establishing a benchmark for regulated financial advice in this region. Nonetheless, loopholes will remain until regulations are introduced. In the meantime, investors need to carry out their due diligence to ensure they don’t fall victim to investment plans that promise big returns and never deliver or worse still are effectively rendered worthless by their high fees and punitive exit clauses.

Mr Grant gave advice to his clients without a licence. But there are also some licensed IFAs who defy the wishes of their more cautious investors, selling them extremely high-risk products. The practice is not unique to this country, nor is it endemic, but it has been a problem. Thankfully the sun is now setting on the rogue traders who were entirely focused on their own material gains.

Until it does, the usual rules regarding "buyer beware" apply. Many residents have large disposable incomes but lack understanding of financial intricacies. Some sign up for long-term plans of up to 25 years in the knowledge that neither they, nor their IFA, will still be in the country when the plan matures. In such a market, rogue advisers can thrive, charging huge fees that eat away at any gains their clients might accrue. Because high-risk plans offer hefty commissions for IFAs, there is an incentive to pump their clients’ money into such plans. It should also be said that there are plenty of honest, hard-working advisers, but too many of us know people who have fallen victim to the malicious few.

Incoming regulations will numb the pain. Proposals from the Insurance Authority and the UAE Central Bank, due later this year, will set limits on commissions and force consultants to clearly outline charges. They cannot come soon enough. Nevertheless, the regulations will only apply to plans written after they take effect. With loopholes still open, it is incumbent on investors to do their homework. This newspaper has long promoted financial literacy in this country. Investors need to scrutinise contracts and check licences to ensure they are not preyed upon by people like Mr Grant.