Savers often fall victim to mercenary consultants offering too-good-to-be-true schemes
New laws will crack down on fraudulent financial advisers
For many of those who arrive on these shores, the priority is to save as much of their earnings as possible and invest them in a long-term future, whether that involves protection for their families, school or university fees or a retirement home. The conviction of personal finance consultant Neil Grant yesterday in Dubai showed how easy it is to fall prey to unscrupulous investment advisers. Grant was convicted of running an unlicensed business, amid claims he funnelled his clients’ money into high-risk investment funds, generating huge commissions for himself and devastating people’s life savings. The total losses of his 400 clients run into millions of dirhams. The conviction is unlikely to numb the pain that his criminality has caused but while Mr Grant’s case is extreme, aspects of his behaviour will have a depressing resonance for many. In a financial climate which is still evolving – as it is in many countries with a largely transient population – there are those who would exploit that to their advantage. New personal finance regulations, drafted last year but not yet implemented, are urgently needed to stop the mercenary few use those loopholes to line their own pockets.
Although Mr Grant’s criminality has shone a much-needed spotlight on the matter, such problems are not unheard of. These pages have consistently sought to improve financial literacy among our readers through personal finance initiatives like the Debt Panel. The practice of mis-selling investment packages with seemingly lucrative perks, which then fail to materialise, is not unique to the UAE but as we have reported in these pages, foreign residents are often targeted. Many come here aiming to work hard and make money quickly and temptations abound to sign up to investment plans which seem too good to be true – and usually are. Some financial advisers exploit that hunger by offering handsome incentives, which are quickly absorbed in high interest rates and commission fees. A second problem is the duration of investment plans sold, with some lasting 25 years. Given the transience of large sectors of the UAE’s employment market, either or both parties have often left the country in that time, giving little comeback when things go wrong.
These factors should not exculpate those advisers like Grant, who prey on people’s desire to save for the future. Some consultants ignore the express wishes of their more cautious clients, sinking money into high-risk investments that guarantee them very large commissions and their clients little payback. Others exploit regulatory loopholes to charge such high fees – including transaction, administrative and investment charges – that any gains are automatically swallowed. There are plenty of financial advisers who are honest and hardworking but most of us know someone who has been approached by those who seem less scrupulous.
In concert with incoming regulations, it is imperative that customers do their due diligence when hiring financial consultants. In 2016 the UAE Insurance Authority began to investigate savings and investment schemes following an uptick in complaints, while a draft circular last April suggested an overhaul. Proposals include maximum limits on the commissions and restrictions on recouping fees from the investment products they sell. (In the absence of such regulations, advisers have an incentive to recommend investments that pay the highest fees.) Crucially, consultants will need to clearly illustrate all fees and charges the client is likely to pay. Yet these rules only apply to plans written after the regulations take effect sometime this year. Once introduced, they will be effective in reducing mis-selling. But following Mr Grant’s conviction, their implementation cannot come soon enough.