80% of brokers could leave, life companies face uncertain future in the face of new regulations, says Berkeley Assets
The UAE’s financial services industry is heading for a major overhaul, with as many as 80% of today’s advisors leaving the market and life insurance companies coming under growing pressure, investment experts say.
Private equity firm Berkeley Assets says the combination of official regulatory moves and new investor trends marks the end of an era for financial advisors who have enjoyed years of profiting from high commission paid up front for sales.
The future is also uncertain for the life companies whose products they sell, with Berkeley Assets seeing stricter regulations on the way from the UAE Insurance Authority and savvy investors taking charge of their own finances as a double threat.
Berkeley Assets Partner Omar Jackson says new regulations will attract wealth management firms with qualified advisors operating on a fee and trail based model.
“The UAE Insurance Authority has made it clear it wishes to push ahead with new regulations limiting fees and commissions charged to those buying savings plans and giving better protection” said Jackson.
“Hong Kong has already taken the step towards a fee-based financial advisory model, very much like we see in the UK, and this is now happening here.
“The biggest casualties will be the financial advisors for whom years of profiting from high commission paid up front for sales is drawing to a close. Their number has halved in recent years and it could drop by another 80%.
“We can expect to see the big global wealth management firms move in with their fee-structured advisory services. They’ll have qualified advisors who will be paid by the hour, or on a trail and drip commission basis over a period of time.
“These are anxious times for the licensed life companies here who know their business is under threat.”
While the long-term savings plan has been embedded in the UAE market for more than 20 years, Jackson says more and more savvy investors are already turning to other options.
“The financial advisors selling these plans have often been branded as untrustworthy,” he said. “But the real problem was the way the products were designed and how the life companies pay the brokers, incentivizing them to set up a plan for as long as possible.
“Problems occur when people find out only when it’s too late that their money is locked away for years, and they can’t touch it without paying high penalties. The bigger risk is that the money will not be there at the end because it may have been lost in the funds in which it was invested.
“The majority of advisors who have been operating here have no financial qualifications and don’t know how to manage funds.”
Jackson says the modern trend is for people to do online research and take more control over their own finances. “They’re looking for other alternatives, and that’s where private equity, real estate and other asset classes come in to play,” he said.
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