Half of the UAE’s financial advisory firms have grown their businesses over the last year despite operating in a tougher environment characterised by rising costs and regulatory changes, according to a new report from consultancy firm Insight Discovery.
More than half (51%) of advisers surveyed for the eighth edition of the Middle East Investment Panorama, have more clients or active clients than they did a year ago. One in five said they have experienced a contraction in business as a result of fewer clients.
The UAE Insurance Authority (IA) and the Central Bank have both issued circulars this year outlining changes to the way savings and investment schemes are sold in the UAE.
The IA’s second draft circular, released in May as a follow up to its 2016 release, reinforced its plans to cap total commission payable to entities involved in the sale and distribution of insurance products, such as financial advisers. It also outlined plans to ban the use of charges such as advice fees and trailing commission fees on the products sold and restrict surrender charges.
The Central Bank also issued a circular in May advising banks and finance companies to resolve all outstanding mis-selling complaints “amicably” and within a deadline of 90 days. It also said it was refusing to approve requests from banks or finance companies to market or sell “savings and investment” and “non-capital guaranteed/protected takaful/insurance products”.
Both agencies were responding to a raft of complaints from customers over expensive fixed-term investment plans.
According to the Insight Discovery report, one in four advisers in the UAE consider the regulations a threat with three in 10 holding negative views of commission caps and higher disclosure. The report said that collectively, the advisers obtain 72% of total income from initial fees and commission.
The report also found that eight in 10 advisers think clients are becoming more knowledgeable – perhaps reflecting the growing preference among some UAE residents for managing their own personal finances.
The report highlighted too how advisers are switching to new products to gain customers; at least 40% of advisers have increased life protection and general insurance offerings.
Another regulatory effect on the financial advisory industry was the IA’s decision in July to strengthen its capital adequacy regulations. According to the IA, brokers must maintain paid-up capital levels of 100% with failure to do so risking intervention from the Authority and even suspension of the broker. Any reduction in capital must be approved by the IA and where this figure falls below the minimum level of AED3 million (US$816,760), a corrective plan must be submitted by the broker.
This has had a direct impact on firms, with seven in 10 advisers admitting that compliance costs have risen over the last year, while 69% said regulatory costs have grown.
However, macroeconomic factors such as falling rental rates have helped to keep financial firms afloat: 13% of advisers said that property rental costs as well entertaining and hospitality expenses have fallen. M
AED1 = US$0.27