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BOD49 to spark HNW expat ‘pensions gap’ in UAE?

Increased regulation which disincentivises selling may leave clients without products

UAE Currency


UAE commission capping regulation BOD49 was brought in to help clients afford products however it may have a negative effect for expatriates.

The Insurance Authority (IA)’s newly introduced rule came into effect on 15 October and plans to be a game changer for the industry.

The rules say that no indemnity commission — a sum paid upfront to advisers on the full value of an insurance policy — is allowed for regular premium policies and the commissions paid should be based on the annualised premium collected.

First year commissions must be capped at 50% of the annualised premium or 50% of the total commissions payable under the product, whichever is lower. The remaining commissions must be paid out linearly over the remaining premium payment term of the policy.

Mind the gap

But Richard Burden, head of international sales at Canaccord Genuity Wealth Management, told International Adviser: “The wider impact of regulation, particularly in what we call the older emerging markets, is an interesting one.

“We know that financial services are rarely bought. They’re always sold through very good wealth managers and IFAs. I think what we’re going to see in some of these markets are pension gaps – and then there is the question of whether the state will take up the slack. In most cases, probably not.

“I think when you see the impact of regulation coming in, the traditional life companies start to withdraw product. Over the years, those have been vehicles that have helped clients save for the future and now that you have less products and less providers in those markets, as well as less incentive to sell those products, what are clients going to do?

“Are clients going to jump on their own fund platform and invest $2,000 (£1,495, €1,683) a month? Potentially not. I think there’s a longer-term impact of pensions gap appearing among high net worth expats, who aren’t going to save for the future. They might have the attitude of spending that spare cash, rather than thinking about retirement.

“That’s something of a medium-to-long term impact. If we lose the ability to incentivise people to sell life wrappers and investments – and if regulation starts to disincentivise them from selling – it could ultimately affect clients in the long term, who won’t be saving for their future. We need to find the right balance.

“It’s whether or not under the commission caps are deemed an appropriate level of commission to actually go out and seek clients. We won’t know that impact until the first sales figures starts to come through.”

Technology’s chance to shine

The UK and other western countries have started to push the message that technology will solve an advice and product gap.

But Burden doesn’t think this will be the key to close the gap in the Middle East.

“I think there’s a small element that people will use the tech gap to actually identify their needs and requirements,” Burden said. “But I think fundamentally, at the end of the day, we are a relationship business and people like talking to people, they relate to them and that’s why they buy from them.

“I think tech can enhance, in terms of point of sale and ways that you communicate with clients, but I think fundamentally, as with many other industries, we are a relationship-led business.

“Clients need to explain what their circumstances are because there are often times that it’s only under an analysis or some questioning that people remember things that they never ever thought as part of the advice journey.”

M&A frenzy

The BOD49 regulation was something that dragged on for years until it was finally implemented into the Gazette a year ago.

Unfortunately, not everyone thought it would actually become a thing in the UAE, and Burden thinks M&A deals could be on the horizon because of this.

Burden added: “There were always going to be a small sector of the market that we’re going to wait till 11:59 on the evening before the regulations change, and that was never going to change.

“M&A activity will increase. There were a number of people who buried their head in the sand.

“But you had a lot of them who really thought about what the future is going to look like with lower initial commission and partnered with IFAs and professional connections.

“Rather than the regulation changing habits, it’s almost like the impact of the announcement of the regulation changes the habits. Many of them are up to speed.”

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