Financial advisers are reviewing their staffing policy to escape the charge of mis-selling of investment products, prompted by the recently issued UAE Insurance Authority draft regulations which tackle the issue of ‘untrained specialists’ who sell investment products.
There have been reports that expatriate investors were losing heavily on account of mis-selling by ‘unprincipled’ advisers.
Investment advisers welcome the move saying that the regulator is getting tough which will weed out the unscrupulous elements who bring ill-repute to professional advisers.
Subhasish Roy, authorised consultant with Nexus Insurance Brokers, Dubai, said: “One possible solution is investor education along with training of investment advisers and staff restructuring. It’s usually the untrained marketing personnel who do mis-selling of products complex in nature and not well understood to generate business.
“Companies have realised the need to deploy professional advisers to get business as well as to maintain their credibility in the market”, he said.
While managing director of Dubai-based MCA Management Consultants, M Hanumantha Kumar, said: “It’s a fact that there have been rampant mis-selling, but that’s by the outsourced sales force engaged by banks and financial institutions on short-term contracts. They are usually unqualified or untrained and without sufficient knowledge about the products they sell or the real investment purpose of the customers.
“They resort to promising unreal returns to gullible customers for the sole purpose of pocketing the upfront commission,” said M Hanumantha Kumar, managing director of Dubai-based MCA Management Consultants.
“The modus operandi is the advisers in their sales talk promise attractive returns without disclosing the high fees, costs and commission. The investor will realise the truth only when he gets a statement showing administration fees, yearly transaction fee, fees for investments as well as fund management fees, all deducted from his fund value. At the same time, the advisers receive their commission upfront,” he said.
Alarming number of complaints
New rules defining the profession of investment adviser, covered in last week’s analysis for NRI Adviser, were set out in the latest version of the Insurance Authority’s draft rules published in January 2019.
Previously, the UAE Insurance Authority, in a 2016 circular, noticed an alarming number of complaints from investors who had seen their gains eaten up by high fees on managing savings and investment schemes and suggested some measures, which were not implemented.
Again, in April 2017 the authority issued a draft circular recommending plans to overhaul how the products, distributed to customers via financial advisory firms, are sold to investors.
This was followed up by the UAE Central Bank directing banks and finance companies to resolve all outstanding mis-selling complaints amicably in 90 days.
At that time, the Central Bank said in a circular that it would deny requests from banks and financial institutions to market or sell savings and investment and non-capital guaranteed/protected takaful/insurance products, if mis-selling complaints are not settled amicably.
The central bank had said it would issue a new governance structure on how to market these products, covering issues such as customer profiling and product suitability and transparency. The bank also said it would introduce a mechanism to redress grievances with non-compliance charges for violating guidelines.
“However, even after the lapse of this stipulated period, nothing remarkable happened or any final form of the regulations was issued by the Insurance Authority or the Central Bank, and the investors continued to be mis-sold,” said Benoy Sasi, international lawyer at DIFC.
Ashok Sardana, managing director of Continental Insurance Brokers, told the Future Advisory Forum organised by International Adviser in Dubai last year: “We are in the process of hiring new advisers every month. Our priority is to improve the customer experience. We are using technology in our system to improve the customer experience and to provide better education to our consultants so that we can move them to the next level of production.”
In order to stay afloat in a competitive market and at the same time to abide by the impending regulations, investment advisory firms have started training their existing employees and hiring qualified and experienced staff.
