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New regulations force paradigm shift in adviser business plans

Worries that revenue sources will dry up, as 2020 predicted to be the ‘year of consolidation’


Financial advisers in the UAE are gearing up for a significant overhaul in the way they do business, with the Insurance Authority is set to introduce big changes from next month.

The highly anticipated consolidation in the UAE’s financial advisory community is likely going to become a reality with the regulator introducing a cap on all fees and payments to brokers and independent financial advisers for life insurance policies and investment products.

The regulations, published by the UAE Insurance Authority in October 2019, will now be promulgated in the official gazette to take effect from 15 April 2020.

Overall cap on commission

The new regulations fix an overall cap on commission paid to the insurance intermediaries and independent advisers and distribution channels, depending on the nature and tenure of the insurance and investment product.

It is stipulated that the insurer, through the adviser, is required to provide a benefit illustration providing details of the plan, such as the premium payment mechanism and the premium amount.

They should also be transparent on the applicable fees and charges, benefits under the policy, including the insurance, protection and cash value or return on investment, and the premiums towards each component, net of all fees and charges.

The illustration document should include the applicable premium a customer will be required to pay under the policy, including what portion of it forms the commission.

This means there will not be any hidden charges.

Pure protection products such as term policies only provide an indemnity linked to the life of the insured, but no other cash value return.

The commission limit for such a policy is capped at 10% of the annual premium, but with an overall cap of 160% of the annual premium across the life cycle of the product.

For savings and investment products, which have a cash or return value attached to them, the cap limit is a combination of the limits for the insurance portion of the premium and the investment portion of the premium.

As of now customers have little understanding of the commissions and fees they pay because intermediary payments are not disclosed as they are built into the pricing of the products.

Customer benefits

“It will be a boon for the customers as they need to pay only the premium specified under the proposed policy and all fees and charges towards commissions, payouts, administration and management charges,” said Anand Singh, senior associate in the insurance and reinsurance practice at law firm BSA Ahmad Bin Hezeem & Associates.

“The direct impact of the regulations is the stopping of mis-selling, upfront payments, unspecified commission payouts, fees and charges associated with investment products. Advisers will be forced to find new revenue streams.

“Mis-selling of financial services products has affected many economies around the world where disposable income is relatively higher. In the UAE, to safeguard existing and potential customers, regulators have taken active steps to curb it with the issuance of directions from the Central Bank of the UAE,” Singh added.

“Consolidation is in any way happening in other sectors of the financial services industry. 2020 is a year of consolidation for the takaful insurers (Islamic insurance), conventional insurers, insurance brokers and the third-party administrators. Consolidation will lead to the exit of players with a short-term strategy and bring in more experienced players,” Singh said.

The financial services industry in the UAE has been talking about the consolidation already taking place and once it comes to a full circle, there is speculation that most advisers will vanish.

Sajith Marakar, managing director, Consolidated Services Bureau, surveyors based in Abu Dhabi, UAE, repeated his earlier view that smaller brokers and financial advisers will be forced out of the market because major sources of revenue will dry up if the new regulations are implemented in letter and spirit.


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