Consolidation across the UAE’s financial advice industry is set to gather momentum due to regulatory changes, the pressure from investment trends and the need of firms to attract and retain qualified personnel.
A form of consolidation is already underway with a number of players in the sector having been bought this year, with some in the sector predicting that up to 80% of advisers may be ready to leave the market.
The key driver is seen by many as the Insurance Authority’s planned regulations that will limit the fees and commissions charged to those buying savings plans.
The regulator released a third version of its proposed rules at the start of this year and is currently assessing feedback from the industry.
Scale of move in question
But how far is the consolidation likely to go, especially given the growing numbers of expatriate workers, especially from the Indian subcontinent, in need of financial services?
Leading industry players have differing views.
“Yes, there’s been a lot of news of consolidation in recent times. A few acquisitions have happened, and a few are in discussion as far as the grapevine goes,” said Navin Nihalani, founder and chief executive of Compass Insurance Brokers.
Nihalani said he believed large international players are planning to enter the UAE to try and capture a major share of the advice market and to acquire some of the smaller advisory firms.
Small firms under pressure
Ashok Sardana, managing director of Continental Insurance Brokers, said it was an ongoing phenomenon.
“The profession is going through consolidation, which is an ongoing thing. I feel, in the future, with the new regulations coming in and the requirement for compliance, the smaller companies may need to merge to stay in the business.”
Krishnan Ramachandran, chief executive of Barjeel Geojit Financial Services, said he would not call it consolidation in the real sense.
“Rather than consolidation, advisory firms are seeking to get into more business verticals. It is also important for advisory firms to be under a fully regulated umbrella, which is not the case today in majority of the cases.
“Consolidations and partnerships can occur only when there is a robust financial oversight.”
Quality advice needed
Taru Singhal, head of IFA distribution Middle East at Zurich International Life, said that there is some consolidation, “but the underlying need still remains that there will always be a requirement for good quality financial advisers who can demonstrate the value they add to customers”.
“As the market evolves some may be more willing or able to adapt whilst others may not be equipped to change,” he said.
Changing for the better
With all the consolidation talk, a question remains – is the industry changing for the better?
Most advisers would answer ‘Yes’.
Barjeel’s Ramachandran said: “This is a dynamic industry with multiple choices and interesting investment themes.”
Continental’s Sardana saw it as a positive move, saying: “It’s going through a positive change because of more awareness. People are willing to do more financial planning. It’s fun to talk to client who understand what you’re talking about.
“If I go to a client that doesn’t know what insurance is or how they can benefit from it, it’s hard to have a conversation with him or her.”
Zurich’s Singhal added: “As the industry matures and consumers become more informed and demanding, it should mean everyone will benefit from better products and better advice processes meaning happier customers which can only be good for the industry.
“Every change, big or small, is for the better, our industry is also evolving for the better,” said Taru.
Already, the industry is seeing a drop in the number of advisory firms.
“The future scenario is hard to predict but it looks like the number of players in the market may be reduced to less than one-third of the current count once the regulations come in playn” said Nihalani of Compass Insurance Brokers.
“Only the ones with focus on quality and service and the ones that are ready to adapt will survive.”
Balancing act
Nihalani subscribes to the view that the industry is changing for the better.
“With the new regulations expected soon, there will be a massive shift in the entire landscape of financial services and it’s overall for the better, the better for clients, principals and advisers too.
“It will weed out the bad advisers but there is a flip side to it. If the regulation is rolled out as per the latest draft, it will also take a lot of quality advisers away from the industry and that could lead to a lack of good advice for clients which can also be quite dangerous in the long run.
“A lot of advisers will tend to work with a lot more clients to make ends meet and that could also lead to lesser individualized attention for clients. All in all, it will be a balancing act,” Nihalani said.
