Wealth advisers: How to avoid the sharks

When one of the UAE’s so-called ‘financial advisors’ called Sam Instone a few weeks ago, they chose the wrong guy to try to con, writes Ben Flanagan.

Mr Instone, a former British Army officer now resident in Dubai, received the unsolicited call from a young woman who issued dire warnings about the UK pensions crisis. Mr Instone was told he was in danger of losing his military retirement fund, and should immediately transfer it to an overseas scheme.

What the cold-caller did not realise is that Mr Instone is chief executive of financial-advisory firm AES International, and dodgy advisers – many of whom make thousands in commission, but very little for their clients – have been his professional bugbear for more than a decade.

Sam Instone, chief executive of financial-advisory firm AES International.

The caller worked for “an unlicensed boiler-room” operation and “lied about everything”, Mr Instone said.

“She was incredibly persuasive. I knew what she was saying was complete rubbish. But I could easily see how an unsuspecting expatriate could fall for it,” he said.

Cold-calling financial advisors will be all too familiar to anyone who has lived in the UAE for more than a few weeks. They are approaching the status of national joke, with expatriate residents moaning en masse about their pushy sales tactics and murky commission structures.

Yet the cold callers continue to call – and, presumably, find customers – as they peddle everything from offshore bonds, saving and pension products to pointless insurance policies.

Commissions charged by some of these cold-calling advisors would be laughable, were they not so shocking. According to examples quoted by AES International, fees on offshore bonds could be as high as 17 percent over time, meaning you could lose Dh17,000 for every Dh100,000 you invest. Commissions are often paid to the financial advisors – or “salesmen” as Mr Instone calls them – as soon as an investor signs up, leaving little incentive for them to provide follow-up assistance.

With often scant disclosure about fees and commissions, the UAE’s financial-advisory market stands about 30 years behind those of developed countries such as the UK, Mr Instone said. And because many advisors are not regulated in the same way they are in more developed markets, UAE residents have little recourse if something goes wrong.

Read the September edition of Benchmark Middle East online here

“The Middle East is like the Wild West,” Mr Instone said. “My advice to anyone would be to never indulge a cold-caller. A momentary lapse in your guard can have a horribly long-lasting impact.

“The amount of people whose financial lives – and probably marital lives and family lives – would have been saved if they did not accept that cold call… I’m seeing them again and again, where people have lost their life savings, pensions; people who have transferred them all and they find out that it’s a scam.”

Peter Cooper, a long-time Dubai resident and the editor and publisher of ArabianMoney.net, says he gets a cold-call from a financial advisers almost every day.

“Recently one tried to call three times while I was hiking up a mountain in Austria,” he said. “Where do they get my number from?”

Such advisors sell “policies that benefit them most and not you” and are not worth the time of day, Mr Cooper added.

“One young colleague of mine was sold funeral insurance. She probably will pay a fortune by the time she dies and will not be around to claim it either,” he said. “Who will know about this policy except the guy who sold it – who’ll probably be dead by then after a long and comfortable retirement?”

Mr Instone, whose firm specialises in financial services for expatriates, wants to provide a viable alternative in this industry plagued by dodgy advisors.

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He founded AES International more than a decade ago in the UK, where it is still headquartered, and now runs it from Dubai. Regulated in multiple jurisdictions, AES provides financial advice to its wealthiest clients – those holding at least £250,000 (Dh1.4 million) – as well as general guidance and access to an investment platform for those with £20,000 or more in the bank.

It is the latter group – the well-off, but not rich – that is most at risk from the cold-callers, said Mr Instone. He said he has met “dozens” of people who have lost money by investing in dodgy schemes, including one left £800,000 out of pocket. He described some of the savings vehicles being offered in the UAE as “horrible, toxic, 1980s products”, with many investors better off abandoning them after five years – and losing all their money – than continuing to invest.

So what does AES do differently to the cowboys out there?

Mr Instone says a crucial difference is that its revenues come from fees, not commissions – which means they are more motivated to act in clients’ best interests, and grow investors’ portfolios over time.

In a bid to draw in customers, AES offers a free review of individuals’ existing investment portfolios, to see if their money is being managed in the best way. But Mr Instone says most people don’t actually need bespoke financial advice, recommending a “do it yourself” approach for many.

While Mr Instone steadfastly believes that both cold-callers and commission-earning financial advisors are to be avoided, there are of course those willing to defend the practices.

One financial advisor, for example, defended cold calling as a valid business practice in a recent interview with one UAE newspaper – although he acknowledged that purely commission-based financial advice was a poor model.

Mr Instone said it will take “years and years” to change the “toxic” commission-based model of selling financial products in the UAE. One bigger problem to tackle is that Dubai has “historically been a safe haven for unlicensed financial-services providers”, he added.

“I could name 40 companies here which don’t have any licenses – big financial ones, household names in the UK. They operate here with impunity, and the clients have no recourse to complain,” said Mr Instone. “Until they get a grip of that, then financial train-wrecks are going to continue to happen.”

Until then, Mr Instone’s advice is to give the cold callers the cold shoulder. Although he didn’t take his own advice when the persuasive young woman called him a few weeks ago. In fact, he booked an appointment with her.

“They obviously researched me online and decided not to turn up. I never heard from them again,” he said. “And I was really looking forward to them coming in and having a chat…”