The UAE financial advice sector is set for its biggest regulatory shake-up but not everyone thinks this will be a good thing.
Consultancy firm Insight Discovery launched its 10th Middle East Investment Panorama and surveyed 132 financial advisers in the UAE.
It found 27% of those regulated by the Insurance Authority (IA) think that the BOD49 regulation, which caps commissions and requires greater disclosure of fees and costs, will be disastrous.
A further 27%, however, think that the regulations will be very positive.
It has raised expectations that BOD49 could trigger significant M&A across the industry, which the research seems to support as 12% of chief executives admit they are considering selling their businesses.
Delay
Recently, the IA delayed the implementation of BOD49 until October 2020.
Tom Bicknell, partner at law firm Pinsent Masons, said in the report: “Whilst not entirely unexpected, it is safe to say there will be a collective sigh of relief across the UAE’s life insurance market.
“Given the implementation costs for market participants and also the supervisory costs arising from its roll-out; the postponement of this game-changing regulation does, in our view, make sense to give the market time to work through the challenges posed by covid-19.”
Regulatory environment
Overall, more advisers think that the general regulatory environment is an opportunity (44%), whereas 42% said it is a challenge.
Nigel Sillitoe, chief executive of Insight Discovery, said: “Headlines have been dominated by the covid-19 virus and, before that, the IA’s new regulations.
“Relative to other professional groups, financial advisers have had to cope with a wave of new regulations by the authorities in the GCC countries that have sought to improve the conduct of the advisers.
“The recently announced rules of the Insurance Authority of the UAE, which are now due to come into force in October 2020, are merely the latest example.
“The advisers have met the challenges, and the industry is stronger as a result.”
Clients
Four-in-five UAE advisers say their clients are becoming more knowledgeable, with just 4% stating that their clients are not evolving.
Some 65% said clients are demanding greater transparency and 61% said they are seeking more value from products and services.
Only 39% of advisers believe that clients are demanding more online access, which suggests that face-to-face contact remains important.
Keeping up with the demands of clients can be hard, but what did advisers think about growing their client base?
Some 72% expect to expand their business in the coming year by attracting new clients, only 20% think that attracting clients will be a challenge.
Just under two-thirds (64%) see the retention of clients as an opportunity, against 17% who see it as a threat.
Business growth
The survey found over 60% of advisers had grown their businesses over the preceding 12 months.
This is due to greater numbers of clients (22%), larger average transaction size (9%), both of these factors (26%) or acquisitions (4%).
But 17% of advisers reported that their businesses had actually contracted over the previous 12 months.
This group was evenly divided between advisers with fewer clients, advisers with lower average client assets under management, and advisers for whom the average transaction size had fallen.
The report also found that the biggest measure of success for advisers is the number of referrals per year (26%), followed by annual commission (26%), renewal commission (22%) and size of typical transactions (9%).
Only 17% judge success by awards and peer recognition.
Opportunity
The biggest opportunities in the year ahead appear to be new technology and electronic processing (74%), engagement of new clients (72%) and retention of existing clients (64%).
When asked to identify the main growth opportunities for the next three years, 71% of advisers said wealth planning.
This was folllowed by investment management services (58%), life insurance (52%), tax-related advice (48%) and legacy planning (42%).
Products and services
The report also said that, in 2010, the number of advisers using or recommending the products of international life companies was 36%.
After rising steadily through the years, the figure now stands at 93%.
However, UAE advisers had some constructive criticism for the international life offices.
Some 60% said the improvement of administrative processes by the international life companies was the most important issue to tackle.
The other aspects were product breadth and options (44%), marketing support (30%), digital services and post-sales processing (29%), digital services and pre-sales processing (31%) and product training (27%).
Another big player in the market is international asset managers. Some 77% of advisers said they use their products, which has decreased slightly from the year before.
The report said: “This may be because of a tendency for expats to take a do-it-yourself approach to investment, in which they deal directly with international asset managers.”
Social media
Insight Discovery has been very vocal recently about how social media should be a big priority for advice firms.
The report found LinkedIn and Facebook are by far the most important social media platforms for advisers, being used by 87% and 65%, respectively.
Followed by Instagram (35%), YouTube (30%), Twitter (22%) and WhatsApp (21%).
Significant numbers of advisers use social media for advertising, to boost awareness of their company, and for general brand promotion.
Of those advisers who use social media for advertising, only 63% said that it is of first importance.
Reputation
Lastly, the report also featured a survey of 1,000 UAE residents about the profession with the worst reputation.
The reputation of financial advisers deteriorated over the past year and they were flagged by 350 respondents.
Of those respondents who mentioned financial advisers, 27% said they had the worst reputation.
They tend to have a better image among people who earn between AED10,001 (£2,174, $2,723, €2,491) and AED25,000 each month, however, as only 18% think that they have the worst reputation.
