Research conducted last year by Dubai-based research house Insight Discovery, found 16% of advisers believe commission has a big influence on their investment decision process, while 22% said increasing commission was a positive development. Early indications from this year’s survey suggest these figures are set to grow.
Nick Savastano, associate director for Invesco Middle East said: “There is a practice of paying ‘soft commission’ to advisers in the UAE which goes over and above the charges the advisers have already earned. However, Invesco would never entertain any such practice and my experience tells me that neither would any of the other international asset managers based here.”
Sources familiar with the situation informed International Adviser that one of the ways soft commission can be discretely paid to advisers is for the asset manager to “import” a share class offered outside of the UAE which has a higher annual management charge. The asset manager can then “skim” the excess off this fee and pay the adviser additional commission.
Simon Littmoden, who is head of international sales for J.P. Morgan Asset Management and based in Dubai, said the practice of paying soft commission is quite typical of this type of market.
“This is a frontier market and there are practices we see which are reflective of this. Advisory companies, unlike in the UK where you will see salaried advisers, are heavily predicated on commission. In the UAE we compete against boutiques which are essentially fund manufacturers and which have the ability to incorporate into their funds and pay additional commission.
“Soft commission is an absolute no no for JP Morgan. Paying it would go completely against the UK’s Retail Distribution Review and the work we are doing in Hong Kong. We just do not operate in that area.
“Having said that, we do recognise the importance of soft commission in the decision making process for some IFAs in the UAE, although I do think this is beginning to change.”
The view that the Middle East was one of the last bastions of a commission culture was echoed by William Wells, director of the Middle East for Schroders.
“In a world where commissions are disappearing and clients are demanding transparency on fees – RDR in the UK, increased disclosure requirements in Asia – the Middle East stands out as place where commissions are not yet so widely disclosed” said Wells. “We believe it is crucial that financial advisory firms select funds based on the outcome that clients require rather than the commission paid.”
However, Littmoden said recent events, such as the implosion of the Australian property funds run by LM Investment Management, are beginning to have a positive impact on how advisers view their fund making decisions – realising that perhaps the initial large commission payments are not worth the potential long term damage.
