Non-resident Indian advisers in the UAE are weighing up whether they will have to settle for a fee-based regime or take a cut in revenue and change the way they sell investment products when the Insurance Authority finally implements the draft financial regulations promulgated on 31 January 2019.
New rules defining the profession of investment adviser is one area which is expected to have a bearing on licensing procedures and raise questions in the detail of how it will work in practice.
The draft regulations say: “No person may practice the profession of an investment adviser in the life insurance business unless such person is licensed and registered by the competent authority; No investment adviser can sell any life insurance product or Family Takaful product, unless they are also licensed and registered as an Insurance Producer by the Authority.”
“There is a grey area as far as the definition of ‘investment adviser’ is concerned as the draft regulations say ‘All persons practicing the profession of an investment adviser can provide only investment related advice to life insurance policyholders’”, said Mahmood Bangara, chairman of Dubai Chapter of the Institute of Chartered Accountants of India (ICAI).
Commission cap
The draft regulations propose a cap on commissions for lump sum investments and fixed-term contractual plans, and issue clear guidelines on the selling of insurance and investment products to safeguard the interest of customers.
The measures include a cap of 4.5% on the sale of lump sum portfolio bonds or offshore bonds by advisers from financial companies. This replaces commission payments of up to 10% paid by some insurers to the advisers on the sale of their products.
The draft stipulates that advisers must provide customers with a detailed schedule of fees and commissions for the entirety of a policy’s life cycle and customers have the option to cancel a policy within 30 days.
Indemnity commission will be restricted to 50% of the annual premium in the first year with the balance paid over the term of the policy.
Aftab Hasan, chief executive of Arya Insurance, said: “Advisers will have to be prepared for lesser fees and commission on the sale of lump sum portfolio bonds and other investment products.
“Further, they have to come clean as far as miss-selling by an ‘unqualified sales force’ is concerned and be transparent about fees and commission when dealing with retail and corporate customers.”
Companies in the spotlight
The draft regulations apply to insurance companies incorporated in the UAE, or foreign branches of insurance companies licensed to carry out insurance operations either through a branch or an insurance agent.
They also include those companies engaged in the operations of Takaful (Islamic insurance), reinsurance and bancassurance. The provisions of the regulation also apply to all the professions associated with insurance.
The fees paid to an investment adviser for providing investment related advice will be considered to be part of the total commission if the fees are not fully disclosed separately from all other charges or if the customer is not fully aware of the fees and services at policy inception.
As such, it must be in line with the overall commission limit rules. If the fees are fully disclosed separately from all other charges and the customer is fully aware of the fees and services at policy inception, then the fees are not part of total commissions.
Sajit Marakar, chief executive, Essem Insurance Services, Dubai, said: “Advisers will be forced to do a lot of explaining to their clients and be transparent in fees charged.
“The payment of fees, including up-front, fixed, advice, management and trailing, to an insurance producer and/or investment adviser is allowed only if the fees are not recouped from the product offered, the customer is fully aware of the fees and the fees are considered to be part of total commissions.”
The authority is now seeking industry feedback to the draft rules before its anticipated implementation in 2020.
