The investment adviser segment of the financial services industry in the UAE is calling on the authorities to prescribe a minimum qualification or certification level for financial advisers.
The demand has been made in the wake of the implementation of BOD49 regulations by the Insurance Authority, which came into effect from 16 October 2020.
The new regulations address the most important issues relating to mis-selling, overall commission payouts, upfront payments to agents/brokers by insurers, fees and charges associated with investment products, the free-look period and mandatory benefit illustrations.
The industry had expected the regulators would also prescribe qualifications and certification for advisers to curb mis-selling and unprofessional advice, while promulgating the provisions under BOD49.
“It is a fact that mis-selling is rampant and investors either get cheated or misled into buying products that benefit only the so-called advisers by way of upfront commission or financial incentives,” said Navin Nihalani, founder and chief executive, Compass Insurance Brokers.
“If you are an adviser you need to know the financial market well. Insurance and investments are interlinked. The investment proposition is basically the underlying investment and customers’ money is invested in the fund underlying . [An] unprofessional or unqualified adviser, who does not understand the products, would mislead customers into buying investment products which may not serve their purposes,” he said.
The industry was expecting that the regulations would prescribe qualifications and certification for advisers such as ‘Certified Financial Adviser’ or to undergo courses conducted by the Charted Insurance Institute (CII).
Nihalani added: “Credentials, such as the CFP or CFA designation, can give the confidence that your adviser has undergone rigorous professional education and passed qualifying exams that enable them to give sound advice.”
Financial services firms can establish their credibility by employing only advisers with certifications, such as Certified Financial Planner (CFP), having the ability to advise clients on financial planning.
“If such a qualification was prescribed, all advisers would have required to be registered with the Insurance Authority, and they would have to carry professional indemnity insurance. In case they make any mistake, where a customer suffers financial losses, the professional indemnity insurance would indemnify the client.
“With this, they are made responsible for their action,” Nihalani said.
The unqualified lot
Mis-selling is usually done by unqualified advisers. Insurance and investments are interlinked.
Ashok Sardana, managing director of Continental Insurance Brokers, said: “If the broking business is to survive and thrive, they would need to get into a fee-based model with clear guidelines from the Insurance Authority.
“And in order to follow these guidelines, the advisers would be required to be qualified to understand the products well.”
He said there was need for industry-recognised qualification for advisers.
“It should be mandatory for all advisers to be qualified to some level to provide advice. We’re dealing with people’s life savings, retirement funds, etc., and we can’t have non-qualified advisers advising people,” he added.
Qualified advisers can offer customers tailor-made financial solutions for their short-term or long-term returns. Having academic and professional training means they can understand many of the complexities of financial and investment products and guide their clients accordingly, he said.
Professional indemnity insurance
Industry players say there should also be some kind of accountability on the part of the advisory community. It is suggested that all advisers have to be registered with the Insurance Authority and carry indemnity insurance.
In case they make any mistake where a customer suffers financial loss, the professional indemnity insurance would compensate the client.
In fact, measures were suggested way back in 2018 by the industry. An earlier report said financial advisers were reviewing their staffing policy to escape the charge of mis-selling of investment products, prompted by the recently issued UAE Insurance Authority draft regulations which tackle the issue of ‘untrained specialists’ who sell investment products.
Expatriate investors were losing heavily on account of mis-selling by ‘unprincipled’ advisers.
“Investment advisers would welcome the move as the industry will be able to weed out the unscrupulous elements who bring ill-repute to professional advisers,” said Aftab Hasan, chief executive of Arya Insurance Brokerage Co, chairman of Risk Exchange (DIFC), and secretary-general of Insurance Business Group.
