Gulf investors turning their backs on financial consultants and wealth managers

After a decade of easy pickings among the tax-free, highly-paid Western expatriates in the Gulf States, financial consultants and wealth managers are having a much harder time this autumn.

New UAE Central Bank rules have made cold calling illegal, for example. That has stopped some of these incessant and very annoying calls. Times are also harder for expatriates whose earnings have been hit by a three-year slump after the global financial crisis and a local real estate crash.

Falling stock markets

And of course the general condition of global stock markets does not make investments look a very good idea at the moment. But more than this investors are sick and tired of the rank dishonesty, deception and over-charging of financial consultants and wealth managers.

They increasingly realize that upfront fees for mutual funds are a complete rip-off. You can buy the same funds through an online brokerage account for a fraction of these fees.

Besides exchange traded funds are much cheaper than mutual funds in terms of annual charges and basically do the same thing with no possibility of underperforming the benchmark index unlike mutual fund managers who frequently do.

Annoyingly Western banks and some self-styled financial consultants now phone from overseas to get around the UAE ban on cold calls. Clients are approached by ‘relationship managers’ and their staff for ‘appointments’ to discuss their financial affairs. That allows the bank to learn all about their personal wealth before selling them financial products on commissions that are not usually fully disclosed.

What ever happened to good old fashioned banking where a bank took deposits, paid interest and made loans? This is supposed to be a financial institution not a supermarket for financial products that are so complicated retail clients can never fully understand what they are buying.

Honest custodians

Still the banks are at least honest custodians. People who trust their money to less well known names are really asking for trouble. Where is your money? Who actually holds it? Who actually decides where and if it is invested? What are the penalties for getting it out? Expect to receive very little if you attempt to do so within 18 months as only by then will the commission have been paid on the original sale.

If you don’t understand many investments and consider yourself too stupid to decide among them then that is already an intelligent observation. It is a very complicated field so stick to what you do know and understand, or be very careful indeed in selecting your financial adviser. Let it not be the chap or lady who just rang you out-of-the-blue, nor a nice person you bumped into at a social occasion.