Summer confidence tricksters are not real financial advisers

Posted on 14 June 2011 with 2 comments from readers

The phone rings on a quiet summer day and a pleasant young man or woman introduces him or herself as interested in helping you with your long-term financial planning. What could be a better and more productive thing to do in the long, hot summer of the Gulf.

Well, just sit up a moment and stop being so ridiculously naive! Why do you think this individual has contacted you out of the blue? What on earth are you thinking about explaining your financial affairs to a complete stranger?

Hot summer

What do you imagine he or she is doing sat here in the Middle East for a long hot summer? To help you? Of course not, these are confidence tricksters with a game plan to extract as much income as possible from you.

It’s pretty much a set script: win your confidence with friendliness and empathy, discover your financial circumstances and then worry you to death with stories about what will happen if you do not consider your investment future.

Then comes a very innocuous and innocent sounding proposal: a savings plan. You are also assured that you will have nothing to pay as a commission to the person selling this plan.

So you sign up and begin to imagine the life of leisure that will come when your plan is completed. What you do not know is that often your first 18 months of payments will go to the selling agent as commission, and only then will the fund start to invest your money. That gives the agent a huge incentive to sell to you, why else would they do it?

If you decide to cancel or withdraw funds before that commission is paid, you will find the payout is derisory or even zero, and it will probably be some years before it amounts to very much.

Really you ought to have more sense. Who are these guys? Is their company registerd offshore and unregulated, even if the investment plan has a recognizable name? But thousands of people seem to continue to fall for this sort of confidence trick year after year, particularly recent arrivals in the tax-free Gulf States.

Wealth management

Indeed, it has been so successful that the big banks have joined in with their own wealth management divisions. Again you need to be very naive to think these individuals cold calling you are actually going to help you plan your retirement successfully.

They are salesmen and women selling products to benefit the bank, not you. And if you do your own homework and look around for the most suitable investment vehicles then you will almost always get a better deal, although the big banks are at least an honest custodian – you don’t even necessarily get that with the smaller guys, though they do have smaller overheads to pay.

It is the same story buying a house. If you walk into an estate agency with a big check book you will be very quickly found a property to buy. It might be overpriced, in the wrong location and bought at the wrong point in the market cycle, but hey the agent is working on a sales commission.

Just think for yourself and try to find the best in independent advice from people who really are not trying to sell you something. That at least gives you a chance of getting it right. The ArabianMoney newsletter (subscribe here) has many interesting investment ideas but only you can know if these investments will be right for you.

Fools and money

Sadly the old saying ‘a fool and his money are easily parted’ rings true. Besides cold calling by financial advisers and banks is totally contrary to recent UAE Central Bank regulations (click here), and yet in the past week ArabianMoney has received such calls from Citi, HSBC and Standard Chartered Bank who all ought to know better.

Anybody can lodge a complaint against cold calling on the UAE Central Bank website (complain here). The authorities do at least seem to be trying to help this year.