Why Do Investors Insist On Making Bad Decisions?

5We are currently only close to the beginning of understanding behavioral economics, but it has always fascinated me as I am constantly observing irrational behavour.

I remember back in the last century speaking to a few clients who had invested in non-regulated or very expensive investments. At that time, it was beyond me as to how these sales people could convince normal thinking individuals that this was better than plain vanilla investing, despite the obvious scam or unnecessary expenses involved. Why would they go into a long-term savings plan or suffer big upfront commissions on insurance investments (it should be noted that many regulatory bodies such as the UAE do not consider 1% insurance as insurance) when any short-term returns are in many cases wiped out due to these fees and the risks involved far outweigh any long-term commitment. This is especially true as most clients will not invest for that initial intended period. Typical investment period on a savings account is about 7 years yet they are being signed up for 15, 20 or 25-year plans.

It was not until I read an article written by Richard Thaler, Professor of Behavioral Science and Economics, (he recently won the Nobel Prize), that I began to understand why we have this irrational behavior and why this is an issue for the investor and for the advice been given.

Economists tend to present logical projections on standard and complicated investment models.

Richard pointed out that while we have always assumed that investors make rational choices to suit their best interest, it is in effect not so, investors make irrational choices when it comes to investing.

If this premise that investors make rational judgements is wrong, then we have an issue. How do you turn a ship round when it is going in the wrong direction? Despite empirical evidence pointing to the fact that investors consistently make illogical decisions, then any change to the original supposition that they do make logical decisions would upset the models the economists are using. It would damage their own current business model. As such it is proving extremely difficult to turn this ship around.

Which brings me back to the irrational behavior of people buying into expensive products that fail to deliver or under deliver. In the social world we do not seek truth, we seek bonding and as such we will say things that will have us liked by our social group and peers (why would anyone go on the streets to protest against charges of corruption against their favorite politician). In fact, we are so keen to attack anyone who challenges our thinking, as someone once put it, “the reward is the pleasure of sharing an attitude one knows is socially approved”. We in fact substitute emotions for facts. I saw one statement that said, “95% of clients buy this product” Then as an individual that reads this, out goes the seeking truth and facts and switching to the need for social bonding.

This helps explain the reason why the average investor only makes half of what the market does.  Other empirical evidence shows that an advisor that uses strategies such as asset allocation, rebalancing and behavioral coaching can bring 3% or more p.a. in returns (Vanguard study).

To avoid being in the 50% of investors that make half of what the market does you have to avoid paying excessive fees on products and to achieve greater returns you should be using proper advice.

  1. Search for truth and facts
  2. Need to have Proper risk adjusted superior returns
  3. Annual rebalancing
  4. Behavioral coaching during the investment by your advisor to help you manage the emotional journey

Gordon Robertson MCSI

Me Group

T: +971 50 8459216

E: gr@me-group.ae

Living in the UAE – What’s the difference between having a luxury life style and being wealthy?

 Don’t get caught up in the romance.

We’re lucky to enjoy a lifestyle in the UAE that pales in comparison to other UK/US expatriate locations while we may have our daily challenges we also enjoy endless sunshine, no HMRC/IRS breathing down our necks, and a lifestyle that would cost much more were we living in London or New York City. Very heady, very seductive.

However, we must not forget that living the high life is not the same as being Wealthy. If you spend your income, you are not saving or building wealth — you are just spending.  You may feel “rich”, but you are just living the UAE lifestyle, it’s very easy to be seduced, no matter your background.

Wealth is what you build up over time.  It’s not what you earn and it isn’t measured by having a lovely lifestyle. We can brunch like the best of them, drive the best cars, go to the latest fashionable hangout.  We do not want to have a “boring” life, especially when we see all our friends partying as if it was 1999 (apologies, couldn’t resist that reference).

There are somethings we can control in life, somethings we have a modicum of control and somethings we can’t control.

We can control spending vs savings.  We have some control over earnings and how long we work.  We have no control over taxation and market returns.

But who wants to live like a hermit in the meantime?  Well, the future will most likely give us plenty of time in retirement, time to reflect on our past and this will either be a comfortable reflection or anxious regret.

Comfortable reflection in retirement means the folks that were being a bit frugal while they were earning the money. Regret covers the ones that enjoyed spending the income, but have not saved sufficiently to cover their retirement needs.

I am likely a lot older than most, if I suddenly had to leave Dubai I would by many standards enjoy a comfortable retirement. This came about by my upbringing. My parents never had debt, it was extremely difficult to borrow money way back then.

Although we never had a lot of money, I never had to worry about being fed or clothed. They never taught be about how to manage money, I just saw how we lived. When I went into the brave world at the age of 16, I ate basic food, economising to pay bills and putting off buying the new pair of shoes. If we had Starbucks latte at that time. I’m sure I would have skipped that as well.  So saving is actually pretty easy for me, it’s the way I’ve been brought up and the way I continue to live my life.

But it’s never to late to press the “reset” button or to start to change your attitude, even in small bits.  When you begin to live like this then it becomes much easier to save, you can either spend now or save and be much closer to that desired standard of life during retirement.

If you want to have this comfortable life style or even being able to retire early, then the solution is to not only earn as much as possible, but more importantly, to save as much as possible.

And once you change this mindset, the rest is easy.

Here is what you need to make that comfortable retirement: “the magic power of compound interest”.  In simple terms, it’s when the earnings or interest is added to your original investment.  This in turn generates even greater earnings or interest, and as it grows the growth gets faster.

For example, say you decide at the age of 21 to save for only 14 years £12,000 p.a. at 7% p.a. You then stopped saving and enjoyed life, not saving a dime from age 33.  By the time you are 65 and assuming you have a compound annual growth of 7% , you would have saved £168,000 and your investment would have grown to £2,380,000 .

Say instead you start saving at 35 and save for 30 years at £ 12,000 p.a. at 7% per year. You will have saved £360,000 and your investment would have grown to £1,176,000.  Despite saving £360,000 vs £168,000 in the earlier example, you would still have less than half compared to the person who saved for less and for half the time you saved.  The key is early (and often).

That is the power of compounding and time.

Basically, my advice is to spend frugally and invest the rest. We may not be able to control the stock market, but we can make the decision between spending and saving. This is what will make a significant impact on your net worth. Trust me on this one, savings is a lot safer than trying something dramatic with investments later in life.

I do remember my very first apartment in 1983, I had just separated from my first wife, I could either buy the apartment or drive a car, I could not do both. The car would go to zero value while the investment would grow, I ditched the car, took the bus, and started with my first investment. I wish I had started when I was 21.

Oh….and I almost forgot. Insurance backed investments are very difficult for making money due to excessive fees, which eat into returns. Watch your cost when investing. (this tip came from Jamal)

5Gordon Robertson MCSI

Email: gr@me-group.ae
Phone: +971 50 8459216

Strong pension, no problem? Maybe.

jamal-blogWe all recall last year’s demise of BHS and its failure to protect the company pension scheme.  Frequent news headlines report huge numbers where future pension liabilities exceed assets, and estimates of overall underfunded final salary (defined benefit, or DB) schemes are at 80 percent.

Years of low interest rates and increasing lifetimes have made it difficult for pension investment trustees and their actuaries to ensure that there’s enough in the pot to make good on pension promises.  DB schemes were originally designed for folks living 10 years into retirement – not 30.

It’s no wonder we worry about the ability of our companies to still be around when it comes time to draw our pensions.  And if a company goes bust, we have the PPF (Pension Protection Fund) in the UK, although there are limitations on that as well.

So your DB pension scheme’s not in deficit, life’s good? Not necessarily.

While many DB schemes (including all of the FTSE 100) have been closed to new employees for years, the cost of providing for existing members is still there and growing.  Increasingly, even well funded schemes are at this and concluding that changes must be made.

Marks & Spencer closed its scheme to new accruals from March 2017.  No additional benefits will continue to accrue to existing members – they’ll still get their pension, but future work won’t count.  Royal Mail made a similar announcement earlier this year, one that is likely to lead to a postal strike in the UK very soon. A company does not have to be in a situation like Tata Steel where the choice is closing the pension fund or closing the company.

34% of the FTSE 100 schemes are now closed to future accruals and the number is likely to rise. Some companies are rewriting other aspects of their schemes, such as making a “final salary” now a “career average earnings”.

There are a number of reasons for the large number of people transferring their pensions out of their company’s plan.  High transfer values (the multiple of an annual pension), wanting to take control of probably one’s largest asset and underfunding concerns may all play a part.  Considering a transfer out is a big decision and needs professional advice.  But uncertainty about changes to even strong plans is now adding another consideration to that decision.







Pamela Morgan CPA
UK Liaison and Guest Blogger
Investme Financial Services LLC


Why I love ETFs — but sometimes love can be blind

5Looking through the newspaper or on the Internet, I often see investment fund companies listing funds they’re offering – and most of these are highly rated 4 and 5-star funds.  So surely that’s the company to choose — are these guys smart or what?
But to quote Winston Churchill “I only believe in statistics that I doctored myself”.

This is because the funds listed do not represent the entire universe that the fund group has — or have had. Fund groups tend to close or merge under-performing funds, distorting the statistics and giving you a false sense of security.
It is a well-known fact that almost 90% of all funds perform less than their benchmark.  So — maybe not so smart after all.

Think of it this way: If I offered you an investment that has only a 1 in 10 chance of beating its no-brainer benchmark and asking you for a lot of fees just to be able to underperform, wouldn’t you would question “why”?
This is one of reasons we are seeing a huge shift in money moving into passive funds, i.e. ETFs. An ETF (”exchange traded fund”) is similar to a mutual fund in that it’s a basket of investments.  An ETF tracks an index, the original and best known, SPDR (Spiders), tracking the S&P 500.  There are a lot of mutual funds that also track the S&P as well, (these tend to be called closet trackers pretending to be active funds to justify the high fees). But with a mutual fund, there is an active fund manager and all of the resultant costs that go towards actively trading every day to achieve the same result at the end of that day – so your return is minus fees: commissions, redemption fees, operational costs, etc. – that can be as high as 3%!  No wonder the size of the ETF market is expected to surpass mutual funds by 2023. Last year USD 326 billion left mutual funds, with an additional USD 429 billion going to ETF’s.  In the last 10 years, USD1 trillion has left mutual funds and flowed to ETFs.  There are also other benefits of ETFs (trading flexibility, tax efficiency) that I won’t go into here, as I’ll bore you another day on those.

Mutual funds can easily be 10 or 20 times more expensive than a passive fund (ETF), which has a cost of about 0.10% and will most likely follow its benchmark. So the goal of the ETF is not to beat the market but to match the market’s performance. The role of an active mutual fund manager is to spot better growth opportunities, achieve better returns and avoid the bad investments.

But as these 90% underperforming statistic shows, the majority of these active mutual fund managers have a poor track record. So why does your advisor show you active funds that can be 10 – 20 times more expensive than a passive ETF – and with historically the 1 in 10 chances of beating the market — versus a passive ETF fund that basically does what the market does. Perhaps one of the reasons why many advisors suggest these types of funds is because they historically pay a trailing commission to the advisor where an ETF does not (this is no longer the case in the UK and other jurisdictions resulting somewhat in a reduction of mutual fund fees). While many active managers are trying to reduce fund costs, there’s a very long way to go (perhaps never) before this benefits clients and results in slightly higher returns.

So, I can see why ETF index funds play an important role in a portfolio, and yet I say my love can be blind as there can also be some dangers lurking.  More on this in my next blog.

If you would like to know more from the author then please contact me at gr@me-group.ae


Benchmarking and Why Insurance Backed Investment Projections are Bad for Your Financial Health

jamal-investme2It is standard that all investment managers who either have separate investment mandates or mutual funds will benchmark their performance against an index.

This helps the client and advisors in setting expectations and giving themselves the ability to compare an active investment manager vs a passive investment.

However, Insurance backed savings and investment schemes do not do this.

They take a gross performance of an underlying asset class and then make projections on the return of your savings or investment plan.

These projections have nothing to do with reality and as such set the wrong expectations for the investor.

It is a well-known fact that 50% of investors do half of what the market does. Also, the projected returns by the insurance companies do not include the fee structures which at the time of writing can be as high as 4-5% p.a.

It is not surprising that clients are feeling disappointed. In this instance, the wrong expectations are being set and, it is most unlikely the client will achieve his or her goals.

Why are these projections from insurance companies not based upon the average return of their clients?

Take time to absorb that statement.

The insurance companies have empirical data to be able to benchmark their clients returns against the index’s so it is not a lack of technology.

I will make an intelligent assumption, if they showed the average performance of client’s vs the projection, no one would invest this way.

Protection and Investments do not belong together. They contradict themselves. Investments are a cost conscious structure, insurance is not.

The END GAME, Rip Off Savings Plans Adeiu!

I remember talking to friends and colleagues about it being harder to become a real estate agent than a UAE financial advisor. Blank stares, open mouths, bewilderment stared back at me. Although it reflected the IFA market, it also included the banks

There is a minority of advisors in the UAE who are dedicated and ethical, however they are overshadowed by a lot of unregulated, unqualified people even qualified advisors that sell investment products and savings structures, either through a regulated company, unregulated company or through a bank. They all however had one thing in common. Insurance Backed Savings Plans or Investment Plan that served the institution and advisor and not the client.

Over the last few months we have seen and heard very clear messages coming from the regulagors.

First, we had SCA regulating funds, companies, demanding education, qualifications and annual CPD targets.

Then we had the Insurance Authorities starting with Circular 33, and after much consultation with the various stakeholders they announced Circular 12. The end of consultation was May 11 with an intended rapid introduction of the new laws. It was regulations, qualifications, fees and sanctions.

Thirdly we had the Central Bank on May 11 throw their hat into the ring. They did not wait for the response of the IA (bearing in mind that the Central Bank does not regulate the insurance side), however they do regulate the banks.

The message has been repeated time and again from all regulatory authorities.

“The responses provided to the Consumer Protection Department at the Central Bank in relation to these ongoing complaints were not satisfactory”

The words being quoted “customer profiling”, “suitability of products”, “transparency” “grievances redressal mechanism (handing complaints)”. “qualifications”

Very similar words from the IA and Sca.

Then you hear the voices of the product providers, banks and IFA’s, we welcome those changes.

Well why did it take the IA, SCA and the Central Bank to step in and say STOP! We have had enough.

The blame lies on the industry, the companies and the advisors, despite what was happening in other jurisdictions and we knew why these changes were happening they still continued making hay while the sun shone even though the clients were suffering. The providers were also happy to deal with unlicensed companies, with products that fail to deliver what is promised. Products that they knew benefited themselves and the sales people more than the clients. Fee structures that were so opaque very few people could understand them let alone clients. These stakeholders had little moral compass to make a stand and either change or demand change.

Yet there were other individuals and companies that did make a stand, did change and become more client focused. They should be applauded and continue to flourish.

The message is now clear, The Game is Over.

For unlicensed companies, just close shop and move on.

For individual IFA’s go to work for a regulated company, become regulated, registered, do the exams, do your CPD and take this Holistic view you keep talking about, bring clients products and fees that are designed for the client. If you are unable to survive in this new environment, then move on.

For companies and banks, train up your staff, do wealth management with the customer first. Do what you should be doing “Wealth Management” not selling overpriced, inflexible savings plans,

The clients were not there to service you, you were there to service the clients. The clients need help to save and plan, do that, help them.

To those who said you can’t survive on the new fee structure, this may be so, but in the last century when I worked for an investment house, our fee structure for the clients worked out at 1% p.a. and it was success. For the clients, for the company and for the employee. It was a win win solution.

I and many other professionals look forward to the new future.

Have a great day.


UAE Insurance Intermediaries to be regulated

There has been a lot of articles about the new regulations regarding products, but nothing about the proposed regulation of intermediaries. It has currently only been issued on the Circular 22, however if no objection the consultation period will end May 12. It is expected that this will be quickly be adopted with an implementation period of two years.

I have put together the proposed new regulations.

Application for license and registration.

Application form to include:

a.   Name of applicant, nationality, address and place of residence.

b.   A copy of the Emirates ID for a resident and passport for the non-resident

c.   A certified copy of the minimum qualification and membership from the entity accredited by the Authority.

d.   A declaration that they have never been subject to disciplinary actions by any professional body that they belong to, or by the supervisory authorities in other jurisdictions.

e.   A certified copy of the academic and professional qualifications.

f.     An official certificate proving that the applicant has never been convicted for an offence involving moral turpitude or trustworthiness along with a declaration that the applicant has never been declared bankrupt or bankrupt and rehabilitated.

g.   An undertaking to comply with all regulations and laws issued by the Authorities.

h.   Proof of payment of the fees as per the regulations as well as any other documents requested by the Director General.

Approval/Rejection will be issued by the authorities within 20 business days from the date of completed application.

a.   If any request for more information or documents, this must be submitted within 60 days of the date of the notification.

b.   Failure to supply the information will result in the application being cancelled and a wait of 3 months before the applicant can submit another application

c.   If approved and after payment of fees they will then be entered into the official register.

d.   If rejected, they can appeal within 30 days of the rejection. (The Board of Directors decision shall be final)

e.   The licence has a validity of maximum one year and expires on December 31.

f.    On an annual basis, the insurance intermediary will submit a renewal with supporting documentation no less than 30 days prior to expiration of the license.

g.   The intermediary must inform the authorities within 10 days of any change to the intermediaries’ documentation to ensure continued compliance


a.   All forms of commission abuse are strictly prohibited.

b.   All complaints if in violation may subject the offender to suspension, non-renewal of withdrawal of their licence.


Once the new laws are published in the (monthly) Official Gazette, the new laws will be implemented as follows:

a.   Fees and commission abuse effect on announcement in the Official Gazette.

b.   Commissions, disclosure and regulations regarding pure protection is one year after the announcement in the Official Gazette.

c.   All others have a two-year implementation period.

As can be seen, many of the proposed changes will be seen by the UAE advisory industry as Draconian, and will change the entire industry – to the benefit, many of us believe, of the industry’s clients.

The biggest news is that of the minimum requirements to become an insurance intermediary.

Consultation period will end May 11. If no change they will implement the new rules in a short space of time.

What Does 2017 Have in Store for Portfolios?

5I first wanted to write about predictions for 2017, to do that I was going to talk about the predictions for 2016 that were almost all wrong except for the USD and Euro exchange rate.

If you had followed the advice of those experts with warnings such as “sell everything now as we will have a crash as bad as 2008” this was RBS, or perhaps as Goldman Sachs predicted in 2014 USD 200 for a barrel of oil, wrong, so in 2015 they predicted USD 20 wrong again.

To have followed the advice of these experts would have resulted in losing a lot of money.

However, you may be thinking that even your portfolio is not doing what the market is and wondering why?

As such I thought I would look at the stock indexes to help explain why your portfolio may not reflect the performance of the stock market indexes such as the Dow Jones or the S&P 500. Worse still, you may wonder why the market is going up but your account is going down.

Now we keep hearing on the TV and reading on the internet about the Dow Jones and the 20,000 level, the Nasdaq and S&P are steadily hitting new highs. Even the Russel 2000 gained 20% in one month.

However, this does not actually reflect what is going on in the market, as such it may not reflect what is going on in your portfolio.

The US has almost 5,300 listed companies in the NYSE and Nasdaq, yet the Dow Jones only has 30 companies and the S&P 500 only has erm.. 500.

If you have a mutual fund, it will most likely have a maximum of 50-60 stocks. As such it would be unlikely to mirror image the index unless it was a closet tracker. An ETF however is composed of all the same stocks and weighting as the index.

Let me explain how the index distorts the true state of the market.

The S&P has 500 companies, but the calculation is not 500 stocks equally weighted giving an index price of 2,300.

The top two companies from these 500 have a weighted value of 5.87% of the index and the top 10 have a weighted value of 17 pct.

Think about this, if the top 10 stocks went up by 25% and the remaining 490 stocks went down by 5%. The market would still be showing a gain of 0.1%

Ie these 10 stocks only represent 2% of the companies in the index but they have a huge effect on the index performance and the index performance does not really show the actual performance of the majority of the stocks. Confused? You should be. You could be in a bear market but still have a rising index.

This is not just confined to the S&P it is the same with the Russel 3000. This index gives a better representation of the US economy due to the number of stocks in the index. However again the top 1,000 stocks are the equivalent of 90% of the index and the remaining 2,000 only representing 10% of the index.

This is one of the reasons most mutual funds have a problem outperforming the index unless they take a few big bets on a few stocks or is a closet index fund.

If you want to mirror the index an ETF is ideal. It will not beat the index but it should track the index.

It is time to distance oneself from the way the main stream thinks about performance and benchmarking.

It is also not about making predictions, even a broken clock is right twice a day, the clock however is still broken and I would not use it for investing, i.e.. Market timing, guessing the market is a fool’s game.

Reduce risk and costs using ETF’s and don’t forget to diversify into other asset classes.

Have a great and prosperous 2017.

Gordon Robertson

If you have any questions just mail me at gr@me-group.ae

The IFA industry in the UAE is not prepared for this 2017 shock


We have read articles about the coming changes proposed by the Insurance Authorities on insurance backed savings and investment products. Most of the articles I have read have only  covered a few points and as such have been incomplete. I have put together a very informative article which covers the most  important points  relating to the new proposals: These proposals if enacted in law will alter the face of insurance backed lump sums and savings programs in the UAE.

This has come as a result of the huge number of mostly justified complaints coming in from clients because of high fees and lack of disclosure

Commissions – The total commission charged should be spread over the life of the policy and no longer upfront.

  1. Regular premiums will be charged monthly over a period of not less than 5 years instead of the Traditional 18 months in so called “initial units”.
  2. Single premiums will be charged monthly over a 12-month period.

Savings Products

1. maximum fee is now 4.5% and charged over the first five years. The overall cap is 90% of the first year’s payment. (based upon a monthly saving of aed 6,000 the initial units would eat up 108,000 in the first 18 months. This will be reduced to 64,800 spread over 5 years)

2. Single premium will now be a maximum of 4.5% and charged over 12 months

Term Products

  1. Maximum commission deducted is 10% of the whole premium or 160% of the annual premium whichever is less, paid over the first 5 years.
  2. Maximum commission is 10% of the premium deducted over 12 months.

Short Term Products

  1. Maximum for Life and Takaful is capped at 25%

Indemnity Commission (commission paid to the advisor)

This is being stopped. Commission will be paid when the client pays the premium.

Multiple Channels

No longer will clients subsidise other sales channels. This will help reduce costs to the client. They will pay just for the sales channel they are using.


  1. The advisor will no longer ask for full documentation such as passport copy etc, before they receive a proposal/illustration.
  2. The declaration will say that the client knows the returns in the illustration are not guaranteed.

Free Look Period

  1. The client has 20 days from the start of the investment to decide if they want to stay or cancel. The advisor is not allowed to pressure the client to recoup the cost of the advisor time and effort in preparing the structure.
  2. The client will be refunded their entire money plus any profit or minus any loss on the investment.

There will be no bid offer spread in the calculation.

Illustrations for the client

  1. Mode of payment such as monthly/quarterly/annual/single
  2. Name of Plan, Sum assured, coverage term, and premium payment term.
  3. Death benefit, account value and surrender value should be clear and distinct.
  4. The premium shown should always be gross of all fees but the death benefit, account value and surrender value should always be net of all fees.
  5. Any illustration should state that it is either “Illustrative Value” or “Guaranteed Value”
  6. Cumulative Plan Premium should be indicated.
  7. All compulsory charges have to be disclosed.
  8. Details regarding top up premiums have to be disclosed separately.
  9. The Life insurance company has to quote the gross return based upon cash flow and then deduct all other charges so the client can see if there is a benefit in having this type of policy. All charges have to be deducted before they can show the cash surrender/redemption value.
  10. Two scenarios at a minimum should be illustrated. Maximum investment return is based upon EIBOR (emirates interbank offer rate) plus 3% rounded up to the next 0.5%. example current EIBOR (Dec 22) 0.55714 plus 3% is 3.55714, rounded up 4%. The first calculation is based upon 4%. The second calculation is based upon a lower number.
  11. There has to be an illustration based upon 0% rate of return but reflecting all charges.
  12. Any fees paid by the fund to the IFA or to the company belongs to the client and should be reimbursed to the client. It is normal in the UAE that funds pay a so-called retrocession/trailer of up to 1%. This ultimately comes from paying a higher expense ratio in the fund. Once this is removed the returns to the clients should rise.
  13. With profit policies, any illustration must be certified by a qualified and appointed Actuary. This should now be consistent with the valuation reports, if not the actuary may have to justify why it is not consistent.
  14. The annual valuation report has to be sent as a separate document and not bunched with other documents. The “font” has to be red and the client has to sign receipt.

Declaration by the policy holder.

  1. The client has to sign a declaration stating that they have received a copy of the illustration, and that non-guaranteed elements are subject to change. They are aware it is not guaranteed and that the advisor has never promised them anything else either verbally or electronically.
  2. A similar statement has to be proved by the advisor.

Historical Performance

They have to quote the last 5 years performance of the top 5 funds in the policy.

Minimum Protection

  1. Policies which were previously sold with 1% or 101% of the cash value are no longer deemed to be an insurance policy due to the minimum amount insured.
  2. In future the minimum insurance will be 110% of single insurance if over the age of 45 OR 125% of the premium if under the age of 45.
  3. Regular premium/savings will be 7 x annual premiums or 0.25 x term x annual premium whichever is higher if over the age of 45. OR 10 x annual premium or 0.5 x term x annualised premium whichever is higher.

Protecting the policy holder

  1. Surrender values in the future will be equitable to both the client and the provider. Ie the provider should not benefit to the detriment of the client.
  2. The calculation to determine the redemption value has to be disclosed, ie if the charges are deducted linearly it is easier to reflect the true charges on the redemption value.


  1. Banks often buy insurance at a discount from a provider. The banks are no longer allowed to mark up the price when selling to the client. The bank has to be compensated from the provider and not the client.
  2. Banks are no longer allowed to just represent one provider but to offer choices to the client or allow the client to obtain their own life insurance.


Once the new laws are published in the Gazette the providers have up to 6 months to implement the new laws.

As can be seen, these new changes are draconian and will change the entire industry here in the UAE to the benefit of clients.

I have been harping on about this for several years. I think the fees are still too high, but the full disclosure will help clients achieve better returns, better flexibility and understand the cost of the products being recommended.

Do you know what fees you are paying with your advisor?

5The UAE is currently is about to implement changes to the way investors who invest through an insurance product is charged and how the advisor is compensated.

These changes are long overdue, I have reviewed the Circular 33 and see that the massive changes will only benefit clients. However, I still believe the fees are still too high. The fees will go down, the insurance portion will rise.

I know that I go on and on about fees, and may sound like a gramophone record that has stuck and repeats itself.

However as this is your money, (I am only trying to help). I have a template which you can use to identify all the costs. (this exercise may be outdated when the law changes in the UAE).

The regulators (not the product providers) are pushing for more transparency and fewer fees. In a very clear format. It used to be that funds paid a trailing commission to the advisor. This will stop, if there is a trailing commission this will be paid back to the client.

Due to the power of compounding, fees that may look reasonable can have a substantial effect over time.  This can reduce your returns and affect your goals.

If you are a low risk investor, then you can expect lower returns, the effect of fees can make a huge difference.

Research has proven that the higher the costs then the lower the statistical probability that an investor will receive good returns (despite what some advisors may say).

There are some very good managers available, but the higher the costs the greater the difficulty in beating the benchmark.

Often a fund will be shown to a client with healthy returns, however it does not reflect the other costs you have to pay such as platform fees, commissions, account charges etc. etc.

At the same time, paying lower fees does not automatically mean you get better returns, (price is what you pay, value is what you get)

However, there is generally a strong relationship between costs and performance.

The charts below shows the effect on investing 100,000 using a gross return of 6%

It then compares a 2%, 3% and 4% annual cost structure.

At 6% the 100,000 would grow to 320,000 in 20 years,

If you had a 2% fee then it would only grow to 220,000, a difference of 100,000.

If your fees were 4% p.a., then the investment wold only grow to 149,000

graphDo not forget that a portfolio should reflect your risk (diversify into other asset classes), and that emotional decisions tend to have a negative impact on performance.