Beware of mis-selling of financial products [Gulf News (United Arab Emirates)]
(Gulf News (United Arab Emirates) Via Acquire Media NewsEdge) Have you ever bought something upon the prodding of a store salesman only to realize later it was not what you needed? It could be a perfect condition digital camera or a mobile phone that didn't have the functionalities you were looking for. If you have, chances are you have been mis-sold a product and lost your hard-earned dirhams in the process.
Product mis-selling does not just happen in the retail store or shopping mall. A consumer can also get mis-sold to when choosing options to invest money. Money experts say people can get mis-sold an insurance product, an investment scheme or even a mortgage.
Mis-selling happens when an investor gets unsuitable advice or doesn't get informed about the risks and ends up choosing an option that is not right for his needs. A person doesn't always have to incur financial losses. Even if there is no money lost, mis-selling happens if, upon the recommendation of an adviser or salesman, a person ends up with a product that is not right for him. "Perhaps it's a riskier investment than you wanted," explains the Money Advice Service in the UK.
A new research suggests that millions of people could have fallen victim to mis-selling in the financial services industry. The conclusion was reached based on the findings by claims management company EMCAS that two-thirds of respondents surveyed in the UK are not aware that mis-selling of investment products is even possible.
Only a small proportion of the people surveyed (35 per cent) had been asked about their attitude to risk when discussing with an adviser where and how to invest their savings. The research was conducted among 3,000 respondents who have signed up for investment products.
"The stakes are often very high when it comes to investing money, as bad investment advice and making the wrong decision can have a devastating effect on consumers' lives," a press release by EMCAS reads.
Considering that a lot of investors in the UAE don't have strong investment knowledge and often invest without proper professional advice, there is a strong likelihood that many consumers in this market have also been mis-sold to.
"This happens in every part of the world. As much as we want all advisors to offer the best solution based on a client's need, we do come across advisors who take short cuts. In the long run, it helps no one," says Ashok Sardana, managing director of the Continental Group.
"It is definitely possible that UAE investors are being sold products for which they have no key features documents, no illustrations of benefits, no suitability in terms of risk perspective matching their needs, and no disclosure report laying out risks and opportunities, advantages and disadvantages of the products," adds Steve Gregory, managing partner at Holborn Assets.
He noted that there are no status requirements of the salesman stating whether the advice is from a single company, a restricted advice company, or from the entire market place. "All these things and more have been mandatory in the UK for some 20 years. In the UAE, the principle of Caveat Emptor applies - buyer beware," he adds.
Mis-selling is one of the most complained about by consumers. Between April and June this year alone, close to 160,000 new complaints were lodged at the Financial Ombudsman in the United Kingdom. A huge chunk of the consumer complaints were about mis-sold insurance.
Unlike in the UK, however, there is yet no single regulatory body that oversees the financial services sector in the UAE, although there are plans to implement a "twin peaks" model of regulation that will include the UAE Central Bank and the Emirates Securities and Commodities Authority (Esca).
In the current setup, the Insurance Authority (IA) oversees the sale of insurance policies which often include insurance investment and savings products. During the first half of the year, the Insurance Authority settled nearly all (97.2 per cent) of the 443 complaints from policy holders and policy beneficiaries made against companies in the UAE.
However, complaints may also be addressed to the Central Bank. For companies in the Dubai International Financial Centre (DIFC), there is a separate complaints procedure to follow.
"For contracts entered into the Isle of Man, there is an insurance ombudsman who may rule in favour of petitioners complaining about companies registered there. The service is free. Usually, complaints should first be directed against the insurance broker company before being escalated. There are times when overseas companies will respond to complaints and reimburse clients of brokers," says Gregory.
In the absence of a central-governing body that oversees complaints about financial products in the country, and with so many people not fully aware that they could fall victim to product mis-selling, consumers are strongly advised to be extra careful when choosing investment options.
"Consumers need to take charge, look at their investments and ask themselves - why did I choose this product? What about the advice I was given made me think it was right for me? Did the adviser talk to me about how happy I was to take risks? Is this product performing as I expected it to?" Craig Bernhardt, CEO of EMCAS says in a statement.
"There will be many consumers who choose to invest their money in ways that they knew had risks attached, and are now seeing their investment potentially performing poorly in the current stock market environment. But that is very different from those consumers who now look at their investments and don't understand how they were ever suited to their needs. These people need to look long and hard at their investments and then ask further questions about the advice they were given," he adds.
Sardana advises consumers to ask their adviser to put their recommendations in writing and explain why a particular investment option is being suggested.
It is also advisable to do a background check about the company that the financial adviser represents, whether it is licensed by the UAE's Insurance Authority, the Central Bank or Esca, or whether it is affiliated with an insurance company or operating independently. An independent financial advisory company may be able to provide solutions from multiple insurance providers or greater access to investment options.
It is also wise to ensure that the financial adviser is qualified and has a good track record and experience. "While being professionally qualified is a sign of credibility and commitment to the profession, it does not by itself guarantee the quality of advice that would be provided," notes Sardana.
"Does the adviser come with some recommendation? Does he have adequate industry experience? Is he on the company's visa or here on a visit visa, tripping in and out of the UAE to make a sale? Check the credentials of the adviser. Ask trusted friends, colleagues and relatives for referrals. Ask for references and testimonials," adds Sardana.
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