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Thursday, January 27, 2022

‘I lost most of my savings’ – The cost of risky financial advice


Photo for illustrative purposes only.
Photo for illustrative purposes only.

Many expats move to Qatar to save for their future, and rather than stuff their earnings under a mattress, some turn to locally-based financial advisers for help.

This is in part because it is difficult for many to access pensions and savings accounts in their home countries, but also because such advisers promise a high return on their investments and the opportunity to save money in a tax-efficient manner.

But while some find this advice beneficial, others say residents should proceed with caution.

Doha News has spoken to three expats who have lost significant amounts of money – in one case, more than US$100,000 – after working with financial advisers in the region.

All of them said that they felt they’d been tricked into purchasing financial products that were unsuitable for their needs – inflexible products that turned out to be out of step with their unpredictable expat lifestyles.

Unregulated advisers

One person, Jane – who asked not to use her last name – lost half of her life savings, an amount equivalent to a year’s salary, after employing the services of a Dubai-based financial adviser who regularly did business in Qatar.

She said that she’d spoken to many expats in a similar position, and that she wanted to launch a campaign to make people aware of the dangers of taking the advice of financial advisers targeting the expat market.

Photo for illustrative purposes only.
Photo for illustrative purposes only.

Jane told Doha News that she was introduced in 2012 to British adviser Jonathan Johnson by a colleague.

At the time, Johnson was employed by Globaleye, a financial planning firm that is licensed by the Dubai Insurance Authority, but which had no license in Qatar.

Johnson had previously worked for a regulated firm in Qatar and frequently traveled to Doha to meet old clients, and agreed to meet Jane during one of these visits.

Jane did not know that Johnson’s new company was not registered in Qatar.

She had recently given birth to twins and was a single parent, and said she asked Johnson for low-risk investments to help her existing savings grow:

“I said, listen, I’m working and bringing up twins on my own. I need blue-chip solid investments, nothing risky. All this money is there in case I don’t wake up tomorrow. I want it to keep growing so my kids can go to university. He said, ‘Don’t worry, I’ll look after you.'”

Long-term savings plan

Johnson recommended two different products for Jane.

Photo for illustrative purposes only
Photo for illustrative purposes only

The first was an investment plan with a monthly premium – similar in some respects to a regular savings account– run by Italian firm Generali, one of the largest insurance companies in Europe.

Jane claims that she had asked for a flexible plan that would let her access her capital at any point without any financial penalties.

Johnson’s letter explaining the product confirms these wishes:

“To save a regular amount for your future in a tax efficient investment vehicle whilst giving flexibility en route to allow for premium fluctuation and access to capital as and when needed over your working life.”

Due to a change in circumstances, Jane tried to access her money three years after the plan had begun.

She discovered however that if she took it out at that point, she would lose 60 percent of her total investment in fees.

Photo for illustrative purposes only.
Photo for illustrative purposes only.

Speaking to Doha News, Johnson – who now works for a different firm in Dubai –said that he’d recommended a long-term plan because Jane had asked for money to fund her retirement and her twins’ university education.

“This is why I recommended an 18-year plan.  We worked out the money she would need for a decent retirement, and we worked backwards from that.

She was fully aware of the terms, but the thing is that she changed her mind and wanted the money back three or fours years later. We said this was medium to long term, she got a long-term plan. If you get a 20-year mortgage and you stop payments, you’ll lose the house. This plan is like this.”

Jane also discovered that all of the plan’s fees – including annual operating charges for 18 years and large commissions for Johnson, the company he worked for and Generali itself – had been taken out of the invested money at the beginning of the plan.

Photo for illustrative purposes only.
Photo for illustrative purposes only.

This meant that customers wanting to withdraw their funds before then, like Jane, found them to be significantly depleted. Eventually, she got back less than half of the money she had put into the plan.

Jane claims that Johnson never explained how much commission he was going to receive after selling her the financial products, or disclosed how the providers’ charges were going to be levied.

Johnson, meanwhile, said that Jane signed a document that told her about the fees, and that explained that she would lose money if she tried to end the policy before the 18 years were up.

“I explained we were paid on commission,” Johnson told Doha News. “We didn’t tell her the exact figure because we don’t have to do that in Dubai. But it was still reflected in the paperwork that she signed.”

Globaleye, the firm Johnson had been working for when he first took on Jane as a client, told Doha News that it had been “clearly stated in many documents” signed by Jane that she would lose the first 18 months of contributions if she opted to take money out of the plan early.

The firm also said that Jane signed an illustration from Generali that details encashment values for each year of the plan if she had decided to withdraw her money.

They added that Jane was sent policy documents with a covering letter after she’d signed up for the plan, and that she had been given a 30-day cooling off period to opt out.

Speaking to Doha News, Globaleye’s managing director Scott Balsdon said:

“I understand it is not good when clients lose money and this is the last thing that we want as a business but the terms and conditions of the products are explained and provided in several documents so clients are fully aware of their commitments.

I also know that life can throw up unexpected  circumstances especially as an expatriate and if that means the client then has to stop payments in the initial commitment period there is little we can do as the brokerage.”

Shared experience

Another Qatar-based expat who asked to remain anonymous said that she had been persuaded to take up a Generali International Vision for Life plan by a Qatar-based regulated financial adviser, despite initial misgivings.

Speaking to Doha News, she said:

“It meant monthly payments for 10 years. Because I knew in advance that my subsequent job would mean a significant drop in income, I was dubious about the Generali plan in particular and asked about other options, but he (the advisor) was really pushy and managed to talk me into it.”

She explained that her circumstances later changed and that she could no longer afford the installments.

Photo for illustrative purposes only.
Photo for illustrative purposes only.

She tried to contact the firm that had sold her the plan – Guardian Wealth Management, which is regulated by the Qatar Financial Centre (QFCRA) – as well as the plan’s operator Generali, but both were apparently “unresponsive.”

“I began to lose faith in both companies, and also started to hear horror stories from other friends who had taken out plans with Generali too,” she said, adding:

I filed the paperwork to get my savings back, and when the money was returned to my account, they had taken a crazy 90 percent of my total investment in what they claimed were “administration fees.” I’ve lost virtually my entire savings.”

She has complained to both Generali and to Guardian. Generali has not responded, but Guardian said they are investigating her complaint, she added.

Another Guardian customer who has also requested anonymity, said that she was sold a Generali plan, despite saying that she didn’t want an annuity product:

“We invested in something that after much questioning, ended up being exactly what we told them we didn’t want to invest in,” she said, continuing:

“We were going to just stick with it since we were already in and would lose money, but we got out after a couple of years and lost some money because the adviser we had gone with moved out of Doha and turned us over to another adviser without notifying us himself. That adviser would never get back to us on questions we had.”

Aaron Vickery, chief executive of Guardian Wealth Management Qatar, told Doha News that he was unavailable to answer questions about allegations of misleading sales pitches before the deadline for this story via Skype, phone or email.

He said he preferred an in-person interview. This story will be updated after the meeting takes place.

Financial regulation in Qatar

All companies selling financial products in Qatar must be licensed by the QFCRA, the Qatar Central Bank, and/or the Qatar Financial Markets Authority, depending on their particular business.

Photo for illustrative purposes only.
Photo for illustrative purposes only.

Companies operating in Qatar that are not registered with these organizations are breaking the law, and according to the QFCRA are subject to penalties.

A spokesperson for the QFCRA told Doha News that the firms it regulates are subject to “extensive” requirements:

“These aim to ensure, among other things, the solvency of the firm, and that it has robust compliance, risk management systems and controls. These requirements are in place to facilitate the protection of customers’ rights, and provide transparency in the pricing and fee structures.”

Photo for illustrative purposes only
Photo for illustrative purposes only

All regulated companies are required to operate their own internal complaints procedure, but if customers wish to take their complaint further, the QFCRA also operates its own Customer Dispute Resolution Scheme.

A full list of all QFCRA-regulated firms in Qatar can be found here.

In their statement to Doha News, the QFCRA warn potential customers of the risks of taking advice from an adviser not regulated by an official body in Qatar:

“It is important for customers to understand that if they engage with an unlicensed or unregulated firm, that they do not benefit from the consumer protections available to customers of licensed and authorized firms.”

GCC a ‘shark’s den’

Jane’s case falls into a gray area, as her adviser’s former company Globaleye was regulated in Dubai, not Qatar.

Photo for illustrative purposes only.
Photo for illustrative purposes only.

To this end, she has approached the regulator in Dubai with her complaint, but has been told that she should report the case to the police instead.

Furthermore, advisers who work in the UAE have told Doha News that the regulatory environment in Dubai is weaker than in Qatar.

And in general, they warned that financial regulators in the Gulf are “not fit for purpose.” Speaking to Doha News, Sam Instone, CEO of financial advice firm AES International, which is registered with the Ministry of Finance and the Qatar Central Bank as an investment consultancy, said:

“We are all living in a shark’s den. Dubai is much worse – it’s much more regulated in Qatar than the UAE, but the regulator in Qatar isn’t even fit for purpose.”

Instone, whose firm markets itself as offering “UK best practice,” and whose blog posts warn expats of the “risks” of the region’s finance market, said that financial professionals in the Gulf were operating in an environment “like the UK in the 1980s.”

Photo for illustrative purposes only.
Photo for illustrative purposes only.

He continued:

“All of the regulations and rules that a Western expat understands, as soon as you get into the Middle East market, none of those protections exist. In Dubai there is no need to disclose fees and commission, no requirement for the adviser to be qualified, and no requirement to provide a suitability assessment.”

Henrietta Oxlade of financial planning firm Radcliffe and Newlands in London has examined Jane’s case.

She told Doha News that she is astonished that regulators in the Gulf do not require more information to be given to customers when they sign up:

Photo for illustrative purposes only.
Photo for illustrative purposes only.

“In the UK, you would have to produce a 25-page report explaining what you are recommending, but Jonathan Johnson only gave Jane a four-page letter covering both investments, in which he said that they were medium to long-term investments but with complete flexibility, which turned out to be false.”

Sam Instone added that financial firms in Qatar and the UAE often target particular groups of employees, like oil workers, teachers and airline pilots, viewing them as soft targets:

“These are vulnerable groups. Teachers are viewed as trusting, pilots are always busy and tired and always working, and oil workers often have large pensions which can potentially be transferred and they have no idea about the complexities of doing that.”

High-risk funds

The second product Johnson sold Jane was an overseas investment bond. Jane placed a large lump sum of her savings into the fund.

Johnson blames incorrect marketing by financial companies for the fact that two of the funds within the bond turned out to be high-risk ventures, despite Jane’s desire for “blue chip investments.”

Three years after they began, two of the individual funds within the bond were “gated” (suspended), losing Jane’s money in the process.

The two suspended funds were UCIS – unregulated collective investment schemes – which are now banned in the UK for sale to ordinary customers:

“I didn’t go deliberately high risk,” Johnson told Doha News. “They are seen as that now, because of our experience with them, but in 2012 when the funds were relatively new, we didn’t know enough about them. I wish I had a time machine, but when I presented them to her, she liked them. If the funds weren’t available in the market place we wouldn’t use them.”

Photo for illustrative purposes only.
Photo for illustrative purposes only.

Jane claims she asked Johnson for low risk funds. Johnson, meanwhile, told us that they had agreed on “balanced risk.”

“I realized that something was wrong when my investments were steadily going down,” Jane said. “When I asked Jonathan about it he said I knew nothing about markets and that is what they do – but my understanding is that markets go up and down, not only down, as in my case.”

Johnson said that he has been “checking every few weeks” on the status of the funds, and that he remains hopeful that they may reopen, so that Jane could still get her money back.

Compensation claims

Jane has now withdrawn her money for the Generali plan and is seeking compensation and an acknowledgement that she was misled.

Photo for illustrative purposes only.
Photo for illustrative purposes only.

Jane contacted Johnson and asked him to return her money, but he apparently replied saying that he’d speak to his lawyer about her complaint, and she has had no further contact from him.

Generali has not yet responded to her complaint letter.

Jane is hoping that by speaking out she will raise awareness about the risks associated with many financial products sold to expats in the region:

“My advice is, don’t go there. I wouldn’t touch anybody working as a financial adviser in the Middle East. The controls here are so lax. Even if your adviser is regulated by an authority here, it’s still lax.

If you want to invest, go through a big bank where there is accountability, or buy property.”

Have you been given good or bad financial advice here in Qatar? Thoughts?

Note: This story was edited on 10/27 to reflect the fact that Jane did not know that Johnson’s new company, Globaleye, had no license in Qatar. The story was also edited on 11/4 to amend the description of AES to make it clear that the company is registered in Qatar by the Ministry of Finance and the QCB as an investment consultancy.

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