For the majority of individuals and expats, one of the primary reasons to move to the UAE is to improve earnings and create foundations for the rest of their lives financially. With no tax on income and higher than average expat salaries in the region, there is great opportunity to do so.
These objectives should go hand in hand with sensible investing and financial planning, but many expats either don’t do anything because they don’t know who to trust with their money, or they trust the wrong people as there are many inexperienced and unregulated advisers in the region leading who can put themselves before you.
Regulators and newspapers in the region have been inundated with complaints from investors who feel they have been given poor advice and been sold unsuitable financial products.
So why are investors upset and are they right to be?
One of the biggest factors affecting the performance of your investment will be the fees you pay. Very simply, any fees that are being paid out will reduce the money you have invested and if the fees you pay are high, then your investments will have to grow by the same amount just to break even. Many expat investors find their investments delivering poor returns, and only after further investigation, discover that fees and adviser commissions are far higher than they thought and had not been disclosed clearly at the outset by their adviser.
Many insurance backed savings accounts in the UAE have long term fees of over 4.5% per annum, so even if your investment achieves returns of 6% per annum, you will still be at a loss in real terms after inflation is taken in to account. With this scenario year after year, an investor could see a return of even less than the total monthly savings they have paid in.
This leads expat investors on to their next problem; Flexibility and access to their own money. Expats who have discovered their investments have high fees attached to them, may try to move their money elsewhere, only to find that they are locked into an investment product for 10, 15 or even 25 years, and can only access their investment at the end of the term or by paying redemption fees of up to 60, 80 or even 100%! Unfortunately, should these investors wish to access their money to buy a home, to pay for school fees or for an emergency they will be unable to access their capital or face paying the same redemption fees.
So if expats are sold savings or investment plans that have high fees, undisclosed commissions, and large redemption fees, which, in many cases leads to little or no growth and restricts access to their capital, is it any surprise that expats are angry and see little value in financial advice?
So what is the solution for expats? How can they make the most of their finances?
Sensible investing and financial planning is still vital to growing your money and ensuring that you’re able to provide for life goals such as buying a home and having children, as well as having enough capital to live off in retirement.
The majority don’t have the time, inclination or the expertise to implement and consistently manage an investment strategy that is best placed to enable them to achieve their goals.
Another big risk can be individuals making emotional decisions when investing and during market changes, so a good financial adviser will manage the emotional journey for a client and manage volatility with a long term perspective which should result in a better retirement outcome.
Fortunately for expats there are a growing number of qualified and experienced financial advisers in the region who offer low cost, transparent, tailored financial advice that is focused on clients needs and goals. This should involve a comprehensive approach to establishing your tolerance for risk and capacity for loss alongside establishing how far you are from where you need to be before implementing an investment strategy with long term returns to achieve your goals while managing risk and volatility. And don’t forget, keeping costs down gives your investments a much better opportunity for long term growth.
While there is evidence that putting your money in the wrong hands can be a big mistake, putting your money in the right hands can help you secure your financial future and achieve your long term goals.