The regulator, your adviser and you, plus eight questions

The most difficult thing about financial planning is the following of a plan, particularly difficult if there is no plan. Yet despite the obviousness of the statement, the actual "planning process" remains something rarely delivered in the offshore environment and in the Gulf in particular.

Harsh words, yes, but applicable across the board from the banks to the authorised independent financial advisers to the unauthorised ones, of which, sadly, there are many.

Without the regulator stepping up to the plate and insisting on some form of standard, Joe Public and his wife and kids have little to fall back on in terms of guidance other than their own self-awareness.

The regulators can take some steps: insist on enforcing the licence issue and provide themselves with teeth against bad practice which, in turn, means setting up a standard against which to measure "bad practice". Teeth and standards would give the regulator the credibility to protect the consumer. Consumers have every right to expect "standards"; indeed, they expect every right in a fast-maturing economy that is the UAE.

It's not an easy task. In a keynote address to the Canadian CFP (Certified Financial Planners) organisation, the lead speaker said "we are not there yet" in terms of providing a high standard of quality advice.

There is no doubt about it. Most of the leading experts in Japan and the UK would make the same assessment.

The difference between these places and the UAE is that something is being done gradually about it. In the USA, where life is complicated by Uncle Sam's pursuit of all your dosh whether you are at home or abroad, they seem to have an edge.

That edge comes from a high degree of self regulation passed down from the SEC (Securities Exchange Commission) to an authority dealing with investments (federally) and an authority dealing with insurance (on a state basis). These authorities possess self-regulatory characteristics, and carry such sharp teeth that advisers take great care to avoid them. Why tangle with a tiger if you don't have to?

Perhaps Dubai International Financial Centre (DIFC) is the beginning of a more conscientious approach?

If so, it will become more than a real estate venture and an important ally to the current regulators, whose job in managing such a rapid pace of change does require understanding and patience.

It's easy to build a road, but the human infrastructure required in Dubai's rapid growth takes a bit more development.

The good news is that in my encounters with the regulators they do employ the right people, they only need the teeth!

Important consideration

In the meantime, Joe Public needs to take stock of his own future, so back to Canada. The CFP "Standards Council" has a useful Web site in which it poses 10 questions you should ask your adviser. I have taken my view of the best eight:

• What are your qualifications?
  In the Gulf there is no accepted standard. However, that is no excuse for avoiding setting industry qualifications elsewhere! Indeed, if you don't insist on qualifications (and checking them), then you could be getting advice from anybody. Fine, but would you let your plumber fix your teeth? A drill in the wrong hands can hurt.
• What experience do you have?
  "Experience is an important consideration in choosing any professional" says the Web site. It goes further by suggesting that two years is a reasonable period in which to build experience. One step further is the simple enquiry of experience with your specific needs. Australians retiring to Europe and Indians migrating to Canada are two hugely different planning challenges, never mind the Australian and Indian going home.
• What services do you offer?
  The range of advice is an important aspect of a good plan. As Warren Buffet said: "To invest successfully over a lifetime needs a sound intellectual framework for making decisions and the ability to keep emotions from corroding the framework." Gulf experience points to a high level of "emotional corrosion", brought about by too many eggs in very few baskets rather than a holistic and balanced planning approach. The current systemic risk brought about by fallen markets has led to a high degree of emotional corrosion from what, empirically, remain good thought out plans.
• What is your approach to financial planning?
  Good question! Rather than waiting to receive the service, the most logical thing is to ensure that the service is fully understood from step one. Expectation management. Is your guy going to see you regularly? If the answer is "yes" ask them to show you the system they use to enforce the regular review. Managing more than 50 clients is extremely difficult without a methodical approach. Secondly, establish the areas of planning which your guy is going to take responsibility for.
• Will you be the only person working with me?
  Who is going to take responsibility for what? Establish this from day one. After all, the financial planner in these parts is still essentially a salesperson, and their job is to be in front of clients. More sophisticated issues such as tax and trust work are not going to be carried out by the adviser, so make sure you know who the team is.
• How will I pay for services?
  "There is no such thing as a free lunch" goes the adage, you bet! Most of the "new companies" are driven by commissions only, so new business drives the business. More established companies are being driven by service fees and salaries which focuses the adviser more on retaining clients. It is in the consumer interest to gravitate towards the advisers offering commission rebates at the front end in return for allowing the advisers to collect rebates from product providers on an annual basis. As this latter manoeuvre often involves a re-distribution of the Annual Management Charge taken by providers, there is the room here for clients to negotiate much cheaper charges.
• Are you regulated by any organisation?
  Unfortunately, in the Gulf, too many product providers insist on selling and distributing their wares through outlets they know are unregulated and whom they know are not actually any good at the "planning" bit of the job. Outrageous, I know, but c'est la vie! The thing about a licence is that you can lose it. The thing about being unlicensed is that you have nothing to lose. The one that counts for investment advice in the UAE is a Central Bank licence.
• Can I have it in writing?
  I will finish this very good question with the Web site narrative "ask the planner to provide you with a written agreement that details the services that will be provided. Keep this document in your files for future reference".

The writer is the managing director of Mondial (Dubai) LLC