Often I hear from expats in Dubai and the UAE that “their financial situation is taken care of”. Another comment which I hear frequently is that “I already have a financial advisor”, “I already invested in to something” and other similar replies. What does a financial advisor really do? What is his job? Who can benefit from a financial advisor? I attempt to answer these and other relevant questions in this blog. Unfortunately there is often a thin line between reality and fiction, something we see daily with Donald Trump. On a more serious note, why do so many people dislike financial advisors? Is there no need at all for financial planning for expats in the UAE?
Let’s look at the statistics below:
“Zurich recent report income protection in the UAE found that 97% of residents consider themselves to be healthy, with 88% believing they would remain healthy for the next five years. Our claims record tells a different story”. The average age for life cover claimants is 50 years and for permanent and total disability its 41 years. Just look around you. How many people do you know that are around this age? Do you really think all of them will beat the statistics and will be healthy forever?
HSBC recent report in 2015 questioning expat parents provided some key insights.
64% of parents surveyed would be willing to go into debt. 70% of parents surveyed are funding their child’s education from day-to-day income. Going into debt in order to pay for the education is something parents do out of necessity, because they want their children to have the best opportunities they can get. This is completely understandable, however it would have been much better if they would have planned ahead of this cost. A child enrolls in to university at age 18, this means that you must have known 17 or 18 years ahead that this will be a cost and still 70% of parents are paying their child’s education from day to day income.
HSBC’s The Future of Retirement 2016 survey shows the following key findings from the surveyed expats.
41% of retirees use cash saving to help fund their retirement. Cash is good to have, but it also loses it values with inflation. If the UAE has an inflation of 4% a year and you have $100,000 in cash it will be worth $50,000 in 2035. 31% of retirees wish they would have started saving for retirement at an earlier age. This is almost 1/3 of the total surveyed expats. 27% of pre-retirees have never received advice or information about retirement. That is more than 1/4 expats.
So where does the financial advisor come in? It is a possibility to get a health check on your whole financial future and current situation. See it as a comprehensive health check which you consult an expert to find out if you have cancer, an illness or any kind of disease which is starting to grow in your body or which already exists, but is not discovered yet. This is similar to bad financial planning, people don’t see yet that they will end up with no pension, no education fund, death of a partner with no life insurance, financial bankruptcy, no savings, debts and bad investments which never turn out to make money. A financial advisor is supposed to access all this information and if he sees it going the wrong direction, hit the brakes and guide the client towards the right direction, so that they can reach their destination hassle free.
This is not happening frequently enough in the UAE. A combination of weak regulations, commission structure, uneducated financial advisors, bad management, poor ethics and uninformed recommendations is creating a situation where there is limited focus on the client. The interest of the client is not always the priority. This are one of the main reasons why people dislike financial advisors so much in the UAE.
My conclusion is that expats in the UAE are in great need of financial planning. Regardless of whether they believe it or not, they are exposed to many risks and future financial problems, which they can avoid by planning ahead. Statistics prove that when it comes to protection plans, child’s education and pension there are many weak points in the UAE expat community. There is on the other side a trust issue to get advice from financial advisors and a large group of expats have a bad experiences dealing with financial advisors. Therefore the gap between receiving proper advice from financial advisors and expats accepting that they need financial planning has grown over time.