Expats in Dubai urged to avoid long term insurance based investment plans

Published:  22 Aug at 6 PM
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New arrivals in Dubai are being warned about commission-hungry IFAs peddling totally unsuitable, expensive long-term investment plans.

Advice to expats starting out on the adventure of working in the Gulf States often includes the fact that retirement plans need to begin early on in order to generate enough capital for a successful transition from work to leisure in later years. It’s a totally sensible suggestion, but those who offer it may not be acting in your best interests, especially if they’re recommending insurance-based long term investment strategies.

Across the entire expat world, commission-hungry financial advisors, many of whom may well be working illegally, are targeting new arrivals for one reason – the massive, upfront commission payments they receive from offshore insurance companies every time they sell an insurance-based investment. Hotspots such as Dubai are happy hunting grounds crammed with financially uninformed expats on high salaries looking to build a pension pot with the tax-free cash remaining after living costs have been paid.

Those who’ve been taken in by these advisors find themselves locked into long-term policies of up to 25 years’ duration after suffering hefty upfront charges. Should they realise they’ve been wrongly advised and attempt to get out of the scheme, they soon discover the penalties are extreme, with most giving up rather than losing most or all they’ve paid in to date. Even short-term, 10 year policies are weighted in favour of providers and the IFA pushing them, with a typical commission equalling the first 13 months’ premiums going straight to the advisor. On 15-year plans, the advisor grabs your first 18 months of payments, and 25-year plans lose their investors even more.

The worst news is that, after your first months’ payments have been grabbed by your friendly local IFA, your monthly contributions are invested in underperforming, over-priced offshore savings plans with unjustifiably high recurring annual charges. Many expats who’ve been caught in these schemes have found that, after ten or more years of ‘investing’ in long-term insurance based plans, they’ve actually lost money due to charges and a lack of any active management of their funds.

The only way to avoid getting caught in this trap is to use an advisor you’re certain you can trust. Finding one won’t be easy and you’ll need to do your own research online if you’re offered an investment. The Gulf States are an unregulated region, perfect for greedy IFAs, although the UAE’s financial regulating authority is doing its best to clean up the system after admitting this will take time. Checking and double-checking everything you’re told and not allowing anyone to lock you into this particular investment is the only way to stay financially secure.
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