Case study: Even a financial officer can fall for a predatory savings scheme

A senior banker, who wanted to stay anonymous, was caught out by a Dubai-based financial adviser who missold him a long-term savings plan - proving that anyone can fall prey to poor money advice.

The dangers of being mis-sold an unsuitable long-term savings plan in the UAE are so great that even experienced financial services professionals can get caught out.

Tim, who prefers only to give his first name, moved to Dubai in 2010 to take up a senior position as chief operating officer at a major UAE financial institution, after more than 20 years working in banking in the Far East.

In 2011, an international financial advice company that specialises in selling investments to expats talked him into setting up a monthly savings plan running for 11 years, and that’s where his problems began.

Tim had dealt with his company before in the Far East, when it had transferred his UK pension into a Qualifying Recognised Overseas Pension Scheme.

He agreed to invest $5,500 a month for the term of the plan, which he was later persuaded to increase to $10,000. “The man I dealt with was a fantastic salesman, very smooth, but he didn’t sit down and talk me through the terms and conditions. If he had, I would never have signed up.”

What he thought was a savings plan also included an element of life insurance, for which he had to pay extra fees. “Yet the advisory company was not even registered as an insurance broker in the UAE. The plan was operated by a supposedly respectable international insurance company, which should never have accepted business.”

Tim was under the impression that his money was being invested in mutual funds, when in fact it was invested in a shadow fund run by the insurance company, which allowed it to cream off another layer of fees.

Increasingly suspicious, he contacted another financial advisory company in Dubai for advice on his position. “At this point, I had paid in $350,000. Despite the strong stock market performance over recent years, its value had fallen to just $320,000. Worst of all, if I wanted to cash in the plan I was told the surrender value was just $220,000,” says Tim. “They were going to keep $100,000 as a penalty.”

Tim then discovered something else the adviser never told him: the first 13 months of his payments went entirely in commission.

He is still running the plan, although he has now slashed his monthly payment to £200. “However, I am still paying fees based on the $10,000 monthly contribution, and these are eating away at the value of my money.”

Inevitably, none of this was explained by the salesman. “They made it really easy to set up the plan, but really hard to stop it.”

The policy runs until 2022, and Tim faces a difficult choice. “I am tempted to cash it in, but if I did that I would sacrifice the terminal bonus paid at the end.”

He says his attempts at seeking redress have also been a challenge. He first contacted the regulatory body the UAE Insurance Authority, which said it couldn’t help, and told him to take his complaint direct to the insurance company.

The insurer’s UAE branch said it was nothing to do with them, because the plan was underwritten by its offshore international arm based in a British Crown dependency. “That’s despite the fact that as part of the sales process, a representative from its UAE division visited my house.”

In despair by now, Tim contacted the offshore regulatory authorities, who told him they could only help with complaints about plans that had been sold after 2014.

Like thousands of other unwitting victims, Tim has lost a lot of money, and feels there is not enough regulatory protection for UAE residents. “I just want to warn other people. If it can happen to me, it can happen to anybody.”

Follow The National's Business section on Twitter