Don’t deal with the cowboys, invest sensibly

Employers could do more to help staff avoid risky schemes and use their wages wisely

Global investment expert Andrew Hallam didn’t mince words when he addressed a round-table discussion hosted by The National this week. He compared the market for long-term savings plans in the UAE to the Wild West and noted that he had not “seen anything like this anywhere”. The discussion, which involved six representatives from the financial services industry, was held partly in response to a high level of complaints about savings plans and the way they are sold. These complaints have led the Insurance Authority to announce that it is drawing up tough regulations to change the way insurance and savings plans operate.

Regulatory measures are welcome, as long as compliance is not too onerous or doesn’t put undue impediment on financial markets. But we can suggest another savings model that can benefit workers, their employers and the country as a whole.

Most expatriates are earning more money in the UAE than they have ever earned at home. Many of them are young and naive about investment products. They will typically seek the services of financial advisers or brokers, some of whom – as Mr Hallam and others have pointed out – are not impartial and can make more from the deal than the person who takes out the plan. In some instances, investors find themselves locked into payments they simply cannot afford – especially if they lose their job.

Here’s where employers come in. All expatriate workers are entitled to an end-of-service gratuity, which the employer pays when the staff member leaves. This is currently a burden on the books of the company, because it is difficult to predict when employees will leave and how many of them will leave in the same year.

Instead, employers could be encouraged to make monthly payments on behalf of their employees into a prudently managed investment scheme. The country could benefit, because the money would be invested in a basket of products ranging from stocks and onds to capital projects, and mostly kept within the UAE economy. And the employee would benefit because they would be able to top-up the employer contribution with their own money, adding to a pot that they can take with them whenever they decide to leave. For Emiratis, this could replace or augment their existing pensions. It’s a win-win-win scenario that will ensure all workers can build a healthy personal nest egg while contributing to the economy.