Wimbledon Wealth will offer a range of advice and wealth services in the UAE. It is an appointed representative of Lawsons Network – which is a partner of Securities and Commodities Authority (SCA) licensed Continental Group.

The firm is looking to have around 10 advisers by the end of 2023.

Bhatti, who was previously director at W1 Investment Group and regional manager of wealth management at Nexus Insurance Brokers, told International Adviser that the firm will offer a UK-like wealth management service.

“There will be a lot of advice and consultation rather than making clients take out a policy,” she said. “That’s how it normally works in this part of the world, unfortunately.

“I want to make sure we have clear and detailed reporting for clients by producing financial plans. I want to make sure we utilise tech to enhance client experience and offering.

“I’m also making sure that we are not offering a one-size fits all approach. I’m looking for ways to add value to clients. I want to create a boutique type wealth manager and advice firm rather than looking to expand out with hundreds of advisers.

“I have also, just purely by default, looked to take on female clients who don’t feel comfortable speaking to men or want a female adviser. I think from a woman’s point of view, they feel on a level with another woman and can open up about their finances. There is a lot of professional women out here who do need help as well.”

UAE market evolving

It is a time for growth in the UAE. Many aspects of the financial world are changing in the region – from funds regulation to making it an exciting place to retire.

This makes it an attractive financial centre for advice firms.

Bhatti added: “The figures show that there’s more and more wealthy individuals coming over to the UAE. Therefore, people need to have good quality, wealth management and financial advice.

“Essentially, that’s why we are starting off with a clean slate. I am making sure that every part of my process is geared towards quality and it’s not the old school adviser sales approach. The technical abilities are needed to add value to your client, especially high net worth individuals.

“From a client point of view, they are looking for advisers that can do more than just promote products. They’re also looking for advisers who are skilled in all areas, not just a pension transfer specialist.

“I’m looking at long-term relationships with clients. The demographics are changing here. People are staying here longer; they’re looking to retire here. Gone are the days where people are just in the UAE for a two-year contract and go back home.

“There are people looking at retiring in the UAE, so we need to be giving them the advice to enable them to be able to do that.

Estate planning

With expats looking at long-term stays in the UAE, this means advice firms need to offer more services including areas like estate planning.

Bhatti said: “I feel it is a part of financial planning that can add value to clients. I don’t think there is much offered around estate planning and inheritance in this part of the world.

“It’s going to be a fundamental part of the financial advisory offering out here because the demographics changing, people need advice on these areas. Most of the expats out here all have UK inheritance tax issues – with the assets they have in Britain and the money they are accumulating in the UAE.

“From my experience so far, they haven’t been able to find somebody that can help them with it. Some go back to the UK to try and find advisers there because they don’t know who can help them in the UAE. It’s not an area that is of focus in the UAE. But it is the future of financial planning in the country.”

Expansion

Lawsons Network also has a Switzerland licence – giving Wimbledon Wealth and Bhatti the opportunity to offer services in the European country.

“Most of our business is in the UAE, so I haven’t really focused on utilising the Swiss licence yet,” Bhatti added. “But it will be something that I’ll probably look at later this year. It’s a different market altogether.

“I’m also looking at getting a UK licence so that I can deal with expats that have repatriated back to Britain. EU as a whole is appealing and I’m looking at the licensing for that as well.

“But it will about baby steps of doing it right, rather than just trying to get out there quickly.”

This follows its announcement in December 2022 that it wants to achieve a 100% increase of the amount of the money managed by local funds and introduce new types of regulated investment funds.

The newly established fund regime aims to revamp the existing legislative framework relating to the incorporation and governance of public and private funds established in the UAE and to grow the local UAE funds market.

Al Tamini said: “The changes include, inter alia, expedited processing periods for the approval of public/private funds, reduction of regulatory requirements and additional types of funds recognised by SCA.

“The new fund regulations have expanded the exemptions of arrangements that would not be considered as a fund to cover joint bank accounts, insurance and pension contracts, joint investments between the parent, holding, subsidiary and sister companies, timeshare properties and other sharing property use, employees share options schemes managed by the issuer or group company and government funds.”

SCA has introduced two fund structures which are:

• Family funds – a local fund where the ownership of its units is restricted to one or more persons from one family; and
• Self-managed funds – where a local fund is established by two or more individuals or corporates.

In addition, the regulation establishes new categories of specialised funds such as real estate development funds, precious metal funds, direct financing funds, ESG funds, capital protection funds, protected-cell funds, charity investment funds and commodities investment funds.

Numbers

Al Tamini & Co added that an “important measure” in the SCA regime is the reduction in capital requirements of fund management companies to AED1m from AED50m (£11m, $13.6m, €12.5m)and fund administration companies to AED1m from AED5m. It also removes foreign ownership restrictions, allowing 100% foreign ownership of such companies.

Furthermore, the application process timelines have been reduced to five working days for private funds and 10 working days for public funds for the approval of establishment of the respective fund. The SCA’s final decision on applications for new types of funds will be issued within 20 working days from the date of submission.

Al Tamini said: “While existing funds would need to conduct suitable due diligence to ensure compliance with the new fund regulations, it is worthy to note that there are some exemptions.

“Additionally, such funds are permitted to continue with activities as per the categorization and investment policy set out in their offering document. In the event no categorisation or investment policy is set out then compliance on such matters in accordance with the new fund regulation shall apply.

“It is expected that the SCA will issue a separate decision on the regulation of joint investment plans and investment funds linked to insurance products established by UAE licensed insurance companies and until further notice, status quo can be maintained.”

Further provisions under the newly established SCA regime include:

• Investment funds may issue and offer sukuk and bonds for the general public;
• Public real estate funds may be offered to the public through the book building mechanism;
• Permitting mergers and acquisitions of local investment funds;
• Buyback rules of investment funds traded on the stock exchange; and
• Capital increases of investment funds may be increased in instalments and tranches.

Separately, the SCA has also issued an administrative decision that contains annexes to the regulations, which contain guidelines on the content of the offering document and Key Investor Information Document (Kiid); the investment policies of the local funds; classifications of local funds; and the evaluation of units of the local public fund.

Foreign funds

The regime comes as SCA recently stopped the renewal of foreign investment funds aimed at the public.

Al Tamini said that SCA has also issued the Foreign Funds Promotion Regulation that provides new criteria on the promotion, offering, and registration of foreign funds to investors in the UAE.

The regulator has issued approvals to 1,965 foreign funds to promote and offer their funds through licensed promoters in the UAE. The intention of the Foreign Funds Promotion Regulation is to restrict the access of foreign funds to UAE retail investors.

The promotion of foreign funds in the UAE can only be made by way of private placement to professional and counterparty investors. The law firm said that investors “appear to be restricted from accessing public foreign funds under the Foreign Funds Promotion Regulations”.

UAE licensed promoters have been provided a grace period of six months, from 1 January 2023, to continue with existing promotion arrangements or until the remaining period of those arrangements expire, whichever is earlier.

It is expected that the SCA will issue a circular and will reach out to promoters on existing foreign funds that have been registered with the SCA to provide further guidance.

The Foreign Funds Promotion Regulations is effective as of 17 January 2023.

Foster growth for domestic funds

Tom Bicknell, partner at Pinsent Masons, told International Adviser: “SCA’s recently introduced restriction on the promotion of foreign funds to retail investors comes in parallel to their overhaul of the domestic funds regime.

“Widely seen as a move to foster growth of the domestic funds industry, foreign funds can now only be promoted to professional investors and market counterparties. Promoters have a maximum six-month grace period to cease the promotion of foreign funds to their retail clients.

“SCA’s new funds regime has been released with the intent of doubling the amount of investments managed by funds locally. Indeed, shortened timelines, expanded fund categories and reduction in minimum capital requirements are all directed at aligning SCA’s regime with international best practice.”

Nigel Sillitoe, founder and chief executive of Insight Discovery, told IA: “The main regulator of funds – in this case, SCA – and other policymakers, face an important decision: what sort of funds industry do they want for the UAE?

“On one hand, the industry could be one where most of the funds – in terms of numbers and AuM – are Ucits or other products that are domiciled elsewhere and that are distributed across national borders. On the other hand, the industry could be one where most of the funds are domiciled locally.

“Ucits and other foreign-domiciled funds have a number of attractions. There is no one model of a market for investment funds that is the best for all countries. Nevertheless, and in two landmark decisions made in mid-January, the SCA has made it absolutely clear that it wants the latter – an industry that is dominated by locally based funds.”

There are currently few details beyond confirmation of the suspension and exemption for the renewal of private funds.

A source told International Adviser that the watchdog cited “keeping pace with the evolving market practices” and it “constantly reviewing regulations” as drivers behind the decision.

“The announcement has come out of the blue,” Nigel Sillitoe, founder and chief executive of Insight Discovery, told IA. “It is starting to reverberate around the funds industry in the UAE.

“It is too early to determine what the impact will be, however investment managers who have funds already registered with SCA will be mighty relieved.”

The difficulty in finding on-the-ground sources willing and able to provide commentary offers, perhaps, an insight into how unexpected the move was and how the industry is still grappling with its implications.

SCA started the new year with a campaign to confront unlicensed financial activities and protect investors. Messages across its Twitter and LinkedIn accounts focus on reminding consumers to be “conscious and careful”, not “get carried away by the temptation of profits” and to “watch out for your wallet”.

There does not appear to be any announcement regarding the fund renewal suspension on either social media platform or on the regulator’s own website – at least one that is available in English.

Whether the two campaigns and suspension are connected is not clear.

But recent history has shown that the UAE regulators have a tendency to publish updates at their own pace, which means that providers looking to renew their funds face considerable uncertainty.

Meeting the minimum requirements

According to Waystone, a provider of compliance solutions to the asset management industry, a foreign investment fund looking to get SCA approval to promote its offering to the public in the UAE must meet the following conditions:

• The fund is either established outside the UAE or within a financial free zone in the UAE and is regulated by a regulator similar to the SCA;
• The fund cannot be exempt in its country of domicile from any regulatory oversight or regulatory controls particularly in respect of regulations concerning the preparation and distribution of periodic reports;
• The fund should be licensed in its country of domicile to be promoted on a public offering basis; and
• The minimum subscription per investor in the units of the fund distributed on a public offering basis shall be set out in the prospectus, a copy of which shall be submitted to the SCA for approval.

This will allow the company to establish and manage investment funds.

BHM Capital was established in 2006 and provides investment services for both private and corporate clients.

The licence is part of the firm’s strategy to offer financial instruments to meet investors’ needs and work with “one of the top-ranked companies in the country”, according to BHM Capital.

BHM Capital chief executive Abdel Hadi Al Sa’di said: “Our goal is to offer funds that deliver excess returns in the medium and long term. We handle the entire process of putting together a client’s investment portfolio and provide access to new investment opportunities.

“The fundamental advantage of investing in a fund is that it allows you to delegate investment management decisions to professionals. BHM Capital puts a fund’s investment strategy into action and oversees its portfolio trading activity.”

Anand Singh, senior associate in the insurance and reinsurance practice at law firm BSA Ahmad Bin Hezeem & Associates, Dubai, said: “Along with the consolidation, the market is seeing a different dynamics. The regulations will bring in consolidation in the market, as only those who are committed to the UAE market for longer term would remain.

“We are seeing new players entering the market, some of them being insurtech companies, who are well aware of the commission restrictions, and have customised their business model to suit the revised regulatory framework,” said Singh.

He also said a number of small players have stopped offering life insurance solutions since they no longer see the same profits.

Considerable change

Krishnan Ramachandran, chief executive of Barjeel Geojit Financial Services, Dubai, said: “Post implementation of the BOD49 regulations, the life insurance sector in the UAE has been going through a phase of restructuring and adaptation of the new rules and requirements.

“The major impact of course has been the steep reduction / cap in commissions and the payment of the commissions over the term of the policy.”

He said that this has resulted in a considerable change to the working models of many insurance brokerage firms. However, the timing of the implementation during the covid-19 situation has thrown up many challenges for the life insurance industry especially in the insurance premium front which has witnessed an exponential increase compared to the premiums to the pre-covid period.

This, along with the sharp fall in bond yields during this period, has also impacted the returns to the investors.

“The cost-income ratio for insurance brokers have increased substantially and due to this there are consolidations within the market place,” he added.

On the flip side, there are new players entering the insurance market with a long-term view with business models that are compatible with a BOD49 world.

A number of insurance online entities have also commenced operations. These are evolving in the market place and it will only be a matter of time before they are able to scale up their volumes and create a profitable online transactional platform, Ramachandran said.

Consolidation on course

The economic slowdown triggered by the pandemic and a set of regulatory measures have made it challenging for smaller advisory firms in the UAE to survive, making many of them either buyout targets or exit candidates, said DJ Sengupta, managing partner, Capstone Insurance, Dubai, who had earlier said the advice market in the UAE is ripe for consolidation.

Murali Krishnan, business development manager, Berns Brett Masaood Insurance, Dubai, says: “The market started seeing many mergers and acquisitions. The BOD49 regulations speeded up the consolidation process. Already lots of takeovers are happening.”

Sengupta said there will be more small players wanting to merge with bigger players who are future ready, which means the consolidation process will gain momentum.

The UAE’s rules on upfront commission, fees and mis-selling (BOD49)  have long been expected to be a big catalyst for industry consolidation and elimination of smaller players. Now, it’s happening as a number of small brokers have stopped writing life business altogether, said Anand Singh of BSA.

Krishnan says the current situation is ‘survival of the fittest’ and many small players will be forced out of the market. “Much before the pandemic struck the SME sector was severely impacted by the economic slowdown, but banks were not supportive.

“To a great extent insurance business is driven by the SME sector and most brokers have been driving their business through SMEs. For the small brokerages, the pandemic and the BOD regulations proved to be a big blow,” he said.

Sophisticated market

Apart from the BOD49 regulations by the Insurance Authority, the Central Bank has also issued guidance around consumer protection and the Securities & Commodities Authority has issued a rulebook on code of conduct for the sector, indicating that the markets are becoming more sophisticated and the regulatory framework is also evolving for better.

Advisers are starting to feel the pressure, but they understand that if they want to survive they have to play by the rules, said Singh.

It was expected that the revolutionary regulations would address issues related to mis-selling, upfront payments and overall unspecified commission payouts.

Singh said: “BOD49 has been a step in the right direction and players have found ways around the commission structures by way of overheads commissions etc. While the regulations are a step in the right direction, it will take some time before the complete impact is felt.”

Murali Krishnan said: “For frontline MNCs, this is an opportunity, as they can beat the competition by buying out the smaller firms. The positive is that the market will shrink and to that extent there will be healthy business.”