Experts confirm expats in UAE ripped off by unscrupulous IFAs

British expatriate professionals living and working in the UAE on a permanent basis are again being ripped off by unscrupulous IFAs.

For expats who’ve no intention to ever return to return home, transferring their pension schemes seems common sense and, in a limited number of cases, it is. However, for the financially unsophisticated, taking advice from the wrong IFA can result in the loss of most if not all of their accumulated savings. A massive offshore industry is now encouraging expats across the world to transfer their pensions, and it’s not for the benefit of clients but exclusively for the financial benefit of dodgy IFAs living the high life on the over-generous commissions paid by the product providers themselves.

Mis-selling is a major weapon for these 21st century bandits, with a huge number of expats losing most if not all of their life savings due to their activities. It’s not just happening in the Gulf States, it’s now rampant in any country with a high number of expat residents. According to one UAE expert, so-called pension specialists hide their true intent under layers of traps maximising their commissions, with many expats too embarrassed to go public with their experiences or scared of reprisals by IFAs backed by aggressive legal teams.

One newly-arrived British couple based in the UAE found out the hard way when they were cold-called by a self-styled advisor. At first, the couple rejected his request for a meeting, thinking no more of it, although they wondered how a stranger had their phone number. Several months later, the same man called again, wearing them down with jargon until a meeting was agreed. According to the couple, the IFA convinced them the local expat community was an exclusive club in which the ability to invest offshore almost tax-free was a benefit. The IFA’s hard sell resulted in the transfer of their UK-defined, final salary workplace pensions to an offshore fund.

As with countless other such schemes pushed by illegal, unqualified IFAs, the punitive upfront charge representing some 18 per cent of their investment wasn’t mentioned. Out of their original transfer of £230,000, the charges were £40,000. Ongoing fees have taken their toll of the remainder and high charges for an early exit would have eaten up a strong percentage of what was left. Annual fees were stated at 1.5 per cent, but added up to 5.2 per cent per year.

Within 18 months, the so-called investment cost the couple around £100,000 in fees, charges and lost investment growth but when, in desperation, they finally tried to bail out of the plan, compensation was refused. The massive numbers of expats who’ve been duped in similar ways won’t be surprised by this story, and the FCA’s recent tightening of rules to protect expat retirees doesn’t cover defined-contribution private and workplace pensions, known commonly as money-purchase plans.

One trick employed by greedy IFAs to drag unwary expats into their traps is that pension funds could well be lost if the former employer files for bankruptcy. What’s never mentioned is the UK-regulated Pension Protection Fund guaranteeing reimbursement of each pension’s value with an annual cap of just under £35,000. In addition, many poor-performance investment plans are regulated in Malta, with some 30,000 or more British expat retirees now holding Malta-based QROPS. This is bad news for expats in the UAE, as from July 1 their IFAS will no longer be legally able to advise them on matters concerning their Malta-based investments.

The above story will be horribly familiar to British expats located in other retirement destinations, and should serve as yet another warning to only deal with fully-qualified, experienced IFAs working legally on a non-commission basis. Finding one such is now a problem common across the expat world, as is avoiding other time-dependent savings plans offered by offshore insurers such as Friends Provident Isle of Man, now infamous for their high commissions, cosy relationships with dodgy IFAs and reluctance to let go of investors’ cash when required to do so.