Good news then that the Emirates Securities and Commodities Authority (ESCA) has decided to certify local financial consultants and introduce a degree of regulation to protect investors.
Regulations issued this week require all financial analysts and market consultants to be accredited by the ESCA before offering their services, and there is a four month grace period for consultants to register.
This summer crackdown on financial consultants seems remarkably similar to the assault on the Dubai real estate sector which began last July with the creation of the Real Estate Regulatory Authority and its implementation of trust accounts for new off-plan property developments.
The new ESCA rules state that financial advisors must be licensed by the authority in addition to working for a firm that is licensed by the agency.
In order to be licensed, firms providing forecasts and analysis will have to be 51% owned by a UAE or GCC national with a paid up capital of Dhs1 million while the authority will also license international firms.
Some local investors may be shocked to find how loose the regulation of the financial consultancy sector has been in the past. And the new rules are a step forward but not a final solution.
There much more remains to be done to clean-up this unregulated sector where anybody can pass themselves off as an expert adviser.
Under the new rules, in order for an individual to now qualify as a head of research they will have to have a relevant and recognised university degree and five years of experience. An analyst will need the same degree and three years on the job.
Additionally, these individuals will not be allowed to trade in any share for one week prior to issuing the note, and they are required to document their advice notes for possible inspection. Licenses will be renewable annually.
This is not exactly an onerous regulatory structure, and UAE investors should still be wary of firms brandishing their new licenses.
There is absolutely no guarantee of performance or a requirement to explain fee structures fully.
High fee levels
The devil is usually in the detail as far as offshore financial consultants are concerned. Fees within fees and no guarantee of performance, these parameters give any financial concern the room to quite legitimately deprive investors of their money.
Visiting financial consultants from more highly regulated jurisdictions often remark on the high levels of fees paid in offshore jurisdictions like the UAE.
Indeed, some even argue that it would be cheaper to pay tax and keep fees lower in the long-run by investing onshore.
However, any measure designed to promote greater transparency and a degree of regulation in this sector is to be applauded. But ESCA is only just beginning its work if it wants to build a world-class market for personal investment in the UAE, and take the cowboys out of the market.