A FEW weeks ago, I had outlined the blueprint of how brand name American brokerage houses in UAE have commission based business models that almost guarantee broker misdeeds, client account churn, the recruitment of "who you know" investment advisors and widespread investor losses. The column on US brokerage houses generated a storm of E-mails and phone calls, both positive and negative. Strangely major investors and ex-brokers in the UAE were uniformly in agreement with my analysis.

Other brokers and private bankers disputed my argument that commission based compensation systems generate churn and burn in client accounts.

Let us use a simple yardstick to judge the pros and cons of my argument. One, how many investor lawsuits pending at each major brand name brokerage house? Two, how many investors who had commission to equity ratios above 1-2 per cent in their account in the past three years? Helpful tip to UAE investors: If your broker generated 4 - 5 per cent "production" (i.e. commission) on your equities account, you could have a valid churning case. In that case, contact the firm's New York compliance office directly. Three, en masse sackings of brokers taking place - why? The boys not generating enough commissions or managements wishing to grab client assets as house accounts while saving money on broker payouts? I would postulate that this entire sad scenario - investor losses, blizzard of lawsuits, incompetent personnel, widespread churning, broker sackings - all stem from one simple existential fact: the commission based business model creates a classic conflict of interest between an investor and broker - and, ironically, between a broker and his firm. Yet the deficiencies of this business model, while catastrophic for investors during volatile markets like 2000 - 2001, are positively benign when compared to the flagrant exploitation of investors that takes place routinely by all sorts of financial intermediaries in the UAE. The following examples are just a tip of the iceberg.

Double your money trading Euros, yen, gold, silver, whatever? Leverage yourself 30 times on your money? Commission rates $60 a contract. This is the classic pitch of the currency/ commodity bucket shops in town. The reality? Nine out of ten investors lose money in first three months. Ten out of ten lose money in the first six months. But does the bucket shop only make money or your commission as your broker cleans your account out. Not at all. The commissions are icing on their cake. The big money is made because they keep your losses, not just your commissions. You see, your trades never reach the Chicago or New York exchange. The bucket shop know full well that nine out of 10 guys will lose their money as soon as they open their account. So why not just keep those losses by keeping phantom market making operation right here? This is not business. This is outright theft - and it is going on with impunity in UAE. Insurance company linked "Investments" No fraud here. Just a lack of transparency that makes Nigerian politics look like the model of good governance. The game is simple. A fund is packaged in a whole life insurance programme. The salesmen, unknown to the "investor", pockets 50 per cent of the premium in the first year, 40 per cent next year etc. A lovely ten-year meal ticket from you, the investor, to your insurance consultant. Do you have a hope of making money in your funds even after 10 years? Do I have a hope of beating Mike Tyson in the boxing ring? Excellent idea for a bank or brokerage house to get 3 year money as well as earn a lucrative spread buying an option promising you "participation" in an index such as Nasdaq, Dow, Euro equities etc. Lousy idea for you, Mr Average Investor.

One, you pay a management fee to the bank to buy zero coupon Treasury bonds for 90 per cent of your assets. Two, your option is rigged against you from day one that you have no hope of a market return. Net-net, while perfectly legal, capital guaranteed funds are only profitable for banks selling such funds, not for investors.

When I read about money magicians from Africa doubling "money" via magic (a peculiar form of hedge funds?) in the local media or get faxes from Nigeria talking about blocked Swiss bank accounts, I realise that money scams can be both simple or sophisticated.

However, all too often, in their search to make a killing, investors get killed. Ignorance and naiveté are even more dangerous than greed in the investment game. As an investor and proud resident of a world-class emirate that will host the 2003 IMF/World Bank conference, I believe every senior financier in town has a moral responsibility to do his utmost to promote Dubai as the offshore financial hub of the Arabian Gulf. Raising standards of disclosure, transparency and investor education in UAE finance is a natural first step in our common quest.