INVESTMENT

The Middle East’s promising wealth landscape

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By Francois R. Farjallah, Global Head of Middle East & Africa for Indosuez Wealth Management
4 months ago

As a strategic financial and trade gateway connecting the developed markets in the West with emerging markets in the East, the Middle East has established itself as a region of prominence for the creation of new wealth. Whether this is through the local sovereign wealth funds, entrepreneurs, family businesses or high-net worth individuals (HNWIs), the growth of regional economies has coincided with the growth of millionaires and billionaires at a rate that is amongst the fastest in the world. The total concentration of wealth in the Middle East is estimated to be $5.2 trillion according to Deloitte’s private wealth and asset management report.

Middle East a top priority in terms of global strategy for wealth managers

There continues to be a lot of growth potential for wealth in the Middle East, which is why it is such a significant market for international wealth management firms wanting to grow their business. For Indosuez Wealth Management, the Middle East is one of our biggest markets and will remain a top priority in terms of our global strategy. In a report published by Knight Frank last year, the firm highlighted that the number of ultra-high-net worth individuals (UHNWIs) in the region grew by 48 per cent between 2006 and 2016. As off today, this segment consists of 7,730 individuals who hold a combined wealth of $810 billion; out of whom 1,510 are in the UAE.

The UAE is one of the world’s most popular destinations for UHNWIs— the Knight Frank report showed that the country has the seventh fastest growing UHNWI populations— because of the favourable business environment, quality infrastructure and high standards of living. In terms of global net investable assets (NIAs) amongst HNWIs, the Middle East is expected to see a 7.2 per cent growth in this segment. A recent Boston Consulting Group report also showed that the region’s HNWI/UHNWI population will continue to grow at the fastest rate amongst all other global geographies between now and 2022. It highlighted that from 2017 to 2022, there will be a 14.1 per cent increase in the Middle East’s wealthy who hold investable assets. This is compared to an expected growth rate of 7.4 percent globally for the same period. But it is important to note that wealth in the region is not only being created at the highest level, because wealth per capita is expected to increase from $18,000 in 2017 to $25,000 in 2022.

The Middle East has been able to maintain this positive trending trajectory in wealth creation despite the twoyear period of low oil prices between 2014 and 2016. For instance, this is the case in the UAE because industrial conglomerates are the most common sector where wealth is being generated and this offers diversified risk to the entrepreneurs behind it. We can expect to see this being replicated in Saudi Arabia, which means that regardless of the oil price environment, you will see still a growth in wealth compared to today thanks to diversification, markets opening up and governments supporting local industries.

Greater wealth will mean greater sophistication

As wealth continues to grow, the region’s clientele will become increasingly sophisticated in the tools that they will require in order to manage that wealth; as traditional methods are changing. In recent years, the rapid pace of development and adoption of fintech technologies has added new dimensions to the wealth management profession. This has also led to industry and fintech experts speculating on how this trend will impact the role of a wealth manager. What we can unanimously agree upon is that the technological evolution will help deliver significantly better services for client; aspects of which we are already seeing demanded today. Wealth management will gain many benefits from technological adoption, especially in portfolio construction and management or client reporting of real time portfolio performance. This trend will lead to an overall enhanced customer experience. Robo-advisors, as they are popularly known, are fully automated service providers who can construct and update a client’s investment portfolio through mathematical algorithms based on an individual’s profile and needs as well as a high volume of real-time market data available.

Additionally, machine learning technology now also offers smart tools that are able to provide personal solutions to clients and advise them with specific tailor-made investment strategies. Digitalisation is a major business driver today with many international wealth management firms and private banks investing heavily in big data and artificial intelligence. Younger investors, particularly the millennial generation, tend to prefer a hybrid wealth management model combining digital investment tools and human advisors more than the generation before them. We are seeing large international investment firms such as Fidelity, Vanguard and Schwab are investing in these digital tools so that they can tailor their offerings to this clientele. This is also happening in the Middle East, albeit more in a gradual manner.

However, we cannot foresee our industry becoming fully automated with clients only interacting with artificial intelligence. The human factor remains the number one driver for client acquisition, holistic servicing and proper retention, and especially for the UHNWI segment whose demands are complex due to the volume of assets being allocated. We consider digitalisation as a driver for future growth for those who know how to apply it in order to improve business efficiencies, rather than replacing the human interaction element. Digital technology will no doubt help increase client satisfaction levels by enhancing investment performance, convenience and personalised service. However, the role of the wealth manager will remain important; but professionals must also evolve in tandem with new technologies and find how to best integrate them into their offering. This hybrid model of both human and digitalised client service has already been adopted by a number of wealth management firms servicing the Middle East. We notice that across all age groups in this region, the demand for speed and efficiency is increasing and the need for savvy wealth managers with sophisticated platforms are becoming increasingly crucial to meet client demands. Given that the Middle East is generally a youthful demographic and that millennials constitute for an increasing portion of the HNWI/UHNWI segment, wealth solutions need to be tailored to their profile and demands.

The region’s technologically savvy young population will be relatively early adopters of digitalised tools and bankers need to adapt their services to them accordingly. This should probably be viewed as an opportunity rather than disruption in the industry, as firms will be able to carve out their competitive edge in the market. The Middle East’s positive wealth outlook and strong economic fundamentals offers a unique opportunity, as it is a high growth market. This is why we will see international firms continue to allocate resources to the region. Clients are becoming increasingly sophisticated and so must the industry’s professionals. As wealth managers, this will probably mean finding the right mix between personal contact-based advisory while also incorporating the digital tools that will increase both efficiency and quality of service. 

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