This article is part of an Executive special report on wealth management and private banking. Read more stories as they’re published here, or pick up September’s issue at newsstands in Lebanon.
The GCC continues to be a standout region for wealth creation. Investable and liquid assets grew by 15 to 20 percent each year from 2009 to 2013, reaching around $2.2 trillion in the region, according to our forthcoming study “GCC Private Banking 2014–2015.” Wealth management centers such as Dubai, Saudi Arabia, Qatar and Kuwait have seen particularly robust growth in individuals’ assets, fuelled by increasing domestic wealth and inflows from politically unstable countries elsewhere in the Middle East and North Africa.
For the near future, the Middle East will remain an attractive but complex wealth management opportunity. Private bankers must pay close attention to its cultural and economic characteristics as well as regulatory issues, especially when operating across borders. Many local banks have built up their own wealth management offerings, which increasingly compete with those of larger international players. While some mid-sized international players have recently reduced their presence in the Middle East given its unique challenges, the region remains an important target market because so much private wealth is held and managed offshore.
We believe that to capture future asset growth in the region, private banks must adroitly manage three wealth management trends: the growing affluent customer base, increasing sub-segmentation within the high net worth individual (HNWI) client base and digital wealth management.
The growing affluent customer base
The affluent segment in the Middle East is the fastest growing wealth management segment. In 2013, affluent customers (i.e. with $200,000 to $1 million of investable assets) in the GCC had estimated net assets of over $500 million — a growth of over 20 percent per annum since 2009. Their ranks are expanding as ‘retail’ customers and the ‘mass affluent’ (the growing middle class) graduate to the next level of wealth.
Some of these newly affluent clients are the product of market performance and the broader impact of GCC economic growth. Others are Arab, Asian and Western expatriates. This is driving overall demand for basic investment services and financial planning, as well as product platforms and advisory offerings that provide advice and ‘best in class’ product solutions.
There are nonetheless important differences between local and expatriate affluent clients. Expatriates need multi-account openings on- and offshore, with convenient transfer of funds via partner banks, foreign exchange products to hedge currency exposure and better access to tax, pensions and insurance solutions. Meanwhile, many affluent GCC citizens want financial planning solutions, superior customer experience and, increasingly, Shari’a compliant offerings.
Sub-segmentation in HNWI
Interestingly, as wealth has grown in the region, private bank offerings have begun to resemble each other. Wealth managers offer many of the same ‘perks’ such as waiving brokerage fees and offering exclusive gifts. This suggests that local private banking clients are uniform in their needs and expectations. But the reality is that there are distinct HNWI sub-segments in the Middle East that demand more focused offerings.
A prime example is female HNWI investors, who control 20 percent to 25 percent of HNWI assets. In our research, wealth managers have found that women have distinct banking needs and behaviors — for instance typically investing more conservatively and focusing more on wealth preservation. In some GCC countries, ‘ladies’ branches’ are already available for retail and mass affluent clients. However, dedicated wealth management offerings for female HNWIs are not yet common.
Another attractive sub-segment is the ‘next generation’ of larger, typically ultra-HNW families (those with net assets of over $50 million). A large ultra-HNW family can have more than 20 to 30 young adults who expect lots of attention but do not actually control many assets. Their needs are fundamentally different from their parents’ generation. Private banks must decide how to cost effectively service this next generation without losing them to competitors or creating uneven service levels within one family.
Finally, our research has confirmed the importance of digitization to private banking. Wealth managers see changing client expectations and moderate growth of self-directed wealthy clients who embrace digital tools. As more HNWIs use technology to manage their wealth, the industry is slowly moving toward 24/7 multi-channel, digital offerings. This requires building a clear digital agenda, especially for younger and technology savvy clients. Typical elements of this agenda include: a 360 degree view of clients’ assets and behavioral profiles to provide competitive, personalized advice; real time, mobile access to portfolios, research and advice; enhanced quality and personalization of advice using big data to identify the most relevant opportunities for each client; and a greater selection of tools and other advisory applications designed for tablet and PCs.
Opportunities for those who look
Although wealth management in the GCC has never provided better opportunities, the market is subtle and contains extremely varied segments — whether women, newly affluent or younger generations. To win in this market, private bankers will need to tailor their offerings accordingly and master how to deliver them through the latest digital technology.