Wealth held by high net worth individuals (HNWI) in the GCC, those with investable wealth of more than $1 million, is expected to grow from $2.1 trillion last year to $3.8 trillion by 2012.

In a report published on Thursday, 'The Future of Private Banking - A Wealth of Opportunity?,' management consultancy Oliver Wyman found that the bull run in stock markets and unprecedented wealth creation has driven a rapid 11 per cent year-on-year growth in HNWI assets globally.

However, due to a tougher market environment, annual growth is expected to slow to nine per cent over the next five years.

'The combination of increased competition and more difficult market conditions has marked the beginning of a more challenging era for the global private banking industry,' said Oliver Wyman partner and head of wealth and asset management Stefan Jaecklin.

'We expect growth rates to vary significantly by region, with the Middle East and Asia Pacific, except Japan, leading the pack.

'The strength of these emerging markets combined with the changing global environment will provide new opportunities for well differentiated and increasingly global players to build a distinctive brand.'

Oliver Wyman's analysis shows that an estimated 16 per cent of HNWI wealth globally was held offshore last year. For the Middle East, the firm estimate 52pc of HNW and money to be held offshore.

This is countered by a strong trend amongst the GCC's richest to repatriate wealth and invest in regional assets.

For a market that was historically served offshore, players are now having to hire teams to service clients onshore, with many foreign wealth management firms also increasing their coverage of the Middle East.

The report also highlighted that international regulatory pressure on tax avoidance will continue to increase, with the share of tax-driven offshore banking set to decline in coming years.

A sustained trend towards onshoring of financial assets and tax-transparent offshore banking is likely to lead to a change in strategy both for private banks and for offshore centres themselves.

The scarcity of talent, skilled and experienced client relationship managers, is also a challenge in the Middle East, with dedicated on the ground coverage teams needed for billionaire families and top UHNWIs.

'In this region, the critical factor is no longer finding clients, millionaires are increasing quickly, but rather finding the skilled and experienced relationship managers to work in the market' said Jaecklin.

'A good client relationship manager is absolutely key for winning and retaining clients, especially in the Middle East which is highly relationship driven.'

As the global market environment gets tougher, Oliver Wyman expects that some of the strategic decisions taken by private banks will come under increasing scrutiny.

Decisions relating to geographic footprint, the choice of distribution model and the choice of corporate structure will become much more important.

Within distribution models, Oliver Wyman has found that client relationships in the European onshore private banking model on average create three to four times more value for shareholders than those in the traditional US broker/dealer model.

'Wealth managers must develop a thorough understanding of their main value levers beyond just assets under management,' Jaecklin added.

'Important areas for management attention include corporate structure, risk management systems, branding and positioning.'-TradeArabia News Service