Dr Daniel Diemers
GCC seeing continued strong wealth growth
Dubai, February 3, 2014
Assets under management have seen a significant upswing around the world but these gains have not translated into the top-and-bottom-line growth that wealth managers would expect based on past recoveries, a report said.
A number of issues are affecting the speed of recovery, added an extensive global survey conducted by Booz & Company, a leading global management consulting firm.
Key findings from interviews with over 150 wealth management executives, senior financial advisors, and regulators from more than 15 international markets highlight that new global regulations, reduced revenue pools, new competition and changing customer behavior represent major challenges for wealth firms.
The survey reveals that not all wealth managers are equipped to benefit from the expected upturn. Still, the prognosis varies by region, said Dr Daniel Diemers, principal with Booz & Company.
“In the GCC, for example, the overall macroeconomics outlook remains positive, having maintained solid growth over the years,” added Dr Diemers.
“The truth is, the region – and the UAE in particular – has benefited considerably from new cash flows as a result of the Arab Spring.”
With assets under management rising in the GCC, High Net Worth (HNW) clients from nations such as Syria, Egypt and Libya are – now more than ever – looking to invest their wealth and diversify their investment portfolios across the US, Europe and Asia. As a result, local GCC players are progressively entering the competitive Prime Brokerage market.
“In addition, mid-sized offshore private banks are losing traction – forcing some of them to reduce their footprint in the GCC or even close shop. At the same time new US and European players are looking to tap into these new-found opportunities – especially in cities such as Dubai,” said Dr Diemers.
At the structural level, there are significant changes currently occurring in the GCC. Local regulators are continuing to issue a series of new banking rules and regulations. Naturally, the Foreign Account Tax Compliance Act (FATCA), Automated Exchange of Information (AEI) and other regulatory bodies are also urging local private banks to improve their reporting capabilities and management transparency.
Very recently, digital has emerged as a key topic for wealth management around the globe. And, while banks in the Middle East are yet to spearhead digital innovations, there certainly seems to be a growing appetite for it from the client side.
The report also highlights that Europe continues to lag behind other regions, and, accordingly, it is the European banks that have had to take the biggest hit in terms of profitability.
Despite substantial cost reductions at many banks, the average cost/income ratio for European wealth managers rose from 60 per cent in 2007 to 78 per cent in 2012, and around 20 per cent of European wealth managers are struggling to turn a profit. In North America, assets under management recently re-passed the pre-crisis level.
According to the report, to equip themselves to respond to the new market conditions, wealth managers must:
• apply a “capabilities lens” to ensure they focus on markets where they can compete and differentiate themselves effectively;
• rethink their value proposition with tiered offerings ensuring transparency and customer suitability;
• go digital to enhance the customer experience and reduce the cost to serve;
• and adapt their operating model and cost structure to the new revenue realities.
Alan Gemes, co-author and a senior partner with Booz & Company noted that: “Wealth managers looking to play a leading role will need to fundamentally adapt their value proposition and operating model if they are to capitalize on the continued economic recovery in 2014 and 2015.” – TradeArabia News Service