The UAE and other GCC countries continue to reap financial benefits due to Arab Spring as investors divert their capital from troubled countries to more stable nations of the Arabian Gulf.
“The truth is, the region – and the UAE in particular – has benefited considerably from new cash flows as a result of the Arab Spring”, says Dr Daniel Diemers, Principal with Booz & Company.
At a global level, 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.
Key findings of the latest Booz & Company global survey highlight that the 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. “In the GCC, for example, the overall macroeconomics outlook remains positive, having maintained solid growth over the years”, says Diemers.
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”, adds 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 percent in 2007 to 78 percent in 2012, and around 20 percent of European wealth managers are struggling to turn a profit. In North America, assets under management recently re-passed the pre-crisis level.
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;
ADAPT their operating model and cost structure to the new revenue realities.