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Wealth managers’ role and value proposition is undergoing major transformation. This holds true especially at a time when anemic global growth, that has sapped recovery in emerging markets as well as developed economies alike, is keeping wealth management firms on their toes. Whether it is pressure on the margins, rising overhead costs, tailoring product offering to suit the clients’ investment needs or, for that matter, convincing overly optimistic clients on return projections, wealth managers have challenges aplenty.
The only three things perhaps most agree on is, one, the existing challenges and emerging threats in the global markets have underscored the need for relationship managers to far better understand the needs of their clients and adapt their investment strategy in tune with that; second, wealthy families look toward relationship managers for a range of services, not merely identifying their risk profile and investing their fortunes across various assets; and third, how to get the messages across.
Wealth Monitor invited experts to discuss the issues facing the regional as well as global wealth management industry. We asked a few questions from these experts, such as how is the GCC wealth management industry facing up to the economic slowdown; are wealth management firms feeling the pinch; what’s the key value proposition now to clients; is differentiation, client interface, AUM size, branding, digitization, innovation in services and product offering becoming major planks of wealth management firms’ business strategy; do they see increasing competition between local and regional wealth management firms on one side and international ones on the other; what is going to be the key factor defining the success of wealth management business in this region — are basic strategies that governed wealth management industry for long getting discredited now; how has the strategy for hiring RMs changed now: has the war of talent reached to the point where wealth management firms are forced to poach from competitors; and are clients getting more discerning now — focusing more on real returns (factoring in fees, expenses and taxes) than absolute returns?
And here’s what they had to say….
Gary Dugan, Chief Investment Officer, NBAD
Slowdown a Great Opportunity
The economic slowdown has presented challenges for local asset markets but offers wealth management firms a great opportunity to engage with investors with respect to their long term asset allocation. As oil prices fell local equities followed. The opportunity for wealth management firms is to encourage investors into other risk diversifying assets. In boarder terms this year so far has been solid for wealth managers but clearly challenging in terms of the volatility of markets. Revenue growth has benefitted from ongoing growth in the wealth of the region (despite lower oil prices) and the persistent solid performance of local bond and sukuk markets.
Focus More on Absolute Return
The focus of local investors remains on absolute return. If something has changed it is that in the past there was limited recognition of the risk that investors were taking in investing in often illiquid investments such as real estate or overvalued assets such as equities through boom like conditions. The fall in the oil price and the almost universal acknowledgment that it will be some time before the oil price recovers to anywhere like previous peaks has made investors more prepared to cut their losses and invest more conservatively. We see little focus in the markets on real returns.
Oil, Liquidity Greatest Risks
The greatest risk for investors in the region at the moment is that of weaker global growth leading to a persistently low oil price. This we believe could lead to a correction of equity market with some potential credit risk in the bond market. The second risk is from illiquidity in the real estate market and possible correction in prices. Whilst we doubt that the markets face a 2009/10 like situation we do worry that a mild version of such circumstances occurs where liquidity conditions tighten, local interest rates rise somewhat and activity in the real estate market dries up.
Akber Khan, Director, Asset Management Group, Al Rayan Investment, Doha
In a Nascent Stage
Wealth management industry in the region, particularly in Qatar, is still in a nascent stage. On paper, Qatar is the most attractive environment for wealth management. It has the highest GDP per capita and the highest proportion of millionaire households of any country in the world. Such an enormous pool of liquid assets is surely a wealth manager’s dream.
Long Way to Go
The industry is growing fast but still has very far to go in the region. Although progress in different countries varies greatly (with Qatar among the least developed), the GCC’s wealth management industry would benefit from a significant improvement in financial literacy among the client base.
The list is long: it includes a better appreciation of the relationship between risk and return, understanding the positives and negatives of diversification, knowing what constitutes a professional fund manager and the value they bring to the table. Historically, home-market bias has been significant within each country in the region, however the weak oil price should spur some portfolio diversification.
Dr R Seetharaman, Group CEO, Doha Bank
Clients Are Demanding
The changing global regulatory environment, the dynamic client behavior and the advancement in the technology space coupled with fluid competitive space and rising cost of doing business has made the wealth managers re-think their strategies and they are now increasingly focussing on the value proposition in the given context of ongoing changes in the global regulatory environment.
The clients are demanding more transparency on the cost structures and hence there is a pressure on the pricing models. Wealth managers are actively looking at reducing their cost bases, but the effort has not been enough to overcome the escalating cost of doing business. In response, they need a strategic, ongoing approach to fixing their cost base and positioning themselves for growth.
Need for a Diversified Portfolio Approach
The fall in oil price has resulted in volatile situation in GCC capital markets. However growing and managing wealth is fundamentally based on the principles of diversification. Hence a diversified portfolio in various asset classes spread across global and regional markets is necessary to sustain the growth. A diversified portfolio approach, well supported by a digital platform and appropriate advice, is the key to sustain the growth. Digitisation is critical to fulfilling wealth managers’ stated priorities: to better understand client needs, generate client-centric holistic advice, and deliver a superior client experience.
Digitisation is critical to fulfilling wealth managers’ stated priorities: to better understand client needs, generate client-centric holistic advice, and deliver a superior client experience. Demographics may influence digitisation’s low priority among wealth managers in general. New technologies appeal strongly to clients in their 20s, 30s, and 40s, but some HNWI clients are aged 65 and more and may still prefer low-tech, high-touch interactions with the wealth manager.
Innovation, adaptability and relationship building. That, in a nutshell, describes the current strategy of the global wealth management industry — the new mantra of survival and a critical element to capitalize on new opportunities for growth in 2015 and beyond. There is, nevertheless, a need for clients and wealth managers to understand the futility of short-termism fueled by rapid wealth creation and instead, focus more on the long-term goals. Additionally, private bankers and wealth managers need to offer client-centric product offering and asset allocation at a time when high-end clients are looking for global asset allocation and risk diversification.