The Middle East advice market has had a lot of regulatory changes to deal with over the last few years, but now there are greater challenges ahead for firms.
Insight Discovery surveyed 42 advisers in the Middle East, 26 advisory firm chief executives and 16 bank executives, for its 11th annual Middle East Investment Panorama.
It found that 74% of advisers see a prolonged global recession as the main challenge for their business over the next 12 months. This is followed by an expat exodus from the GCC (66%) and regulatory landscape (51%).
Market volatility (37%) and competition from firms which are not regulated (34%) follow suit.
On the other hand, 80% of advisers sees new technology and data analysis tools as the main opportunity for their business over the next year.
In second place was expanding their business/attracting new customers (71%), with clients’ willingness to invest (63%) in third. Other opportunities included optimising their business/outsourcing investments (46%) and retaining existing clients (43%).
Fees
The UAE advice sector has had to adapt a lot especially with commission-capping regulation BOD49.
This created a lot of change on the business models in the market.
Advisers said that 61% of their business’ total revenue is made up of recurring fees and commissions, while 39% is made up of initial fees and commissions.
The survey also asked how advisers measure effectiveness in their job and 38% said annual commission.
This was followed by number of referrals per year (24%), amount of renewal commission (19%), percentage annual change in transaction volume (10%) and awards and peer recognition (10%).
Changes
Covid-19 has forced people to adapt this has been the same for the advice sector. Resourcing and greater use of technology (38%) is the main change to advisers’ investment decisions.
This is followed by to make liquidity more of a priority (24%) and risk vs return with aims to lower target prices (18%).
Surprisingly, only 3% had put a higher allocation of assets in line with ESG factors. Some 12% did not make a change at all.
In other news, advisers said they had used fund platforms 54% more over the past few months.
This increase in use was followed by DFM services and life insurance protection products ( both 38% more).
In contrast, life insurance savings products were used 57% less and portfolio bonds had a 36% drop in use.
What to expect for the next year?
Insight Discovery set aside six main areas which can be opportunities for the Middle East advice market in the next 12 months:
- AuM gathering from poorly managed advisory firms;
- Continued growth on a similar trajectory based upon a differentiated proposition;
- Market consolidation of IFAs;
- New regulations opening up a new set of customers;
- Promoting being an ethical business; and,
- Retaining existing client relationships.
The consultancy firm also highlighted the biggest challenges for business models over the next year, which include:
- Cashflow, given distressed clients liquidating assets;
- Differentiating between sub-standard advisory firms and the stigma of financial advice;
- Market volatility and uncertainty reducing investing;
- Regulatory arbitrage; and,
- Technology-based advisory models at a fraction of the cost.
End-of-service benefits
Also, Insight Discovery surveyed over 1,000 UAE residents on end-of-services benefits (EoSB).
Only 40% of respondents outside the Dubai International Financial Centre (DIFC) said they were aware of how their gratuity works and what it means for them.
Two-thirds were also confident that they knew how their gratuity worked, as well as what it meant for them financially.
Additionally, around 30% of respondents across the UAE have either only a basic level of awareness about their gratuity or are completely unaware of their scheme.
But 35% of employees in the UAE were either “not very” or “not at all” confident about receiving their gratuity payment when the time came.
In contrast, 71% of DIFC employees were highly confident in receiving their gratuity payment when leaving their current employer.
Meanwhile, the survey also highlighted the savings gap between expats and other employees in the UAE, as 45% of expats either had no means of maintaining a decent standard of living in their retirement or were planning to work beyond retirement age to derive sufficient income.
Some 61% of them said they had no long-term savings at all.
