The financial advice market in the Middle East is going through a period of revolutionary regulatory change and data shows that clients are also eyeing pastures new.
According to an EY global survey of 2,000 wealth clients, 23% of those in the region are planning to move assets in the next few years, while 50% have already done so in the last three years.
This compares with 32%, globally, who have moved (or are looking to move) their assets over the same time periods.
Poorly served
Stuart Ritchie, head of wealth advice at AES International, said to International Adviser: “I completely agree with the survey and I am surprised the numbers aren’t even higher.
“Clients in the Middle East have been poorly served by a traditional industry that lags behind developed markets by some decades.
“Information availability, technology, education and regulatory environments are beginning to change things.
“The emergence of chartered professionals who can demonstrably reduce cost, act as fiduciaries and provide evidence-based solutions are disrupting and transforming the wealth advice marketplace.
“Ultimately, good financial planning is about helping people change their behavior for the better and I expect innovation in this area and client defections to continue to rapidly accelerate.
“Wealth managers should join the professional movement and embrace better value propositions, transparency and the fiduciary standard if they wish to retain existing or acquire new clients.”
Difference of opinion
But not everyone in the region agrees with the EY findings.
Nigel Sillitoe, chief executive of consultancy firm Insight Discovery and founder of whichfinancialadviser.com, told IA: “Whilst its true investors in the Middle East are gradually being converted to digital offerings, I think the findings from this survey need to be taken with a pinch of salt.
“We have plenty of anecdotal evidence that certain private banks are doing really well in growing their asset base.
“We know of two Swiss banks who generated plenty of new clients and assets last year, one of them was particularly active with private equity deals, the other one recently announced that it intends to double its asset under management in Mena to $6bn (£4.6bn, €5.4bn) over the next five years.
“I suspect the number of respondents from the Middle East was pretty small and not that representative. This is because only 2,000 people globally were interviewed from across 26 countries, therefore it’s possible the sample for this region may have only been around 80.”
IA has contacted EY to find out the sample size of the Middle East survey and the firm said that data is unavailable.
Moving to financial advisers
The survey also said that as clients move away from more traditional wealth management providers, such as private banks and fund managers; brokerage firms and independent advisers are likely to benefit and see an increased interest in their services.
Based on the results of the EY global survey, it is expected that up to 48% of Middle East clients will move to brokerage firms, while 40% are likely to favour independent advisers.
Sillitoe added: “I don’t think financial advisory firms, besides those that are marketing savvy, will benefit as they have so many issues to face, not least due to new regulations such as BOD49.”
How much will BOD49 change?
The UAE commission cap regulation BOD49 is a big change for the financial advice market.
But how much affect will it actually have on wealth clients changing provider?
Chris Davies, financial planner at the Fry Group, said to IA: “BOD49 will certainly play a role in shaping the financial services industry in the UAE moving forward.
“Some of the most controversial financial plans may no longer be offered as previous levels of commission generated will no longer be allowed.
“Sudden changes to terms of business and working relationship with an advisory firm or an exodus of advisers from the region could reveal that you should seek a second opinion leading to further switches occurring.
“Advisers should focus on taking the opportunity presented under BOD49 to build more client-centric propositions.
“In our experience clients like product enhancements, cheaper solutions and new ideas. Using these to improve the client’s position will make it less likely that clients will seek other opinions.”
Major life events
EY’s survey also found wealth management clients are more likely to re-evaluate and move their assets during major life events.
Three-quarters (75%) of Middle East clients move their money when starting a new business, 73% make the shift when buying a house, and 60% of clients reconsider their adviser when inheriting or receiving money.
According to EY, they are equally likely to switch wealth and asset management providers for any one of six reasons;
- quality and reputation,
- products,
- advisory capabilities,
- personal attention,
- pricing, or
- technology.
It also said 53% of clients are placing more importance on “digital savviness”, 48% are looking for advisers that are proactive and attentive, and 45% are selecting advisers who demonstrate sound judgement.
Soft skills and appropriate solutions
“The desire to establish long-term relationships with professional financial service providers has never been greater in the Middle East,” Mark Leale, senior executive officer at Quilter Cheviot (DIFC branch), told IA.
“Expatriates are staying longer than they once did and, as such, the need for quality financial advice and appropriate solutions is ever more important.
“Regular dialogue with your investment manager and financial adviser are key to ensuring that your wealth is structured in the most suitable and effective manner.”
Reza Nader, general counsel of Nexus Group, said to IA: “While financial advisers traditionally take such a holistic approach, other wealth managers focus purely on managing the client’s financial portfolio, an approach which sometimes misses predictable and unpredictable life events, such as children’s educational and critical illness.
“Financial advisers are particularly well placed to perform this function because of their in-depth knowledge of the client’s circumstances, as well as a wider range of products at their disposal to design a tailormade solution.”
