How the millennial generation is turning wealth management on its head in the Middle East

It is well-known that the banking industry is at a technological crossroads with banks needing to make serious investments in innovation in order to survive. But less has been spoken of the wealth management industry, which we believe is even more ripe for change and innovation. We believe that wealth management is poised for a significant transformation in response to the millennial generation beginning to inherit the wealth of the baby boomers.

This so-called “Great Wealth Transfer” predicts that around $69 trillion will be passed down over the next 30 years from baby boomers to their loved ones. Another calculation estimates that by 2030, millennials will be five times richer than they are today. These individuals will need to manage their inherited wealth, and the current wealth management models are not aligned with the expectations of the first digitally native generation the world has seen.

Wealth managers should be looking at such figures with more than curiosity as this wealth transfer will completely alter the profile of their clients and their needs, turning the wealth management sector in its head. It is now a critical necessity for this sector to modify the way they do business so as to meet the changing needs of the millennial client. Of course, we are already seeing a global trend to innovate and utilise technology in wealth management, but there is a lot of room for improvement in the offerings from Middle Eastern wealth managers.

Just looking at the depth of the sector in the Middle East shows you the vast opportunities at stake in the future.

In 2018, UAE wealth management was already valued at around $400bn. It far outperformed global wealth, which slid more than 5 per cent in 2018 as a result of a fourth quarter dip in stock indices, geopolitical threats, high valuations and interest rate challenges. That same year, private wealth in the UAE grew by approximately 5 per cent, and it is expected to grow by some 8 per cent year-on-year until 2023, where the overall industry value is estimated to become $600bn.

Today, almost half of UAE personal wealth is held by millionaires and the main asset classes being invested in are currencies and deposits. Additionally, UAE private wealth cross-border assets are at a gigantic 31.8 per cent, far above the global average of 4.2 per cent, and thus wealth management in this region must be uniquely approached to consider this factor.

There are currently around 70 private banks in the UAE offering wealth management services, with approximately 50 per cent of those either international or regional institutions. Such a very high ratio of private banks for the population demonstrates the enormous appetite for financial institutions to utilise the UAE as a base for targeting wealthy clients across the wider Middle East.

However, this huge rush to the region in search of wealthy clients is also a reason why the Middle East trails the world in innovation for wealth management. With private banks focusing on ultra-high net worth individuals, their tactics are traditional led by highly personal service with relatively low use of technology. Wealth managers have not been forced to consider technology too seriously until now, but with the demographics of wealth shifting, so must the business focus and the approach to servicing clients.

The historic focus on servicing ultra-high net worth banking and investments has also meant that there is much less focus on wealth management for the mass affluent. This group of investors are somewhat overlooked, but they make up a very important part of the investor community. The UAE and the wider region is a well-known destination for expats to come and build wealth for their futures, with the tax-efficiencies and good salaries a big drawcard.

While this audience segment might not be made up of billionaires, they have significant salaries and growing wealth that is available for investing and they are not currently being serviced well. We see targeting this segment of the investor community as a very big opportunity, especially because the millennials who will soon be coming into significant wealth, are perfectly aligned with digital products.

Embracing fintech and collaborations is critical because we believe that financial institutions in the future will not develop much technology themselves. Instead, financial institutions will handpick the best digital solutions for their clients and package them effectively.

Analysis of the characteristics of the new millennial wealth management client shows that this generation don’t just expect, but they demand customised and cost-efficient products and services. They have a hunger for education and are more likely to be proactive, self-directed investors who want to take care of their own trading. They need a platform and the tools that give them access to cost-effective trading and investments.

We are seeing growing interest from banks and financial institutions to provide managed portfolios under white label agreements. The simplest and most cost-effective option for institutions looking to broaden their digital offering is to collaborate.

No doubt this need for agile technology solutions for wealth management will become increasingly critical in the coming years as the transference of wealth takes place. Banks and wealth managers are looking at improving their digital offerings, but they need to move faster. Meanwhile, fintech firms don’t have customers, but they have great products. The solution is obvious: collaboration.

Nicholas Wright is the sales director, MENA at Saxo Bank