Wealth management: the opportunities and the challenges

When you think about wealth, what comes to mind first? The opportunities—or the challenges?

The year 2020 had a large impact on the way individuals manage money and finances. Economies worldwide are under pressure as they try to digest the devastating effects of the coronavirus outbreak. Locally, the pandemic has resulted in UAE residents spending less but worrying about finances more. This gap, often resulting in cognitive dissonance, maybe causing many to make impulsive financial decisions.

In the new year, and as people begin to prepare for a post-pandemic life, wealth management could be one of the top services that would see high demand. According to the Capgemini World Wealth 2020 Report, wealth management sectors in the Middle East region and the UAE specifically are among the fastest-growing in the world, with the growth in the number and wealth of high-net-worth individuals in the Middle East outstripping the global average.

What is wealth management?
In simple terms, wealth management is the management of money. By combining investment solution services with other financial services, wealth management addresses each clients’ needs. Wealth management also provides clients with tax planning, estate planning, and retirement planning services along with investment services.

Even though wealth management is mainly concerned with providing financial advice to primarily high net worth individuals and ultra-high net worth individuals, less wealthy people sometimes seek wealth management services.

Meeting the wealth management needs of individuals and families
Wealth comes in many forms, and they all require specialized private banking and wealth management services. Banks will build on knowledge and expertise to help meet each client’s differing needs.

Family businesses, for instance, offer the stability and reassurance many would currently need due to the pandemic’s repercussions. However, there is significant pressure on owners of family businesses to step up and be accountable for their enterprises, especially now. By staying nimble and being very clear about the ultimate purpose and fundamental values, family business owners create a recipe for successful crisis governance.

The UAE is home to 21 family businesses that are on the list of Forbes’ ‘Top 100 Family Businesses in the Middle East in 2020’ list. Family businesses are considered an important driving force of the UAE economy as they contribute to more than 90 per cent of the economic activity in the country. As a primary source of wealth, families that are joined by a family-controlled business share a feeling of unity while having a common purpose, which comes from having a common understanding. Nonetheless, like any other source of wealth, family businesses may be hard to manage especially during challenging times. To ensure a successful legacy, It’s essential to create a platform among future owners that enables them to understand why current owners do things the way they do. It is also important to educate them on the risks and achieve one of the critical byproducts of governance – sustain the unity and commitment of future owners to the enterprise they will one day own.

Tips to managing wealth
Finding a balance when managing wealth can be difficult. However, to know how to manage wealth, one should try to understand the internal and external challenges. Get a clear idea of the bigger picture, and outline what one’s wealth aims to accomplish. Whether it is maintaining a certain lifestyle now or during retirement, aim to support the family or give more to charity, different structures or strategies can help jump-start or fulfill other goals.

Thinking through wealth options also helps individuals with their decision-making processes. Where does your concentrated wealth lie and how can you get more? Whatever the situation, financial service providers can help individuals understand the various choices to enhance wealth diversification and find an approach that works for them.

Daniel Fleming is head of Wealth Advisory for MENA at JP Morgan Private Bank