The Middle East has long been established as a global private banking hub because of the national wealth and high density of High-Net-Worth, and Ultra-High-Net-Worth individuals gathered across the region.
The number of HNWI and UHNWI continues to trend upward in the region. This is happening during the largest intergenerational wealth shift in history, as the Baby Boomers pass on wealth to Gens X, Y and Z over the next couple of decades.
The Capgemini Research Institute’s World Wealth Report found the population of HNWIs increased by 6.8 per cent in 2020, with the sector’s wealth growing 10.7 per cent to $3.2 trillion. The financial institutional space historically concentrated most of its time, manpower and resources into servicing top-tier clients, who typically were required to have asset holdings of more than $5 million to access a private banking relationship. This imbalanced focus on the top of the pyramid left a huge category of ‘mass affluent’ investors underserviced. However, in an era of major technological disruption, the wealth industry is transforming; banks and wealth managers prioritise this lucrative sector by using technology to gain the cost efficiencies and scale needed.
So, who are these new investors, and why does the traditional model not work for them?
The generation that cares!
This mass affluent and younger target demographic includes many GCC expatriates who boast savings of between $50,000 to $2 million and a new generation inspired during the lockdown for Covid-19 to invest savings in capital markets. These generations are somewhat more self-sufficient in dealing with most things; they are more averse to using intermediaries than previous generations. For instance, they typically do not use travel agents and prefer to research and book their hotels and flights. They may even buy a car online without ever visiting a dealership. They are much more technology-dependent and expect everything to be at their fingertips whenever needed. The idea is if something is not on your mobile, then it’s not important.
Millennials want to have more open discussions about investing their money and are led by global topics, themes, and companies that hold specific interests to them. They are also a generation that cares. They are more idealistic about what the world could be like. ESG and impact investing are highly relevant; they believe money matters and can make a difference. They are more ethically conscious investors than previous generations, using money to shape the world they want to see. ESG-focused institutional investment is forecasted to grow by 84% to US$33.9 trillion in 2026, making up 21.5% of assets under management in a recent PwC report.
Digitisation is the preferred way forward.
Advisers must go digital, as it offers opportunities to scale through greater process automation while also delivering the flexibility, customisation, and optionality needed to meet evolving client demand.
This doesn’t mean that low-cost trading apps and basic robo-solutions are the only way forward. They should be seen as tools that advisers can use and can be part of a complementary suite of products and services that advisers access.
More importantly, advisers need simple yet sophisticated tools that can help them achieve scale, automation, and effectiveness, allowing them to be nimble in servicing clients anywhere and anytime, be able to serve more clients and provide quality financial planning and investment advice, which is still the hallmark of an advisory business that requires the human element of understanding personal financial requirements.
A modern adviser’s digital toolset would include the ability to monitor multiple client portfolios and distribute news, insights, analytics, and reports to clients via apps that would provide direct access to global multi-asset markets, as well as help clients digitally implement and maintain portfolios based on personal goals and objectives via smart solutions. Solutions must be tailored to individuals. A one-size-fits-all approach to investment management does not suffice.
The safety of assets is the priority, but having a unified platform where client funds can be managed across different asset classes facilitates what the client wants: SaxoPartnerConnect resolves this issue.
Nicholas Wright is the Director and Head of Advanced Solutions and Institutional MENA at Saxo Bank.