The demographics and demand exist, but are all the services in place to support a mature private banking and wealth management sector in the region?
Over the last few years, we have seen regional banks invest significantly in creating a robust wealth management offering, in response to customer needs. We are increasingly seeing a more sophisticated wealth management approach taken by players in the region; one that is built on relationships, digital solutions and unique product offerings. There is also a growing appetite in the market to go beyond conventional asset classes, that is seeing a rapid interest in exploring new investments around ESG, venture capital, private equity and specific tailored products – with a strong desire to explore diverse forms of investment.
At Standard Chartered, our investment philosophy hinges on the art and science of human behaviour, supported by high-end digital offerings. One of the personalised advisory services we offer our private banking clients entails running different scenarios to give a historical statistical perspective of asset class returns under each of these scenarios, offering customers the right information to ensure the best decision is made for their portfolio.
Have events in the past two years affected the demand for optionality in client’s portfolios?
The Covid-19 pandemic has required changes in behaviour from both clients and their advisors and placed greater emphasis on digital solutions enabling remote engagement rather than face to face interactions. Looking specifically in the Middle East, a change in the trajectory of the wealth management model has been evident for quite some time. According to a study[1] conducted by EY, 25 per cent of wealth management clients in the region receive financial advice through mobile applications. Similarly, 53 per cent of clients placed more importance on wealth managers that are digitally savvy, signifying an increased prominence on technological ability.
It is becoming clearer that firms that can provide an automated platform with periodic access to a human advisor is the most preferred scenario across a range of investor profiles, combining the best of both worlds for clients.
The adoption rate for digital wealth management solutions has increased dramatically. Standard Chartered launched a mobile fixed income platform in selected African markets at the beginning of 2020. By July, up to 50% of fixed income transactions were completed using the mobile app. The diversification of digital product offerings in investments has given clients the option to choose where to invest based on market volatility. However, customers still care for an experienced professional who will translate and explain the strategies proposed by the systems, while offering support in the decision-making process. Relationship-driven models with channels such as telephone, email and face-to-face meetings will not become obsolete, but there will be a shift from personal interaction to digitally enabled client interactions [2].
How frequently do clients ask you to factor ESG considerations into their investments?
Sustainable investing and a focus on ESG performance is becoming critical to successful investing in the Middle East. The 2021 IFC report[3] estimates total sustainability-related assets under management in MENA are at $54.25 billion – higher than in China and India. With the UAE and Saudi Arabia announcing their net zero strategic initiatives by 2050 and 2060, respectively, in addition to ESG considerations forming an important part of the private sector senior mandate, there is an incredible potential in the value and growth of ESG-focused funds.
Customers also increasingly look for purpose while investing their money. According to EY’s 2021 Global Wealth Research Report[4], 76 per cent of Middle Eastern clients have sustainability goals, and 48 per cent say they factor climate change and carbon emissions in their investments. Be it with green finance, social impact investing or Islamic finance.
Our Sustainable Investing Report also shows that 80 per cent of UAE investors expressed an interest in ESG investments with a demand for ESG-funds i.e., funds deployed in a targeted manner into the shares and bonds of companies that focus on ESG aspects. Industry research tells us that younger generations are twice as likely to invest in companies or funds with ESG outcomes, and over 80 per cent cite investing with a focus on ESG impact as central to their investment decision making, as they increasingly look to make a lasting impact through the portfolios they choose. At Standard Chartered, we use best-in-class or positive screening filters when choosing our clients’ ESG investments, and companies that have strong ESG indicators will likely perform better.
Are the majority of clients in the region ready or happy to use digital only channels?
Wealth management at its core requires a strong, personalised customer-client based relationship. We are seeing that increased digital capabilities have given clients greater flexibility to choose where to invest. In June 2020 alone, product sales rose to an all-time high as a result of the increased accessibility through digital channels. Diversification of a digital products offering can extend beyond helping clients to grow their wealth to also enabling clients to protect their wealth.
In 2020, through our SC Mobile App, we saw a 250% increase in wealth management transactions booked between March and April, when COVID-19 hit the African markets. Whilst digital transactions increased during COVID-19 for Mobile Motor and Home Insurance. On a monthly average, the transactions were 160% higher in 2020 on the Mobile App in Kenya, compared to 2019 for a monthly average sale.
On average, what proportion of HNWI client’s portfolios would you say are focused on international assets?Â
Today’s HNWIs are more involved in their investments and demanding how to grow their new, largely tech driven wealth. As seen during the 2002 tech bubble collapse and the 2008 global recession, HNWIs seek safer asset classes when financial markets are precarious. Even those who invest in equity in this environment prefer value stocks over growth stocks. In the Middle East, equities formed the major portion of the HNWIs’ investment i.e. 22.6%, while the second most attractive asset class was cash and cash equivalents (21.3%). The remaining portfolio was allocated to real estate (19.9%), fixed income (19.3%), and alternative investments (16.9%), according to World Wealth Report6 .
Are there any unique qualities that make the Middle East a hotspot for private banking & wealth services?
The Middle East is home to some of the world’s wealthiest countries and people, with the region expecting to see a 25 per cent growth according to Knight Frank[5]. Given the rapid pace at which the region is developing, and rise in HNWI, we expect to see investment inflows to continue to increase in the region. The UAE in particular is home to highly reputed and financial markets such as DIFC and ADGM, with clear regulations, offering high quality environments in place to ensure market confidence, backed by an excellent healthcare system, safe environment, state-of-the-art connectivity and world-class infrastructure, all of which make the region an attractive market to operate in and create a favourable investment environment. Furthermore, UAE regulators have eased several legislations and put in place regulations that have opened up world class products to the public, that are comparable to other mature markets like Geneva, London or Singapore.
[1] https://www.ey.com/en_ae/news/2020/01/23-of-wealth-management-clients-in-the-middle-east-are-looking-to-switch-providers-over-the-next-three-years
[2]Â Â https://www2.deloitte.com/content/dam/Deloitte/de/Documents/financial-services/Wealth%20Management%20Digitalization.pdf
[3] https://www.ifc.org/wps/wcm/connect/fb3b4f55-10b4-4db7-9bdd-0757d6188b53/IFC_Brief_MENA_Web.pdf?MOD=AJPERES&CACHEID=ROOTWORKSPACE-fb3b4f55-10b4-4db7-9bdd-0757d6188b53-jqeKVYa
[4] https://www.ey.com/en_ae/wealth-management-research
[5] https://content.knightfrank.com/research/83/documents/en/the-wealth-report-2021-7865.pdf
6 https://worldwealthreport.com/reports/asset-allocation/middle-east/
