This publication looks at two international financial centres in the Middle East, and an example of high-tech at a private bank, to examine wealth management trends on the ground.

Competition is heating up in the Gulf as financial jurisdictions battle over wealth management market share. A spate of recent moves suggest there is plenty of momentum. And the digital changes upending banks’ business models worldwide also affect those in the region. 

Several stories catch the eye. A few days ago, it was reported that Citigroup wants to boost the United Arab Emirates' role as an offshore booking centre, and is working to win a full banking licence in Saudi Arabia. Emirates NBD recently opened its first branch office in the Saudi Arabian city of Khobar in the country’s eastern province. Lombard Odier wants to partner with a Saudi bank and bolster its presence in the Gulf Co-operation Council group of countries. Bank of Singapore says it wants to do more business there. Societe Generale created four new positions in its Dubai hub, covering the sovereign client base, family offices, and global markets sales. Mashreq Bank said that it is the first private bank in the UAE to harness artificial intelligence tech for its offerings. State Street, the US-based financial services group, recently set up its first Abu Dhabi office, located in the Abu Dhabi Global Market.

These busy times suggest that while energy resources remain a big wealth driver, GCC countries know that carbon energy will, eventually, run out. That forces these jurisdictions to develop alternative ways of making a living in areas such as technology, legal services and real estate, among others. 

Not all the news is positive – and that leaves aside geopolitical issues, such as the conflict in Yemen or the West's position versus Iran, for example. Some financial numbers are not totally reassuring: a recent report said that the non-performing loans ratios of GCC banks are expected to see a gradual increase in the next 12 to 24 months, although the overall size of problem assets is expected to remain stable (Standard & Poor’s).

Even so, with the time-zone of the Middle East being between those of Europe and Asia, the cross-border wealth management charms of the Gulf win attention – from non-resident Indian-serving bankers, for example. And the region has seen the ascent of the Dubai International Financial Centre – established in 2004 – and its younger neighbour, Abu Dhabi Global Market (2015). The older of the two IFCs lived through the tumult of the 2008 debt crisis, and the past decade has seen it ride up higher again as global markets rebounded.

Growth data
Statistics cannot describe everything but the DIFC, for example, likes to point to a 10.4 per cent compound annual growth rate in the number of active registered companies in the jurisdiction, reaching 2,003 at the end of June, surging from 747 in the crisis year of 2008. Some 614 companies are regulated by the Dubai Financial Services Authority, the regulator in Dubai, of which 493 are financial services firms. DIFC-based organisations employ more than 22,768 people.

At ADGM, more than 1,000 companies are registered and over 80 firms have financial permissions. The older IFC has quite an edge – so far.

DIFC knows the race is intensifying. In 2015 it set out a strategy to triple in size by 2024. And it is looking across the whole spectrum from banking, through insurance and on to areas such as fintech. In certain areas, such as family offices, the region has not even fully started to realise the potential, Salmaan Jaffery, chief business development officer at DIFC, told this publication.

“The potential of this [family offices] sector is huge and is yet to be unlocked. Market estimates that approximately $1 trillion of assets will be transferred to the next generation of family-owned businesses in the Middle East in the decade from 2015 to 2025, which explains the rising need for specialised wealth management and succession planning solutions, especially as many of these businesses are yet to experience their first generational transfer,” he said. 
 

April push
In April, DIFC unveiled three new strategic initiatives to bolster Dubai’s growth: attracting foreign direct investment, particularly from south-east Asia through Dubai; enhancing Dubai government entities to undertake financial transactions within the DIFC by offering necessary regulatory and legal framework; and providing Dubai-based financial products to local and regional markets.

DIFC has also enacted two new laws: The Trust Law, which provides an appropriate environment for the operation of trusts in DIFC (a useful tool in a region predominantly under Shariah legal codes), and the Foundations Law, which is designed to add to the wealth structuring toolkit in a way that is recognised internationally. 

Over at ADGM, that body is led by Richard Teng, chief executive. He used to work at the Singapore Stock Exchange and the Monetary Authority of Singapore, and brings his experience from the vibrant Asian city-state to the GCC table. 

At the end of 2017, financial institutions at ADGM collectively oversaw about $5 billion of assets; by end of the first half of 2018, that figure has skyrocketed to $23 billion, he told this publication. Firms registered in the ADGM include Citi, HSBC, State Street, UniCredit and BNP Paribas.

Teng conveys the idea that ADGM is a very modern kind of place, and that it is keen to set a high-tech tone. For example, Teng said ADGM was the first such financial regime to regulate spot cryptocurrency exchanges. A few weeks ago, ADGM organised the second edition of this year’s FinTech Abu Dhabi, which attracted innovators, leading financial institutions, start-ups, investors, regulators and business leaders. 

Among the organisations setting up in the authority are family offices, Teng said. He also said that asset managers are coming to ADGM. ”We are seeing a number of international players coming here and they want to be closer to the ground,” he said, noting that institutions are less content than before to fly out managers from afar. “We are transforming in our way how financial services are conducted in this region.” 

The jurisdiction has become one of the world’s top centres for real estate investment hubs, Teng said.

A challenge is making sure that the ADGM’s business model is constantly evolved to keep on top of what the financial services industry wants; that makes it important to source the smartest, most adaptable talent, he said. 

Artificial Intelligence
While there are many strands to the GCC’s wealth sector, the region appears to be as buzzed by fintech and developments such as artificial intelligence, blockchain ledgers and machine learning as the coffee bars of California, Singapore or London. For example, Mashreq Bank, as mentioned earlier, says that it is the first private bank in the United Arab Emirates to harness artificial intelligence and robotics into its business. The bank, which provides services including wealth management, has worked with the US-listed Virtusa Corporation, which provides digital strategy, engineering and IT outsourcing services. The firm implemented the tech firm’s Blue Prism’s Digital Workforce offering.

“In the private banking and wealth management spaces specifically, global institutions have been investing in technology over a larger number of years. The Middle East banks are not encumbered by legacy technology in the same way as their western counterparts and hence are able to be nimbler and faster in adopting new technology. With a growing millennial population, it has become imperative these banks adapt to changing customer interaction models driven by technology,” Vasudev Telikicherla, senior vice president, head of Middle East & Africa at Virtusa, told this publication.

It is plain that, while the Gulf is a region with its challenges such as geopolitical worries and the need to reduce reliance on oil, some jurisdictions are taking a more entrepreneurial path, determined to exploit what the region has to offer. The cross-border benefits are clearly appealing, and the Middle East's domestic market is also impressive. The high net worth population holds a total of about $2.5 trillion in wealth, according to Capgemini's most recent wealth report. The number of HNW individuals rose relatively modestly (2.1 per cent) in 2017, while wealth rose 2.9 per cent. It is a market that no internationally-minded wealth management professional can ignore.