As the UK wealth management industry shifts following Brexit, one important objective is finding new markets as the European Union's Single Market becomes more difficult to enter. The author of this article suggests that the Gulf Cooperation Council of states in the Middle East deserve attention.
The UK’s departure from the European Union poses a number of challenges for wealth managers working out how and where to expand overseas operations. Leaving the EU means that firms based outside London and other UK centres no longer have that old easy access to the European Single Market, and need to jump through several hoops instead. (Over time, of course, things may ease up, although Switzerland’s recent frustrations with Brussels suggests that it may take a while for matters to resolve themselves.) So what should managers do, and where to go?
The author of this article - Michael Rothwell - suggests that the Gulf Co-operation Council collection of states in the Middle East are worth managers’ attention. GCC members are the United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait.
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One of the consequences of Brexit is that the EU is no longer the default option for wealth managers wanting to expand overseas; fast growth and an underserved market could make the Gulf Cooperation Council countries an attractive alternative.
How has Brexit impacted the UK’s wealth management
The UK’s wealth management industry is sophisticated and competitive: these characteristics have long helped it to succeed internationally. However, Brexit has upset the applecart to a degree; UK providers who have historically looked to the European Union to conduct business are now subject to more rigorous regulatory and custodial requirements than in pre-Brexit times.
For many wealth managers, growth outside of the UK now looks increasingly challenging. A loss of passporting and increasingly stiff competition across the industry means that the EU is now no longer the default option. While Brexit may have levelled the playing field when it comes to global opportunities, it has also caused wealth managers to pause, take stock of their international ambitions, and reassess their next steps for growth.
So where are they looking?
We’re seeing a proliferation of international wealth hubs, but the clear frontrunner is the Middle East. In recent figures from Capgemini, the region recorded higher wealth growth than the global average in 2019, with the high net worth population increasing by 9.3 per cent and wealth growing by 10.2 per cent to reach $2.9 trillion. This is significant, and UK wealth managers are increasingly waking up to the opportunity in the Gulf Cooperation Council [jurisdictions].
With greater focus on new markets come new considerations for wealth managers. The wealth management sector in the GCC is currently underdeveloped; while high net worth and ultra-high net worth individuals have long had relationships with private banks based in the UK and Switzerland, the growing mass affluent sector comprises mainly expatriate individuals, and is underserved. Access to credible wealth advisors is limited, and services are expensive. Service, in general, is poor by international standards.
What are GCC-based clients looking for in a wealth
Typically, wealth managers that can deliver a service embedded in the sophisticated (and successful) frameworks of their western hubs will find that they gain greater traction across their chosen GCC market. Similarly, aligning with the preferences of individual groups is a universally helpful move for wealth managers seeking to increase their engagement with different audiences in new markets.
In the United Arab Emirates, 90 per cent of the population are expatriates. A sizeable minority is affluent and therefore a prime target for wealth managers. These individuals tend to associate strongly with well-known, respected brands, which add a sense of reassurance that will position international firms well to gain a stronger foothold in the region.
In an historically underserved wealth market, a physical presence is also key for wealth managers who want to establish themselves and grow in the GCC. Locals and expatriates alike will expect to see asset managers making long-term commitments to a market: establishing a local office, hiring local professionals, and developing language support for residents. Ultimately, this benefits wealth managers twofold, helping them establish strong local connections, while also developing a deeper understanding of new markets.
What strategies should UK wealth managers
As with the EU, some commonalities exist between GCC countries, specifically cultural and social norms. Through a business lens, though, the differences are stark. Legal systems, languages, the degree of openness of economies, and regulators’ receptivity to international business all vary considerably from country to country. With that in mind, adopting a single-country approach when targeting the GCC market will be critical to the success of UK firms’ engagement with the Middle East market.
As mentioned, wealth managers will find that they make more confident strides with their expansion in the GCC region if they focus on specific client groups within their chosen country. Trying to cater to the various needs of different clients based on their level of wealth, asset class preferences, Shariah-compliant investment requirements, and the other bespoke interests of GCC clients, risks overcomplicating regional outreach.
And what about custody? How do these firms fit into the
Regardless of the client group or jurisdiction chosen by a UK wealth manager for its GCC launch, most companies will eventually seek to expand their offering to multiple countries to take advantage of the size of individual markets in the region. To make this as cost-effective as possible, wealth managers will need to work with a custody partner that offers a platform, technology, and operational business support to underpin their future expansion.
Wealth managers supported by custody providers benefit from outsourcing reporting, technology, and other requirements. This frees up their time and allows them to get up to speed with their new market, safe in the knowledge that time-intensive processes are being taken care of for them. Many regulatory requirements can also be absorbed by the custody partner, making it much more straightforward to navigate new markets.
Ultimately, collaboration is key, and wealth managers who draw on support available from custody providers will find themselves better equipped to enter new markets and pursue new avenues for international growth.
About the author
Michael Rothwell is country manager of BNY Mellon | Pershing in the Channel Islands.