Here is the second in a series of articles examining major challenges and opportunities in the Gulf and wider region.
(This article from WealthBriefing is published in conjunction with Emirates NBD Private Banking, and is part of a series.)
An ever-present theme in wealth management is how the rising,
younger generations have different ideas of what they want to do
with the family’s wealth and business.
According to a report by DHF Capital, about $1 trillion in assets in the Middle East will be transferred to the next generation by 2030.
It is common today for grown-up children of UHNW families to study in universities in the US, the UK and continental Europe. Inevitably, they come up against different influences and ideas and want to apply what they’ve learnt on their home turf.
Advisors and other wealth managers know this dynamic is at work; it is no wonder that framing strategies for succession, business transfer and family governance is a hot area. To do this job well, advisors must spend time and energy getting close to families, build trust, and learn their needs.
It is important of course not to exaggerate certain differences.
Reports suggest that Gulf region families aren’t notably
different from those in other parts of the world about the kind
of conversations that go on, but there are differences.
A study of NextGen by PricewaterhouseCoopers in 2022 found that when many NextGen in the region have been focused on their own projects, there is a renewed commitment to the family business. NextGen feel positive about their value and their contribution to the business. But they are not complacent; more than a third feel that the pandemic highlighted the need for them to improve their skills. There are some concerns: only half of Middle East NextGens are aware of a succession plan (of those who are, most were involved in its development) and 19 per cent do not know if there is a succession plan, the report said.
However, in recent times, there has been more interest in family offices. Middle East families want structures that that help them hold generations together in positive ways. For example, Dubai International Financial Centre has launched a DIFC Family Wealth Centre ‘DFWC’ highlighting how the Middle East jurisdiction is targeting family businesses as a client segment. That centre draws together family-owned businesses, ultra-high net worth individuals and private wealth into a single hub. (See a related story here.)
The DIFC Foundation regime, which is becoming a better understood proposition, was unavailable to the NextGen's parents and grandparents. The structures are built to protect and provide governance, oversight, and the control of assets within the DIFC framework. This really gives clients confidence that the structures have the support of the DIFC and DFSA.
Many Middle East families are exploring how to fully structure
generational wealth transfers. This is caused by factors such as
wealth transfer being a relatively new issue for the region
because the generation that built the wealth is still around. The
Middle East has only started to build an infrastructure of
succession and transfer.
Consequently, domestic private banks, and international firms, are ramping up their offerings to tap into a need for sound succession/estate planning advice.
The Middle East must navigate challenges that have become
familiar in certain other regions of the world. What is clear is
that for those private banks and wealth managers that understand
the terrain well, there are plenty of opportunities.
(This is the second in a series of articles examining the MENA region's wealth management challenges and opportunities. See here for the first article.)