It is becoming increasingly apparent that external asset managers (EAMs) are no longer the future of wealth management - they are the present.
The wealth management market in the Middle East has always been dominated by the banks, insurers, and independent financial advisors. The idea of EAMs with their independent, multi-bank approach was never previously that widespread, until now.
Despite the challenges facing the EAM industry, namely the growing costs of compliance, the increasing regulations, and the rise in competition, this segment of the wealth management industry is thriving with opportunity. A former Swiss private banker that recently moved to an EAM succinctly summarises, “asset managers are a great spot, they have some unique angles. Nobody starts as an asset manager without a USP. That’s why you leave a bank and open something different. This is extremely valuable.” The EAM professional further suggests that working with an EAM over a bank leads to establishing different relationships with clients, “when you work with a bank, you are working for the bank and with clients. However, when working for an EAM, you’re working for your clients with the EAM, and that’s why the core strength of an EAM is being a trusted independent advisor.”
At a time of significant change for the wealth management industry, we interviewed Bimasal Tabassum, Principal Consultant at Selby Jennings, to discover how clients she speaks with are working towards this new financial reality and to hear her thoughts on the challenges and opportunities that lie ahead for EAMs.
What do you think is driving this change?
Ultra/high net worth clients often feel like the private banks don’t have their best interests at heart. This has been largely attributed to how RMs at private banks are trained, placing the banks’ profits ahead of clients. Glory Xavier, Director at the newly-DIFC licensed Elixir Wealth Solutions, adds that clients need an independent advisor, a professional to, “take care of their money as we would do our own.”
Mones Bazzy, Head of Private Banking at Bank of Sharjah, which has extended EAM agreements with a number of Swiss banks, clarifies, “when you are in an emerging country, the majority of people living here are expats. Some of them like to have the bulk of their wealth abroad, in the UK and Switzerland, for instance. They want to live here but are also looking to have some of their wealth abroad.” Bank of Sharjah is able to offer the best of both worlds: a specialised local investment offering and international Swiss platform.
Another driving force cited has been the ever-changing regulatory environment in wealth management to which EAMs, with their nimble structure, have found it easier to adapt to than the banks. This ‘survival of the fittest’ effect has been credited to asset managers successfully implementing a system which is flexible and adaptable due to their agile structure.
Is digital and generational change having an influence?
Gen Z’s have never known life without technology. It’s becoming apparent that this social media-centric demographic, the next generation of clients, are increasingly reliant on using digital tools at their disposal to understand how they can be financially successful.
“Younger clients who have grown up with technology see less value in traditional wealth management investments. And EAMs are well placed to offer digital banking products, better placed to offer cryptocurrency, blockchain and investments these clients would be interested in,” says a relationship manager (RM) at a European asset manager. Mones Bazzy further explains, “anyone over 50 years of age would be highly resistant to the concept of Bitcoin compared to the younger generation, which most likely have placed their investments in this cryptocurrency.”
This is a trend that banks are willing to respond to. Most recently, the National Bank of Kuwait launched Kuwait’s first digital bank to target Kuwaiti younger generation, and with two-thirds of the country under the age of 34, the bank looks to be capitalising on their younger clients.
What do you foresee will be the challenges facing the asset management industry?
Unlike the private banks, which already have a well-established brand and are marketed well, EAMs need to mature organically through their RMs. EAMs need RMs with transferrable clients, as the CEO of a European asset manager states, “the quality of relationships with clients are essential in driving success. The challenge lies in sourcing RMs with loyal clients – ones who trust their RMs enough to move to a newer player.”
EAMs are typically smaller businesses with large infrastructure costs and many start with a lot of optimism and overambitious targets. Factoring in company incorporation costs, licensing, compliance policies & procedures, not to mention the ongoing operational costs, EAMs have to reach the critical point of breaking even reasonably quickly.
Regardless of the notable challenges, the majority seem to be in agreement that the EAM space is set to grow across the Middle East, following in the footsteps of more developed markets such as Switzerland, Singapore and the US.