Dubai: Private wealth in GCC has doubled from $1.1 trillion to $2.2 trillion, making the region a lucrative market for both local and global private bankers, but to fully capitalise on new opportunities, banks need to devise new strategies for the fast growing affluent class according to a study by management consultancy Strategy&, formerly Booz & Company.
Strategy& estimates that at present, there are between 1.5 million and 1.6 million wealthy households in the GCC with total investable assets of around $2.2 trillion (Dh8.1 trillion). While Saudi Arabia accounts for about 44 per cent of the region’s private wealth the UAE has about 30 per cent share at the end of 2013.
One of the most significant finding of the study is that the share of affluent segment in the region’s wealth has doubled in absolute dollar terms from $261 billion in 2009 to $560 billion in 2013 creating a new opportunity for private bankers and wealth managers.
“High-net-worth individuals (HNWIs) continue to account for the largest chunk of the region’s wealth at 41 per cent, followed by ultra-high-net-worth individuals (UHNWIs) at 34 per cent. However, the affluent segment has been growing the fastest over the last five years at 21 per cent CAGR, more than doubling,” said Dr. Daniel Diemers, Partner with Strategy& in Dubai.
According to the study, the growth of affluent households from 2010 to 2013 was strong, with total households increasing about 50 per cent, from an estimated range of 850,000 to 880,000 in 2010, to a range of 1.25 million to 1.325 million. The UAE has created the most affluence in the GCC, growing its share of affluent households from 16 per cent to 26 per cent from 2009 to 2013.
The study reveals that geopolitical events intensified the migration of new wealth to the region. Since the start of the Arab Spring and in its aftermath, many regional wealthy households migrated to the more stable countries like the UAE. These households also moved a significant portion of their wealth to either regional or foreign banks based in the GCC countries to which they relocated. The UAE has benefited from this regional phenomenon the most and seen the largest inflows from the wider Middle East and North Africa region.
Despite the surge in region’s private wealth, private bankers have been witnessing reduced commission income due to fewer reallocations or new subscriptions. Private bankers face an array of customer service issues ranging from legacy costs associated with old operating models and outdated branch-based coverage strategies; unsophisticated advisory which lacks in tailored distinct offerings based on customer segmentation and life-stage needs and inflexible reporting systems that are outdated.
To further grow in attractive wealth segments, private banks need to digitise their offerings and services, develop core capabilities and enhance operating models to be more client-focused
“Clients want better reporting, improved accessibility and increased transparency. To deliver on these demands and create a truly customer-focused experience, private banks will need to continue to invest significantly in technology while in parallel aligning their objectives and operating models to be more client-focused and digital,” said Jihad K. Khalil, Senior Associate with Strategy&.
Intensified competition and lack of differentiated offerings too are hurting the business. As wealth expands in the GCC, more local and global players have entered the private banking market with largely undifferentiated offerings. This can be a liability for these players, as GCC investors have become more selective and demanding. Local private banking players have been unable to evolve their client offering into the upper HNW and UHNW segments or starkly differentiate themselves in the market.
“Whether a private bank decides to target the affluent or a wealthy HNW sub-segment by geography or type of client, it needs to develop the right capabilities. The “one-size-fits-all” approach will not work anymore, and therefore, it is important for a private bank to clearly understand who it is targeting before developing the required strategic capabilities,” said Dr. Diemers.
