Aligning the interests of clients and advisers, not driving business via commissions and investing in the business, is one of the things that senior individuals from the asset management industry in the Middle East wish distributors would do to create a more sustainable business.
At a thought-leadership discussion hosted by Hubbis in Dubai, many of the top minds from international and regional fund houses came together to discuss and debate the biggest challenges and opportunities of operating in the region.
And key for dealing with the sweeping regulatory changes in key markets in the Middle East like the UAE, asset managers have clear and strong views about what they think bank distributors should be doing to create a more fruitful business.
1. Think long term
Most participants agreed that distributors need to think about creating long-term business models instead of focusing on short-term gains, adding that they cannot ignore the need to generate sustainable revenue streams.
In addition, while regulations are also bringing about changes in business models, international banks should be clear about what they want to gain from having a presence in the Middle East.
2. Align the interests of clients and advisers
Currently, the commission model holds sway in the local market. But, according to roundtable participants, there is no reason to believe that advisers who make short-term commission earn more than those who have a proper book of business with longer term AUM.
This requires the client relationship to be nurtured in such a way that the client – as well as the adviser – can benefit even 10 years later. But this is only possible if the short-term, commission-led approach is overhauled.
3. Provide sustainable advice
The advice given to clients needs to be more sustainable, said participants from fund houses. “If you do your job well, the money will eventually come,” was a common point of view.
What this entails, essentially, is distributors giving holistic advice to clients and not being solely revenue-driven.
Currently this is not the case, although the issue is not just limited to the Middle East. Right now, for most advisers across Asia also, they are most focused on hitting revenue targets.
4. Streamline the front-line
Some of the participants also said they believe that the distribution channels consist of too many relationship managers (RMs) selling products. Instead, they should be streamlined – both in terms of the interests of clients as well as from an economics point of view.
At the current stage of evolution, the Middle East wealth management market remains relatively small, and there are only a finite number of clients in the region.
5. Bankers should choose a firm and stick to it
A challenge for the banking industry, said participants, is that it is a merry-go-around in terms of jobs.
If a banker decided to move to a new firm every six months in Dubai, given the plethora of banks in that market, he or she could go on to have a 20-year career.
Yet this is the pattern for many bankers in the region, participants said. The mind-set is more akin to ‘where is the next big opportunity for me?’ instead of ‘what can I do to be more successful in my current role and take my career to the next level with this bank.’
For more sustainable business models to be a reality, this mind-set needs to change.
6. Create concrete business plans
Rather than distributors continuing to say that clients are the heart of everything they do, expert from fund houses said they want to see distributors converting this rhetoric into a solid business plan, to demonstrate that the client really does come first.
This will, in turn, force distributors to adopt more sustainable practices, and remove the temptation or revenue pressures on RMs to hit monthly or quarterly targets at the expense of client interest.
7. Understand the client
Participants said that distributors need to make more effort and take more time to understand their clients. Investing for the long term is an ideal goal, but the fact is, most clients are short term in their investment views.
That means distributors need to understand how to engage clients to help them achieve both sets of goals.
The positive thing, said experts from fund houses, is that more and more distributors are starting to understand the importance of annuity income. In line with this, they are tweaking their business models to incorporate this type of business.
But they also need to spend more time educating their clients about what is in their best interests, not just following their instructions.
Participants felt that distributors, and especially some of the bigger banks, need to better manage the return expectations of clients. For instance, they need to ensure that clients no longer expect returns of 25% to 30% on an annualised basis – which are clearly unrealistic in today’s market.
8. Treat employees more fairly
Participants also called for distributors to move away from treating RMs as purely revenue generators, adding that this not conducing to cultivating loyal staff who can learn to be good at their jobs.
While there needs to be a balance between achieving targets and treating staff fairly, in the Middle East context, sometimes a balance is lacking.
If an RM doesn’t achieve a target, for example, it’s all-too-easy for a bank to fire them.
9. Invest more in resources, especially education
While many institutions want to get into the business of wealth management, only a handful invest in the resources required to build a long-lasting business, said participants.
Rather than investing adequately in intellectual capital too many firms focus on signing up for a mutual funds platform.
But, the fact is, to generate revenues, there must be a commitment to invest time and resources in the region, participants said.