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Finding the right building blocks for Middle East portfolios

Hubbis

Dec 6, 2016

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An advisory-led, outcome-based approach is certainly in need for building portfolios in the Middle East. More of a packaged or managed approach to using funds, consistency in standards, client education, and clearer and more conducive regulation are all critical components to drive this.

The environment and landscape for driving greater penetration of funds in individual investors’ portfolios in Dubai leaves a lot to be desired for the time being.

Regulatory uncertainty over the registration of mutual funds, an already-limited success rate in terms of fund penetration, and uncertain market conditions all contribute to a tough task ahead for banks looking to increase their recurring fee income.

Yet while a volatile year like 2016 makes it difficult for most wealth management units to make money, it is at these times when the ability to develop actionable ideas can be effective in driving the right types of conversations between their bankers and end-clients – and therefore enhance client engagement to make the most of a challenging situation.

These were among the views of product gatekeepers and fund selectors in the Middle East, from a mix of local and international retail and private banks, at a roundtable in Dubai.

Education and clarity

Increasing the penetration of mutual funds among investors in the Middle East is crucial amid efforts to build more sustainable portfolios in a region in need of diversity.

One of the biggest challenges for banks, is educating investors about the need to diversify their portfolios in the first place.

To date, many institutions targeting wealthy individuals across the region have looked for quick ways to generate revenue – which has led to them selling single bonds or other individual investments.

If this can change, coupled with efforts by the banks to package funds into model portfolios as solutions, fund penetration in the Middle East will more likely increase.

Regulatory uncertainty

Even where there is appetite for diversity, the regulator needs to play its part too.

The Emirates Securities and Commodities Authority (SCA) issued extensive revisions to the country’s mutual funds laws in late 2016. In imposing restrictions on firms seeking to promote and distribute foreign funds in the UAE, there is significant concern among fund selectors that these are a step backwards from the revisions made in 2013 to accommodate similar restrictions on the promotion of foreign funds in the UAE. But further guidance and details have not yet been released, say market practitioners.

This lack of regulatory clarity is not helping the banks to plan their offerings for clients – at least for the first quarter of 2017.

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