The UAE and Wealth Management – Leveraging Technology and Building Strategies to Create a Stronger Offering

In mid-November, Hubbis hosted two bespoke discussion forums with industry leaders in Dubai and Abu Dhabi. We heard from around 20 leading figures in the UAE wealth management industry, who offered their observations on the evolution of wealth management in the UAE – and the need to elevate investment platforms to better address client demand. Avaloq was represented by Gery Dachlan, Commercial Head of Asia Pacific, the Middle East and Africa, and Akash Anand, Regional Director & Head of Middle East & Africa. Together with the guests, these two experts discussed how technology can help democratize access to wealth management as the mass affluent market continues to expand in the region.

Key Insights and Observations

The UAE’s wealth management sector – both onshore and offshore – is evolving and maturing on the back of strong growth in recent years. However, there is further progress ahead, with technology helping financial institutions to elevate and scale their offerings.

The expansion of wealth in the Middle East mirrors the trends seen in Asia, underscoring the need for an expanded and improved range of products and services for wealthy individuals, with more personalization of offerings.

Digitalization discussions will focus increasingly on providing the right tools to boost the efficiency of relationship managers (RMs) and advisers so that they can serve a larger and more diverse client base.

As wealth management takes centre stage for the region’s leading financial institutions and as more international firms enter the market, individuals in the region can expect a rapid expansion in the range of investment products and holistic advisory solutions on offer.

Differentiation is a key watchword for the development of wealth management value propositions – which calls for specialized technology platforms, holistic advice and hyper-personalization.

Data analytics and AI are crucial for understanding client preferences, offering a competitive advantage in a market with an increasingly diverse clientele and product catalogue. Recent advances in digitalization include more intuitive interfaces, AI integration, and leveraging data to bring more clients into the wealth management fold.

Segmentation is seen as increasingly critical to success, and digital solutions must be tailored along with hybrid wealth management models to ensure that each client segment is properly served.

For financial institutions to compete in this growing wealth management market, technology and innovation will be essential to deliver personalization at scale and to enhance client communication and engagement channels.

Wealth management growth in the UAE poses challenges in terms of talent acquisition and retention, particularly in the RM space, as banks and independent players compete for skilled professionals. But it is not only RMs and advisers who are in short supply – there is a dearth of expertise across all areas of expertise, from technology to compliance. The region’s approach to bringing in overseas professionals is helping, and so too is a rising focus on training and nurturing local talent.

Progress to date has been remarkably encouraging and optimism is already high and rising, but there is still much to be done to ensure the future success in the region. Collaboration among the different players and competitors will help to create a more robust financial landscape, which will benefit wealth management clients.

Key Insights and Observations in More Detail

There is robust growth and the UAE’s overall wealth management proposition – both onshore and offshore – is evolving and maturing, but there is much further progress ahead and technology is helping competitors elevate and scale their offerings.

The UAE’s wealth management market is not only growing but also becoming more diversified and at the same time is becoming more specialized. As a result, there is considerable and rising optimism that the UAE's aspirations to become a hub for wealth management, like Singapore a decade or 15 years ago, are increasingly realistic. There is a sense of anticipation for a promising trajectory in the wealth management sector in the UAE.

Technology upgrades and new solutions are vital for a sharp competitive edge, and banks and others are increasingly deciding to stick to their areas of expertise and source systems and digital tools from third-party firms, rather than trying to develop many of these in-house, as they might have done in the past.

The hybrid wealth management model is increasingly evident, with digital solutions supporting both clients and the RMs and advisers.

Like in the more mature markets of Singapore and Hong Kong, the attendees highlighted the ongoing development of a more hybrid model of wealth management in the UAE, leveraging both digital tools and individual advisory input. There will be less of the traditional reliance directly on the Relationship Managers (RMs) only, but they are becoming increasingly liberated by digital to provide a better level of service and raise their overall value-added and productivity for their valuable HNW and UHNW clients.

This is all in sync with the post-pandemic environment where clients are more comfortable with digital connectivity and tools, rather than feeling the need to call their RMs at each turn.

Local banks are adapting to this shift, recognizing that many clients may value this omnichannel approach. Relationships with the RMs and adviser therefore remain strong but are actually further strengthened by a heightened level of focus and intent.

As wealth management moves centre stage for the leading banks and as more international banks and independent firms operate and compete in the region, there is a rapid expansion in the array of investment products and holistic advisory solutions (wealth and legacy planning/structuring), all of which aligns tidily with the clients’ rising interest in a wider variety of ideas and public or private assets, as well as geographies.

A wealth management consultant in the region observed that financial investments are rising and there is now a greater emphasis on and need for investment ideas, opportunities, and wealth management insights to retain clients. Wealth management has, therefore, been transitioning from somewhat of an adjunct business for the local banks to a more crucial component of their business and customer retention.

There is plenty of money flooding into the UAE from all over the world, as well as rising local private wealth, all of which need to find a home, and not all of which want to be focusing on medium to longer-term allocations. At the same time, there is interest in alternative investments, including annuity-type assets. And it is not only the medium- and longer-term investments that are in increasing demand, as there is also a strong appetite for money market investments and shorter-term liquid investments.

Nevertheless, the wealth industry is far from mature or developed, as many wealth managers are not actively managing wealth but rather selling products, some of them created in-house, meaning that this is transactional rather than advisory-driven.

The UAE has some way to go to catch up with Asia in terms of the development of the onshore and offshore wealth advisory proposition, but there is widespread evidence that the UAE can follow that lead, meaning there is significant potential for banks to establish additional revenue streams, particularly for those taking the initiative as first movers in building and expanding their more broad-based and holistic advisory services.

Differentiation is increasingly a key watchword for the development of the proposition – which calls for specialized technology platforms, holistic advice and hyper-personalization.

It is no longer a bonus to have their wealth management offering up and running – competition is intensifying and, as the guests agreed, the need for differentiation is rising.

With competitors finding it increasingly difficult to differentiate by product (these are increasingly similar across the market in terms of range and scope), the focus is increasingly on providing the best platform and services to clients and enhancing the client experience by prioritizing quality of service, good advice and platform efficiency.

There is a growing emphasis on making the client's life simpler, enabling them to execute transactions more easily, more seamlessly, and of course, in a matter of seconds, in contrast to the traditional delays associated with dealing with slips and paperwork in the region’s markets in the past.

A decision maker from a leading local UAE institution that focuses on financial planning as a core component of its advisory offering observed that this offers ongoing annuity income, an increasingly key element of its wealth management business model, which was previously very product driven.

Major local banks and even some international institutions are expanding their offerings to include – albeit selectively for the time being – onshore booking and custody.

A guest who heads up a leading independent wealth firm explained that there is rising competition among the banks in the region that are seeking to provide a diverse range of products and services to his firm, including the provision increasingly of local booking and custody services, with robust security and stability increasingly evident and on offer. He cited a USD 150 million mandate for a client considering rebooking assets to UAE local banks, due to the perceived safety and stability of banks in the region. He pointed to strong results this year and robust capital adequacy ratios of local banks.

The provision of top-flight services for the rapidly expanding independent wealth community is increasingly important to local competitors.

A guest emphasized the significance of segmentation in wealth management and introduced the crucial element of aggregation services, particularly for external asset managers (EAMs) and family offices. He said his bank has made substantial investments in this area, witnessing a notable increase in EAM client onboarding in the last six months.

He explained that his bank aims to offer exclusive platform solutions tailored for EAMs, including aggregation services. The goal is for the bank to possess detailed knowledge about clients' family structures, enabling them to aggregate portfolios and accounts for the clients. Additionally, the bank plans to extend its services by providing advisory services based on this aggregated information.

He noted that today in Europe, 40% of the business is done by EAMs. In Dubai, it is still roughly 10%. He said EAMs are onboarding clients as they are doing a better job of explaining and delivering their capabilities and value proposition.

The mass affluent market is increasingly important in the UAE. To serve this market, digital solutions and capabilities are absolutely essential for reach, scale and for the overall economics of wealth management offerings.

An expert reiterated a point about the increasing shift from private banking clients to mass affluent and priority banking clients. The focus includes digitization, more diverse product offerings, and alternative investments, with a particular interest in crypto and other digital assets among mass affluent clients.

He stressed the importance of education and the value of leveraging technology to aid adviser in bringing these clients into the wealth management fold. Digital solutions and tools are presenting a critical difference in this segment as more and more mid-market clients are attracted to firms that can offer seamless services and capabilities.

He explained how a bank – a major institution in the region – had invested significantly in transforming its core technology platform, incorporating API capabilities, microservices, and cloud capabilities. Its goal is to offer digital solutions efficiently, connect with external vendors quickly, and provide advisory solutions through a data cloud.

This expert added that simple products around credit solutions, particularly in Lombard lending for retail and priority banking clients, were also in greater demand. He pointed to a shift towards quicker and mobile-centric credit processes, where clients expect credit proposals to be approved within minutes.

He summarized briefly that the bank is focusing intently on expanding the variety of products and services, improving the quality and scope of its adviser – for upper and mid tiers of clients – and delivering rapid data and information dissemination to meet the evolving needs of their diverse clientele.

The shift to advisory also encompasses a drive towards discretionary mandates, although these are early days.

Another attendee pondered whether the availability of a better self-service offering and the ease of access to data and information were distracting clients from taking up advisory or discretionary mandates, making them shy away from paying for those services.

The answer came from a local banker who observed that around a decade ago, many banks in Asia primarily focused on execution-only services and product pushing, but had gradually been successfully transitioning to advisory, discretionary portfolio management (DPM), and a more comprehensive wealth management approach.

He said the UAE is likely to follow this trajectory. The shift will be hastened by factors such as competition and the observation of other banks generating profitable, fee-based income. He said he anticipates that the combination of these factors will encourage local banks to evolve their wealth management propositions to align with these client expectations.

Additionally, the regulatory framework may influence specific banks' decisions based on their licensing capabilities. Finally, talent will move to successful banks and other providers. -In other words, to those who are creating the trends or moving rapidly to embrace them.

Segmentation is seen as increasingly critical to success, and digital solutions must be tailored along with the hybrid wealth model to ensure each segment of clients is properly served, all of which is vital in a market where there is diversifying demand for a far broader array of assets.

A technology expert with a leading global tech house outlined key trends in client segmentation, alternative assets, and the importance of experience and stickiness in client relationships. He mentioned how a major global bank has been concentrating on clients in the UAE with assets ranging from USD 300,000 to USD 500,000, including prioritizing a broad range of alternative assets, such as private markets, property and crypto.

He discussed the evolving investor landscape, with younger investors across the mass affluent and HNW segments favouring the more diverse array of non-traditional instruments. He observed how it is essential to know who your clients are, why they behave as they do and to then personalize offerings accordingly – whether they are delivered digitally or by RMs/advisers, or in the evolving hybrid wealth model.

He explained that for RMs and adviser to navigate diverse assets, they can avail themselves of his firm’s Metaverse platform which enables quick decision-making and portfolio analysis. He pointed, for example, to the rise of tokenization of real-world assets, citing the example of a major new hotel in the region, with each room represented for investors as tokens.

To compete in the new world of wealth management, technology and innovation are essential, not only for the delivery of personalization at scale but also to deliver both the traditional and newer modes of communication and engagement.

An attendee highlighted the importance of a strategy that caters to both traditional and newer asset categories and to more traditional clients as well as to the younger, more digitally savvy clients emerging and that will increasingly take centre stage.

He said the approach adopted by his global tech firm involves leveraging artificial intelligence, including Gen AI, partnering with companies like Avaloq, and navigating the challenge of deciding when to invest in solutions given the uncertainty around the volume of adoption in the market.

The head of private banking for a Singapore-based bank operating in the UAE observed that while technology plays a crucial role in client interaction and engagement, it is most effective up to the affluent level, not specifically for private banking (HNW/UHNW) clients, who have distinct needs and still prefer personalized advice and facilitation in decision-making rather than logging in themselves.

Technology in private banking, he said, enhances the speed and accuracy of information flow, RMs can execute various financial transactions more seamlessly, leveraging well-integrated systems, whereas for the mass affluent market it is far more central to the overall proposition.

The regulatory environment is improving, with cautious but increasingly imaginative and liberalization helping drive both the onshore and offshore wealth management offerings. As the regulatory environment matures, technology is at hand to elevate personalization, suitability, and more broadly compliance protocols.

Regulations were highlighted as a catalyst for change, with some of the guests pointing to new requirements for funds to be domiciled in the UAE. The regulators are clearly aiming to attract and retain wealth within the UAE by implementing measures that promote transparency and compliance with international standards.

An expert observed that the regulatory environment is working in clients' interests, supporting rising demand for investments and increasing market activity. Suitability is front and centre. A banker explained that there are better protections for both clients and providers – for example, trade recommendations now increasingly need to be supported by information on the RM/adviser’s rationale.

Another invitee with a background in private banking, wealth, and technology, highlighted the improving and increasingly robust regulatory framework in the wealth management sector, specifically in terms of client onboarding, addressing complaints, and the active role of Dubai courts in imposing fines.

Another international banker picked up on the suitability point, noting that technology can significantly enhance the ability of RMs to offer the right products and advice for each client. He said the focus must be on implementing a structured sales process that utilizes risk tools and relevance to offer personalized advice based on specific attributes and risk profiles, going beyond generic recommendations.

The goal should be to provide institutional-grade advice at the individual client level, ensuring that the advice extends to the product level, with recommendations tailored to the client's needs. These approaches also safeguard the banks’ reputation.

He explained that the bank has a risk mitigation process in place where each product traded by the RM is assigned a product risk rating. If a client exceeds a certain percentage of high-risk products, the Avaloq system they employ prompts the RM with a notification, signalling that the client may be taking on excessive risk. Additionally, prompts are generated if a client has a high concentration in a single asset, for example, if it exceeds 20% of the overall portfolio.

These risk-mitigation tools serve to nudge the RM to discuss the situation with the client, either making them aware of the risk or prompting a change in the investment strategy to diversify away from a single asset or asset class.

He said that the combination of the platform supporting the RMs who can then provide the right advice to the client was key in terms of growing the wealth proposition.

Another guest pointed to the need to remove silo mentality in order to offer team members and clients a more holistic and unified experience and offering. That will also help the banks and other players in their search for talent.

Talent, or rather the shortage of expertise, is a major issue to address across all disciplines and financial institutions.

Experts at both of the discussions in Dubai and Abu Dhabi acknowledged the need for more RM and adviser talent in the region, with the training of local experts and the hiring of more talent from overseas as fixes. However, the attendees appeared to agree that growth in overall demand will continue to outstrip the ability to hire or nurture the right talent, especially as new competitors enter the wealth market.

It is not only client-facing bankers and adviser who are in short supply – there are shortages among all the different teams, from technology to administration and compliance. In the field of compliance, guests noted that compliance careers are going to develop faster and further in more advanced or mature markets, making it even tougher to hire the right people.

The experts at both events agreed that the search for the right talent is far from easy, especially in what is a relatively young marketplace with a somewhat limited range of products and services on offer.

However, the progressive policies in the region regarding the hiring of foreign experts will help competitors address these issues. Indeed, the UAE’s credibility and perceived safety and security have risen since the pandemic, helping to attract skilled individuals who can also benefit from the no/low tax environment.

There was a strong consensus that talent is crucial for the UAE to really develop its key attributes and genuine local character for wealth management market success, both in terms of onshore and offshore offerings. They observed that there are dangers in rushing development, as corners might be cut, and market reputation impaired.

Wealth management market progress to date has been encouraging and optimism is already high and rising in the UAE, but there are many more advances needed in all focus areas.

The attendees at both discussions seemed to agree that the entry of new competitors into the market will raise standards towards the levels seen in established international wealth hubs, such as Singapore and Hong Kong.

Nevertheless, they also appear to agree that a snowball effect will gradually take place where better regulation, more products, a wider array of services, a greater diversity of competitors (asset managers, banks, private banks, EAMs and family offices) and a broader range of legal, accounting and fiduciary services will all help attract more talent. At the same time, there is significant progress taking place on the technology side.

The experts reiterated the substantial opportunity for local banks to establish platforms catering to mass affluent clients, as well as EAMs and family offices, but this also needs further maturation of the market and better infrastructure.

They acknowledged that even the largest local banks are still evolving, particularly in the wealth management space. They tended to agree that global banks have a strong head start, but that local banks can gain an edge by upgrading their capabilities.

The experts also pointed to the actions of some of the major banks in the UAE in recent years, such as acquisitions, partnerships, alliances and broad expansion into new markets such as Egypt and Saudi Arabia, and the establishment of a presence in the broader Gulf Cooperation Council (GCC) region. The guests said M&A was a sensible avenue for strengthening local bank capabilities and reach.

And in terms of technology, the guests agreed that there is a critical need for robust digital tools in wealth management, highlighting the underdevelopment of such tools in local banks. The better the technology, the more potential they have to serve private clients themselves and the growing ranks of EAMs and multi-family offices.

The guests rounded off the discussions by looking at greater collaborative efforts within the industry. The UAE Banking Federation was identified as a forum where banks participate to give recommendations to regulators. They pointed to the enthusiasm with which local and international players are working to improve the financial landscape while elevating their skills and technology stack. Agility and flexibility are guiding watchwords in the UAE today.

A Short Overview of Avaloq 

Avaloq is a premium provider of front-to-back software and services for over 160 financial institutions around the world. Its clients include private banks, wealth managers and investment managers, as well as retail and neo banks. It develops software that can be deployed flexibly through cloud-based Software as a Service (SaaS) or on-premises, and it offers Banking Operations outsourcing through a Business Process as a Service (BPaaS) model.

Avaloq is a subsidiary of Japan’s NEC Corporation, a global leader in the integration of IT and network technologies. This year, Avaloq forged a partnership with BlackRock to enable banks and wealth managers to seamlessly access the Aladdin Wealth platform’s risk analytics and portfolio management capabilities, which are fully integrated with the Avaloq Core Platform.

For more information and a deeper understanding of the firm and its offering in the region, see  www.avaloq.com

Or for further reading on Avaloq, see this 2023 Hubbis report: https://hubbis.com/article/avaloq-s-apac-mea-head-highlights-how-the-firm-is-grasping-the-immense-growth-potential-ahead