Expats in Saudi: The Gulf advisory industry's 'forbidden fruit'

Expats in Saudi: The Gulf advisory industry's 'forbidden fruit'

While the oil wealth of Saudi Arabia has long attracted foreign investors and their financial advisers and wealth managers, the peculiarities of operating in the KSA itself have, at least until now, tended to put off all but the most enthusiastic from establishing a physical presence in the Kingdom.

And to be sure, the rules for establishing businesses there in many sectors, including financial advice, have been opaque, and have been known to change frequently.

As a result, many of those looking to provide financial advice and products to expatriates who live and work in Saudi Arabia have tended to do so in conjunction with the big private banks that operate there, or by setting up joint ventures with local partners.

Others make use of offices in more welcoming jurisdictions, such as the financial centres of Dubai and Abu Dhabi, as staging posts for their activities.

The UK-based wealth management firm AES International, for example, is planning to look after clients in Saudi Arabia as well as elsewhere in the Middle East out of its newly-opened offices in the Dubai International Financial Centre, according to its founder and chief executive, Sam Instone.

Instone says that locating in the highly-regulated Dubai International Financial Centre has enabled AES to avoid the political and security problems found in other parts of the region.

“There are stability problems elsewhere, and the prize [in these areas] is not worth the effort,” he explained.

Similarly, Sean Kelleher, chief executive of the Dubai-based Mondial financial planning and wealth management group, said that his firm doesn’t directly target the Saudi market for business. However, its advisers do pick up referred business from time to time.

Kelleher says Mondial relies in part on Emirates NBD, the Dubai-based Emirati bank which has offices in Saudi Arabia, for information on what’s happening there in terms of financial services. And lately, he reports, the feedback Mondial has been getting is that Emirates NBD executives are impressed by the efforts being made to diversify the Saudi economy.

‘Not another cliché initiative’

They describe Saudi Vision 2030 as “not another cliché initiative for Saudi Arabia”, he notes, but rather, are seeing it as “probably…one of the most significant developments in the Kingdom since the finding of oil” there in 1938.

Even if Saudi Vision 2030 succeeds at reducing the red tape and other barriers to entry that are currently keeping many ex-pat focused financial advisers and wealth managers out of the KSA, though, what emerges from discussions with such advisers is that few are thinking about opening an office there in the near future.

Those with a western background remain wary of the social environment in the Kingdom, including trivial restrictions such as the inability to freely enjoy a gin and tonic after a hard day’s work, and the restrictions placed on women.

That said, a Jersey-based expert on Islamic finance, Trevor Norman, who has been travelling to the Kingdom since 1995, says that it is now considerably easier to get things done there than it once was.
Customs officials are more friendly and accommodating, he says, and he says he’s never had any dealings with the country’s notorious religious police.

However Saudi is still a hardship posting for many, and Norman, who is a director of the Volaw legal and trust group, admits that some major frustrations do remain.

There are, for example, still traffic jams at the close of business each day, caused by the need for all the country’s working women to have to wait for their drivers to come and get them, as they are not allowed to drive home themselves.

He says it can also take time to establish business relationships with Saudis, which is an important feature when dealing with them, though once formed, relationships with them tend to be long-lasting.
‘It’s a different society, and although historically there have been forward-looking people trying to change things, they have all been yanked back,’ he says.

Demand for Shariah-compliant investments

As for the types of businesses that the newly-open Saudi market is likely to welcome, Norman notes that there is a growing demand for Shariah-compliant investment vehicles, as well as a continuing demand for trusts, foundations and private trust companies, particularly for succession planning purposes.

This is in part because extended wealthy Arab families often have a broad range of assets around the world, and – like families everywhere — sometimes squabble over how the family holdings are administered and, when a key family member dies, divided up.

An example of one such case was a legal battle that took place over more than five years in Jersey, between 2003 and 2010, involving five members of Saudi Arabia’s well-known Alhamrani family. By the time it finally ended, the case was said to have broken the record for Jersey’s most expensive, in addition to being one of its longest-running, court battles.

For this reason, says Paul Homsy, an adviser to Volaw in the Gulf, a properly structured Jersey trust or foundation is often recommended to large families, of any nationality, with potential succession and wealth management issues.

To read how Saudi Arabia is preparing to face a world in which it will no longer be all-but-completely reliant for income on its oil reserves, led by a younger member of its royal family, click here.