Post-Brexit, UK wealth managers have gone back to the drawing board to assess their strategies for international growth. Residents of the Gulf Cooperation Council countries present an opportunity, says BNY Mellon Pershing's Michael Rothwell.
The five-year anniversary of the UK's decision to leave the EU has just passed; half a decade in which the UK financial services industry has faced innumerable challenges in the form of business outlook uncertainty, regulation diverging from that of the European Union, and post-transition continuity planning.
This significant milestone should prompt financial services professionals across the country to take stock of the progress made in that time. British industries, particularly those with overseas interests, have come a long way in forging their own path outside of the European Union. The UK's wealth management industry has not been exempted.
Greater independence has made it more challenging to enter the EU market, which has provoked wealth managers to reconsider how they engage with international clients as part of overseas growth strategies. Wealthy individuals in the Gulf Cooperation Council (GCC) region are an alternative market.
The GCC region - comprising Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE) - has a high concentration of high- and ultra-high-net-worth investors. Many of these are expatriates with long-standing relationships with private banks in the UK and Switzerland. However, a sizeable proportion of the mass affluent market is made up of locals and the expatriate population who are underserved from a wealth management perspective.
The wealth management sector in the GCC region is underdeveloped by international standards: locals are served by domestic banks that have limited product offerings, while expatriates have access to just a handful of credible wealth advisers and services are expensive: by international standards, the quality of service is poor.
International wealth managers are increasingly waking up to the opportunity presented by these mass affluent investors in GCC nations. So, how to engage them? There are three key considerations for firms looking to increase their foothold in the region.
1: Get boots on the ground
For some wealth managers, it may be possible to establish a business in the GCC without a physical presence in the country. Firms will engage with local clients via their international centres and visit local advisers, financial planners and other relevant parties during visits.
However, this isn't a viable long-term approach and nor is it popular with locals and expatriates in the region. To successfully engage new clients, firms will be expected to make a commitment to the market by hiring local professionals (either GCC citizens or expatriates), establishing a local office, and developing local language support. Such initiatives are essential to building longevity in the region, as well as deeper regional ties.
Regional presence goes beyond purely engaging personally with local investors; it also means wealth managers gain an enhanced understanding of what makes local investors tick. For many, access to Shariah-compliant investments, and strategies that align with the unique lifestyle objectives of GCC citizens compared with expatriates, are also seen as key differentiators for international firms. All these factors are especially important when dealing with high-net-worth individuals in the region.
2: Develop (app)ropriate engagement tactics
Wealth managers should consider how best to engage with this new client base in a way that aligns with their interests. International brand names are likely to resonate, particularly with expatriates, but firms can't rely on their profile alone to win new clients in the GCC region.
Communities across the Middle East are more connected to social networks than ever before. In fact, research from Forbes indicates that internet users in the region have an average of 8.4 social media accounts per person, rising to 10.5 in the UAE . Social media usage is more concentrated in the Middle East than any other country by global comparison.
Clearly, international wealth managers that can implement high-touch digital solutions will be more successful in engaging the increasingly modern demographic of GCC investors. Firms are beginning to roll out strategies with social media at their core. As cost-effective tools with high rates of engagement, it's likely tech-oriented solutions will become an increasingly fundamental way to reach new clients in this region.
3: Pick a side and stay there
For UK firms looking overseas to the GCC, a targeted approach is the right one to take. While a pan-region approach can facilitate economies of scale, identifying a single country in which to launch is advised. Doing so will help firms to develop a more comprehensive knowledge of local requirements and secure a firmer foothold in the region more quickly than if they targeted multiple jurisdictions simultaneously.
A single-country approach may, in time, lead to wealth managers being able to replicate their models in new GCC countries. Given the size of individual markets in the region, there is a wealth of opportunity for firms to explore as they pursue post-Brexit growth strategies.
Partnerships can provide the necessary support in new growth areas
As international firms develop their foothold in the GCC region, creating partnerships to build out the technological support needed to underpin their offering will be critical to their growth. This is true wherever firms seek to do business in the region. The right custody partner should have relevant experience in the region while also absorbing administrative burdens to allow wealth managers to focus on their priorities.
Ultimately, the right custody partner is a wealth manager's partner for growth; choosing wisely will facilitate smoother, more successful entry into new markets as firms pursue new strategies for international growth.
By Michael Rothwell, director and county manager, Pershing Channel Islands, a BNY Mellon company.