This may not be a surprise any longer, but digital technology in all its forms – including areas such as AI – affects the wealth management sector around the world. In the fast-growing Gulf states of the Middle East, this is particularly the case. Avaloq, a financial software house, gives a few answers to what it sees happening.

The following interview was conducted with Avaloq, the Switzerland-headquartered banking and financial services software house – now part of Japan’s NEC. The interviewees are managing director for Asia-Pacific, Middle East and Africa, Pascal Wengi and Avaloq’s regional director and head of the Middle East and Africa, Akash Anand.

There is much to play for. In 2022, Boston Consulting Group predicted that the Kingdom of Saudi Arabia would chalk up a compound annual growth rate in new wealth of 4.8 per cent, rising from $1.3 trillion to $1.6 trillion from 2021 – 2026. Equities and investment funds in KSA make up the largest asset class at 46 per cent of total personal wealth in 2021 and by 2026 are expected to grow the fastest with a CAGR of 6.9 per cent. Currency and deposits are the second largest class at 44 per cent. In 2021, about 23 per cent of KSA’s wealth was derived from ultra-high net worth individuals (those with more than $100 million).

Turning to the United Arab Emirates, for example, the jurisdiction is already known as a wealth hotspot and home to international banks and large domestic players, as well as being a significant transport, communications, media and technology hub. Today, the UAE is the largest wealth market in the Middle East and the 26th largest worldwide (in terms of total wealth held). People living in the UAE together hold $925 billion in net assets. Around $470 billion (or 51 per cent) of that is held by high net worth individuals. In all, there are about 88,700 HNW individuals living in the UAE.

The digital transformation story
Gulf Cooperation Council (GCC) countries, spanning the United Arab Emirates (UAE), Saudi Arabia, Bahrain, Kuwait, Qatar, and Oman, have been pursuing digital transformation strategies across the wealth management sector. As the industry continues to mature, technology will play a key role in enabling the region’s financial institutions to keep up with market demand for specialist wealth management services and to scale their personalised offerings to new markets and client segments.

What are the challenges?
Akash Anand: Regulatory complexity, historically limited technology adoption, lack of data standardisation and margin pressure create headwinds for the wealth management sector. At the same time, the industry is confronted with an ongoing talent shortage, particularly when it comes to relationship managers, advisors, and individuals with expertise in areas from technology to compliance. Financial institutions are also under pressure from their clients, who expect greater simplicity and an elevated banking experience with access to new investment options such as ESG themes as well as crypto and other digital assets. 

Pascal Wengi: Many of the region’s banks and wealth managers still rely on legacy technologies and piecemeal solutions and lack the ability to bring them all together in one centralised vision. This means that their relationship managers and advisors are often frustrated and hampered, spending time handling administrative tasks when they could be focusing more on their clients.

How is technology transforming wealth management in the Middle East?
Anand: Wealth management is becoming increasingly complex, not only when it comes to client onboarding, portfolio monitoring, reporting and regulation, but with regard to the vast variety of solutions on offer. 

Client segmentation is also becoming increasingly critical to success. For the GCC region, in particular, wealth managers need to consider how to balance the needs of traditional versus digitally-attuned investors for both conventional and Islamic wealth management services.

Technology, including advanced data analytics and automation, is helping firms to scale their bespoke offerings while ensuring compliance across jurisdictions. As the wealth management sector continues to grow across the GCC, financial institutions that choose to leverage technological solutions will be able to maintain their competitive edge and boost efficiency to serve a larger and more diverse client base.

Aside from the general productivity benefits technology offers wealth managers, we are seeing increased demand from individuals for digital-first communication and onboarding, as well as more diverse product offerings. It is vital that wealth managers have the operational capabilities to cater to these client expectations. 

What are common pitfalls with technology?
Anand: In the past, financial institutions in the region experimented with different tools and solutions, but that approach is not ideal over the long term, often resulting in disjointed systems that lack integration. Lack of standardisation across different financial institutions and platforms can exacerbate efforts to improve data exchange and to create a more interconnected financial ecosystem The solutions required cover back-office processes and compliance to onboarding and front-office investment and advisory activities.

Wengi: We anticipate a similar path for the GCC’s wealth management sector as we saw in Singapore, starting with private banking for (ultra) high net worth individuals, and then gradually developing more scale across the expanding [mass] affluent segment. 

Technology providers should be ready to support the GCC’s financial institutions as this transition takes place alongside the work to provide technological solutions to help them scale into new markets and client segments.