DUBAI 25 July 2018: Private wealth in the UAE continued to experience positive growth between 2016 and 2017 (8 per cent), and this growth is projected to remain steady over the next five years according to a new report by The Boston Consulting Group (BCG), Global Wealth 2018: Seizing the Analytics Advantage.
According to the report, global personal financial wealth grew by 12 per cent in 2017 to $201.9 trillion in US dollar terms. The main drivers were the bull market environment in all major economies—with wealth in equities and investment funds showing by far the strongest growth—and the significant strengthening of most major currencies against the dollar.
The UAE
Personal wealth in the Middle East rose by 11 per cent to $3.8 trillion in 2017, a significant increase compared with the CAGR for the previous five years. In comparison, UAE personal wealth has grown at 8 per cent between 2016 and 2017. In 2016 to 2017, private wealth was driven primarily by the positive development of equities and investment funds.
Going forward personal wealth in the UAE is projected to continue to grow at a Compound Annual Growth Rate (CAGR) of 8 per cent and expected to reach $590 billion in investable assets by 2022.
“Delivering standardised experiences to clients will no longer suffice,” says Brent Beardsley, a BCG senior partner, wealth management expert, and coauthor of the report. “Wealth managers have begun to invest in personalisation, but many still struggle to effectively combine an enhanced client experience with the underlying management of data, processes, organization, skills, governance, and behavioral change. Firms that do not take the necessary steps in these areas run a high risk of being left behind.”
“BCG research suggests that over 70 per cent of wealth management clients see hugely personalised services as a key factor in deciding whether to stay with their current provider or switch to another,” said Markus Massi, Senior Partner & Managing Director of BCG Middle East’s Financial Services practice. “Value creation opportunities touch all parts of the wealth management business and success depends on having or developing a foundation of key management capabilities. We expect leading firms to further separate themselves from the pack over the next few years, a gap that will be increasingly difficult for slow-moving players to close.”
Spotlight on UAE
“Taking an in-depth look at wealth distribution, UAE non-investible assets are expected to increase at a CAGR of 11 per cent in the next five years, while investible wealth growth is projected to remain constant at a CAGR of 7 per cent,” explains Markus Massi.
“When it comes to asset allocation, currency and deposits, at 46 per cent, were the highest proportion of assets in the UAE in 2017, followed by offshore assets at 30 per cent, life insurance and pensions at 15 per cent and equities and investment funds at 9 per cent. For the most part, this asset allocation is expected to experience slight growth by 2022, with currency and deposits, life insurance and pensions, and equities and investment funds projected to reach 48 percent, 17 percent and 11 percent respectively,” Massi added.
As the regulatory climate has tightened over the last decade, there have been significant flows back onshore. In the UAE, this is signified by the expected decrease in offshore assets of 6 per cent between 2017 and 2022.
At 15 per cent, equities and investment funds drove growth by asset class between 2016 and 2017 in the UAE. Other drivers of asset class growth included currency and deposits at 11 per cent, life insurance and pensions at 10 per cent, and offshore at 2 per cent. What is interesting is that while bonds experienced a significant global decline of -10 per cent, in the UAE bonds grew by 1 per cent in the 2016 to 2017 period.
Looking to the future, growth by asset class will experience a slightly slower, but steady growth in equities and investment funds at CAGR of 12 per cent, and currency and deposits at CAGR 9 per cent over the next five years. In the same period, other asset classes will experience a slight increase including life insurance and pensions at CAGR 11 per cent, offshore at CAGR 3 per cent, and bonds at CAGR 2 per cent.
While offshore share is expected to decline over the next five years from 30 percent in 2017 to 24.1 per cent in 2022, it will continue to grow at a CAGR of 3 per cent to reach $140 billion in the UAE in the same period.
Global Results
The Evolution of Personal Financial Wealth: According to the report, global personal financial wealth grew by 12 percent in 2017 to $201.9 trillion in US dollar terms. The main drivers were the bull market environment in all major economies—with wealth in equities and investment funds showing by far the strongest growth—and the significant strengthening of most major currencies against the dollar. In general, developed markets held a higher share of wealth in non-investable assets—particularly pension fund entitlements—than developing markets. The share of global wealth held by millionaires increased to almost 50 percent in 2017, compared with just under 45 percent in 2012. If recent patterns of wealth expansion continue, under an optimistic scenario, personal financial wealth could rise at a compound annual growth rate of around 7 percent from 2017 to 2022 in US dollar terms.
The Offshore Perspective: The amount of global offshore wealth held in 2017 was around $8.2 trillion, 6 percent higher than in the previous year in US dollar terms. Switzerland remained the largest offshore center, domiciling $2.3 trillion in personal wealth in the country. The next-largest booking centers were Hong Kong ($1.1 trillion) and Singapore ($0.9 trillion), which have grown at yearly rates of 11 percent and 10 percent, respectively—more than three times the rate (3 percent) of Switzerland over the past five years. Net offshore inflows from 2012 through 2017 totaled over $800 billion, with Hong Kong and Singapore the key destinations. Some offshore centers, notably the Channel Islands and the Isle of Man, saw net outflows during the same period.
Bridging the Revenue Gap: According to BCG industry data gathered from more than 150 wealth managers, top performers—defined as the quartile of institutions with the highest pretax profit margins—achieved a significant lead over average performers in overall revenue growth and return on assets (RoA) over the past three years. BCG estimates that wealth managers can achieve a revenue uplift of 8 percent to 12 percent by adjusting price levels, correcting unnecessary discounts, and simplifying overall pricing structures. Product and service bundling can contribute to higher revenues if properly linked to the pricing architecture and to the value proposition for each client segment. Overall, smart revenue practices can accomplish the dual goal of increasing the top line and enhancing client satisfaction.
Unleashing the Value of Advanced Analytics: Firms that deliver smart, individualized products, services, and prices—digitally and through a relationship manager or financial advisor—will significantly bolster their top-line growth and occupy a differentiated position in the market. But seizing this opportunity requires the deployment of cutting-edge capabilities in advanced analytics—encompassing such elements as new technology platforms, fresh development capacities, next-generation tech and data architectures, updated data and digital organizational structures and skills, and improved access to internal and external data. A full transformation along these lines can lead to top-line growth of 15 percent to 30 percent and drive efficiency gains of 10 percent to 15 percent.