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Data Insights: Middle East WealthTech Landscape Report 2023

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by The Wealth Mosaic
| 19/07/2023 11:00:00

The Middle East is quickly growing its wealth management capabilities in response to a wealthy population that is growing in terms of both size and scope. Indeed, assets under management (AUM) in the Middle East rose 16% to US$1.2 trillion in 2022, according to BCG.

The region has been a wealth management hub for a long time, but until recently, its focus was towards the top of the wealth scale. Minimum investment levels in the region of US$5 million made wealth services inaccessible to all but the very wealthy.

The wealth sector is evolving, however, due to technological advancements bringing down both the cost to serve and minimum investment levels. The opening up of the economy and the emergence of regulations that are more internationally focused and that steer away from the closed and Islamic-based structures of the past are also helping.

The result is that wealth that would previously have been sent offshore is now increasingly being held locally by both native and expatriate clientele. And that clientele is growing!

The number of Ultra-High-Net-Worth Individuals (UHNWIs) is set to increase by 24.6% in the five years to 2025, according to Knight Frank. And the HNWI population and its wealth grew by 5.5% and 6.3%, respectively, between 2021 and 2022, according to CapGemini.

This mass affluent segment is now reachable by wealth managers, largely due to technology bringing down the cost to serve. Banks and wealth managers alike are looking to capture the mass affluent market and newly wealthy at the start of their journey, to grow with them as they up their wealth levels. This demographic is not just local. The burgeoning levels of expatriate wealthy account for a sizeable proportion and have personal savings of anywhere between US$50,000 to US$2 million, according to Saxo Bank in a piece that appeared in Arabian Business.

One of the most striking wealth creation stories lies in women in wealth. BCG says that women with over US$1 million of assets are expected to see a CAGR rate of 9% by the end of 2023 to top US$1 trillion. And although women account for only 11% of the UHNW population, this proportion is gradually rising, according to Altrata.

BCG attributes the rise in women of wealth to greater political and economic stability across the region and improving healthcare and educational access for women. It points to girls’ rates of primary and secondary school participation now being similar to boys’, and women outnumber men at a university level in 15 of 22 Arab countries.

This is sure to be good news for women, given that 90% of private companies in the UAE are family businesses, and an estimated US$1 trillion in assets will be transferred to the next generation in the Middle East by 2030, according to the UAE Ministry of the Economy.

And Lombard Odier says that 87% of HNWI investors in the Middle East believe that their family business is set up to efficiently transfer wealth to the next generation. The proportion of those businesses set to be transferred to women remains to be seen, but cultural liberalisation and increasing educational standards must surely set the scene positively.

Wealth managers in the region will have to work hard to capture wallets from the growing affluent, women of wealth and the already wealthy. Loyalty levels are low. According to Accenture, 77% of local investors in Saudi Arabia and 69% in the UAE are dissatisfied with their wealth managers. 71% of investors in the UAE and 68% of those in Saudi Arabia are far more likely to have a relationship with just one wealth manager. Tellingly, however, local managers are favoured over international ones, perhaps a throwback to the previously closed nature of the industry. According to Accenture, seven out of 10 investors prefer investing with wealth managers based in the region over international firms.

When it comes to investment, real estate endures in popularity. Indeed, Knight Frank says that Dubai comes in second place globally for the largest number of homes considered prime, with 42,356 homes worth £2 million or more. In 2021, the firm thought that 23% of UHNWIs would invest in commercial real estate assets.

The good news is, however, that investors are increasingly looking outside of the real estate box that has been traditionally favoured. A survey conducted by Hubbis said that in 2021, 91% of advisers thought 20% of their wealthier client portfolios would be focused on international assets. And 54% of wealth managers said collective investment schemes were likely to play an increasingly important role in their client’s portfolios going forward.

All of this points to change. The Middle East is still a very traditional culture and environment, but its population and its regulators are rapidly becoming more international in outlook, and the wealth management industry reflects that. The future is looking bright, but wealth managers will need to work hard to tread the line between the past and the future.

Read and download the full report here.