China, India and Mideast new wealth centres

The depth of the financial crisis and the various speeds at which different regions are recovering will accelerate the tectonic shift in global wealth distribution to the East, with China, India and the Middle East emerging as new wealth centres, a research noted.

While the majority of industrialised countries are just beginning to recover from the financial crisis, most emerging markets have already returned to pre-crisis growth rates, said the study by Booz & Company, the global management consulting firm.

Booz & Company said these varying rates of recovery will persist for the next few years, shifting the global wealth concentration to the East, according to the research titled "Private Banking After the Perfect Storm" e-mailed to Emirates Business.

Countries rich in natural resources (in particular the members of the Gulf Cooperation Council) will likely return to accelerated wealth creation even before the global economy fully recovers. Government-led infrastructure projects will further boost the HNWI population in these regions, and many affluent/HNWIs will prosper directly, via family businesses and small and medium-size enterprises, or indirectly by inheriting wealth from older generations.

Emerging markets – led by China, India and the Middle East – will be the main places where new wealth is generated in coming years.

With fundamental private banking needs in these regions underserved today, wealth managers should be looking for ways to penetrate these markets.

However, the Asia-Pacific region, led by China and India, will be where most new HNWIs are created, driven by the strength of the underlying economies and a strong entrepreneurial spirit, says the report.

By 2011, the number of HNWIs in Asia/Pacific is expected to surpass those in Europe and North America, with China moving ahead of the UK in absolute number of HNWIs.

By the end of 2011, nearly 3.6 million (33 per cent) of the global HNWIs are expected to live in the Asia-Pacific region, up from 2.6 million in 2008.

While the underlying dynamics are fundamentally promising for private banks, the industry must navigate through a number of significant changes going forward, says the study.

Private banks have spent the last 18 months dealing with one of the most difficult periods in modern financial history. A "perfect storm" of asset-price declines and the near or actual collapse of some of the best-known wealth management firms has altered the behaviour of clients, prompting them to move into less risky financial instruments that are much less profitable for the banks. All of this has pushed revenue levels 25 to 30 per cent below where they were before the crisis.

In the wake of the financial crisis, clients have been shying away from complex, non-transparent products. Bankers expect the appetite for structured/riskier products to return, but they also expect client behaviour to remain more thoughtful, making the role of the trusted advisor even more important, says the study.

Need to woo family wealth

To succeed in the Middle East, private banks must integrate their offerings and extend them from individual wealth management to family business advisory services, said the Booz & Company study.

The Middle East is poised to rebound financially in 2010, especially if high oil prices continue to reinforce budget surpluses of the major economies. This will lead to a revival of infrastructure projects (transport, rail, economic cities, water, oil and gas, alternative energy), propelling the HNWI segment.

Today, large wealthy families account for most of the region's wealth. In some cases, these families have 100 or 150 members spread across different geographies, many of them running diverse, independent businesses. In the UAE especially, 20 per cent to 30 per cent of total wealth is also held by expatriates living and working in the country, including Asians and Westerners as well as other Arabs, said the study.

In the past, Middle East investors have been product-oriented rather than advice-oriented, especially in the lower high-networth and affluent segments. Going forward, the preference will likely shift more toward advice, reflecting investors' increasing sophistication and the significant hits their portfolios took during the crisis.

To succeed in the increasingly attractive and maturing Middle East market, private banks must do three things:

- Integrate their core offerings and extend them from individual wealth management to family business advisory services

- Show sensitivity about cultural predispositions, family relationships, and behavioural preferences of the diverse client base in the region through a coverage model that takes into account investable assets, sources of wealth, ethnicity, and life-cycle and lifestyle differences

- Implement a best-in-class model that delivers services in an efficient, personal, and friction-free manner, while satisfying specific client requirements

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