Memo to GCC investment advisers: give the clients a better deal!

Insight Discovery, the Dubai-based market intelligence and strategic communications consultancy, has today published the seventh edition of its Middle East Investment Panorama (MEIP 2016), which is entitled The Year of Reckoning?

Platinum partners of MEIP 2016 include the Dubai International Financial Centre (DIFC), Old Mutual International, Pioneer Investments and Morningstar.

A key finding from the report is that investment advisers’ clients want a better deal from the advisers.

The advisers know this. Only 18.0% of the advisers see their clients’ willingness to commit as being an opportunity. Over three times as many – 63.3% – perceive the clients’ lack of willingness to commit as being a challenge.

Notes Nigel Sillitoe, Chief Executive Officer of Insight Discovery: ’This marks a major change. In the past, the advisers have mainly been concerned by changes to the regulatory environment or competitive pressures’.

‘It can no longer be taken for granted that clients who have previously felt obliged to use the services of the advisers will continue to do so. Other research that we have conducted this year has found that the advisers’ clients may take a ‘Do It Yourself’ approach to investment. Other clients may choose to deal directly with asset management companies and international life companies.’

MEIP 2016 found that about one fifth of advisers surveyed see robo-advice – the use of online tools to make recommendations to clients – as a threat to their business.

In the meantime, the regulatory changes that are underway also support the clients. Clyde & Co., the Legal Partners of MEIP 2016, see the new Life Regulations as being “arguably the biggest shift in the regulation of the UAE’s life insurance market in the modern era”.

A circular released by the Insurance Authority of the UAE in mid-November explicitly referred to the “alarming amount” of complaints from policyholders who consider that they receive very little if they surrender in the early years of the policy.

In a year in which Donald Trump is heading towards the White House, the UK is readying itself for a departure from the European Union and China is extending its military and economic power into South East Asia.

In 2016, just 24.0% of advisers see geopolitical risks as presenting a commercial opportunity, while 58.0% see a potential challenge. In 2011, in  the wake of the Arab Spring, the corresponding figures were 30.2% and 62.7%.

“In the conclusion of MEIP 2016, we identify a number of possible scenarios for the advisers of the GCC region. The next 12-18 months will cause problems for some advisory groups. However, there will be opportunities for many others. A Year of Reckoning is not necessarily a Year of Disaster.”

Quotes from our partners in this project follow

Notes Brendan Dolan, Regional Director at Old Mutual International: “‘The adviser landscape is changing rapidly and it is important advisers adapt their business model if they are to survive in this new world. Insight Discovery highlights how advisers in the region are increasingly outsourcing the investment process to professionals. Building a centralised investment process is a key step in an adviser’s transition journey, helping them evolve and build a sustainable business.’

“In this environment, providing investors with stable but flexible investment platforms builds market confidence”, observes Salmaan Jaffery, Chief Business Development Officer at Dubai International Financial Centre Authority, one of the Platinum Sponsors of MEIP 2016. “In an environment of increasing market volatility, as well as greater tax and compliance scrutiny, selecting a stable, reliable and well-governed jurisdiction is an important consideration for investors, allowing them to take advantage of underlying opportunities. Having a transparent, tried and tested regulatory and legal landscape is crucial in building confidence with investors, advisers and clients.”

Jaffery continued, “At the Dubai International Financial Centre, the region’s leading financial hub for the Middle East, Africa and South Asia, we continue to enhance our platform – an internationally recognised legislative framework based on English common law, supported by a robust and dynamic regime ensures advisers gain competitive advantage and turn what may be seen as challenges into wealth creating opportunities.”

Adds Reza Yazidi, Head of Sales at Morningstar: “Insight Discovery has identified key themes that are relevant to buy-side investors in the GCC countries. For instance, it is becoming more important for asset managers that are based in the region to be able to assess their peers. In addition, the asset managers’ clients want greater quantities of information and transparency.”

Clients and advisers have become more knowledgeable and demanding. According to Jack Lin, Head of Asia Pacific, Middle East and Africa, at Pioneer Investments: “Insight Discovery’s research confirms how advisers in the region are becoming more sophisticated in terms of the products that they are looking for. We have moved into the “era of solutions”, where a rethinking of product design, risk management and portfolio construction is required. Advisers are looking for “true” diversification with uncorrelated sources of return. They are also looking for a clearer separation between alpha and beta, and want true alpha to compensate for lower beta”.

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