FORUM FINANCE
Middle East, Turkey and North Africa
Winning Strategies in
Wealth Management
5th Edition
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Forum Finance Newsletter 5th Edition,
January — April 2012
Copyright © 2012 Bain & Company, Inc. All rights reserved.
Content: Philippe DeBacker, Julien Faye, Emmanuel Yoo,
Bianca Leodari, Saeeda Jaffar, Graham Eckert,
Paul de Montmorin
EDITORIAL | FORUM FINANCE
In this issue of Forum Finance, we examine current
trends in the Middle Eastern wealth management
market.
With several forces of market disruption in action –
dissatisfied customers, new regulations, heightened
competitive pressures – the region’s wealth managers
face significant opportunities and challenges. We will
discuss seven key success factors to develop a robust
wealth management strategy and “delight” customers,
without compromising on risk.
This issue also features an interview with Abdulkareem
Abu Alnasr of The National Commercial Bank. At the
helm of the largest bank in the Kingdom, Mr. Alnasr
shares his views on current trends and opportunities
in the Saudi financial services sector.
We welcome your feedback and questions.
Philippe De Backer
Partner
Head of Global Financial Services Practice
philippe.debacker@bain.com
POINT OF VIEW | SEVEN WINNING STRATEGIES FOR MIDDLE EASTERN WEALTH MANAGERS
SEVEN WINNING STRATEGIES
FOR MIDDLE EASTERN WEALTH
MANAGERS
wealth includes deposits, fixed income securities,
money market funds, mutual funds, direct equities
and some alternatives (PE, hedge fund, REITs) after
removing such non-investible wealth as equity in
businesses and personal homes. Of this total, highnet-worth individuals in the largest markets hold
approximately 40-50% offshore.
Julien Faye
Partner, Middle East Financial
Services Practice
Saeeda Jaffar
Manager, Middle East
Financial Services Practice
julien.faye@bain.com
saeeda.jaffar@bain.com
The Middle Eastern wealth management market is once
more growing rapidly, but it also faces discontinuities
in terms of client attitude, changing regulation and
competitive pressures. The region’s wealth managers
today face significant rewards and risks in a fastchanging business landscape.
The prosperity of wealthy regional households has
bounced back strongly in the wake of the global
financial crisis. Indeed, households with greater than
US $1 million in assets increased their wealth at a
10% annual rate from 2008 to 2010, reaching a total
estimated at US $1.7 trillion today.
As shown in Fig. 1, the proportion of money placed offshore varies considerably based on the wealth of the
investor. If we were to look at Saudi Arabia, the portion
would range from a low of 10% for affluent households
to a peak of 75-80% for high-net-worth households
above the US $25 million threshold.
''
Passive investments –
deposits, unmediated
investments and real
estate – remain the
overwhelming
regional favorites
''
Such brisk expansion should continue over the next
several years. For example, in the large Saudi Arabia
and the United Arab Emirates (UAE) markets, Bain
pegs growth to increase to 12% annually, with 7%
coming from new money. At this pace, wealth will
double in less than seven years and create many new
clients.
Yet that trend is one more thing that is changing.
Looking again at Saudi Arabia, the wealth management
market’s on-shore share grew from less than 30%
two decades ago to 55% today. Developed-economy
benchmarks, where approximately 88% of wealth is
held in-country, also suggest greater room for regional
growth.
The investible wealth represents about 40-50% of total
wealth – or as much as US $850 billion. Investible
In terms of asset allocation, passive investments – such
as deposits, unmediated investments and real estate
POINT OF VIEW | SEVEN WINNING STRATEGIES FOR MIDDLE EASTERN WEALTH MANAGERS
Figure 1: About half of UAE investible wealth is held on-shore
Investible wealth
100%
$45B
$35B
$80B
$50B
$110B
80
$320B
Onshore
60
40
Offshore
20
0
>$50M
$25-50M
$5-25M
$1-5M
$100K-1M
Total
Investible wealth per household (2010)
Source: Analyst Reports; Literature Search; Bain & Company Analysis
– remain the overwhelming regional favorites. In the
UAE, deposits represent more than 50% of investible
onshore wealth. This preponderance of deposits has
historically stemmed from UAE requirements and a
dearth of quality local investment products. Recently,
though, a noticeable shift has occurred toward
investment products, including equities, mutual
funds, discretionary portfolio management, private
equity funds and structured notes.
UNDERSTANDING THE FORCES OF MARKET
DISRUPTION
Local banks currently dominate the on-shore wealth
pool due to their vast branch networks and deep
corporate relationships. But three developments are
reshuffling the market for incumbents and challengers,
alike: dissatisfied customers, new regulations, and
heightened competitive pressures.
Clients are exhibiting a newfound willingness to
switch investment advisors. According to a recent
survey, at least 40% of high-net-worth clients recently
switched providers, or plan to switch. Overall, only
25% of customers in the region remain happy with
their advisor’s services.
Changing local regulations, particularly in Saudi
Arabia, are also shifting the sands. Domestic financial
institutions must now separate deposit/lending
activities (regulated by SAMA) from investment
activities (regulated by SCA), thereby incurring extra
costs for wealth management divisions, which typically
span these two activities. Meanwhile, international
players are experiencing increasing regulatory pressure
to ensure that their onshore presence is not an “empty
shell” meant to solicit offshore business.
With other parts of the world gripped by the lingering
recession, it is not surprising that the Middle East
wealth management market has also attracted an
increasing number of competitors. In the UAE, alone,
more than 50 major wealth managers now vie for
customers. They represent a wide variety of business
models, including local and international boutiques,
domestic banks’ investment arms and bulge-bracket
banks.
POINT OF VIEW | SEVEN WINNING STRATEGIES FOR MIDDLE EASTERN WEALTH MANAGERS
Figure 2: Deposits represent a large share of asset allocation at all wealth levels
On-shore investment by category
100%
$11B
Other
$12B
$36B
$28B
$65B
$150B
Alt
Equities
80
Discretionary
Portfolio
Management
60
Mutual Funds
40
Deposits
20
>$50M
$25-50M
$5-25M
$1-5M
$100K-1M
Total
Investible wealth per household (2010)
Source: Analyst Reports; Literature Search; Bain & Company Analysis
''
Three developments
are reshuffling the
market for incumbents
and challengers alike:
dissatisfied customers,
new regulations, and
heightened competitive
pressures
today’s growth opportunities and regional market
disruptions. Designed to be adopted and aligned
together, they represent a seven-step winning formula:
Offer a holistic, best-in-class, open-architecture platform
of products and services. In other words, products and
services should be continuously revised and updated to
reflect the latest market opportunities.
''
Product offerings have also become vastly more
competitive, with upgraded product breadth and
quality, increased specialization, blended on-shore/offshore products and opened distribution architectures.
KEY FACTORS FOR SUCCESS
In our experience, seven critical practices can help
wealth management firms craft profitable and
sustainable business models to take advantage of
Tailor distinctive “hook” offerings for targeted client
segments. Continuous product innovation attracts new
clients while also deepening existing relationships.
So-called hook products have recently gained greater
prominence locally, with a good example being the
capital-protected products offered by some local banks.
Develop distinctive approaches for reaching client segments.
While wealth-based segmentation is already prevalent,
firms need to use other lenses – such as ethnic, needsbased, and behavioral viewpoints – in order to design
effective offerings. To a limited degree, firms have
begun this market slicing, most notably in developing
products for Islamic and female segments. But no firm
has yet developed a comprehensive segmentation.
POINT OF VIEW | SEVEN WINNING STRATEGIES FOR MIDDLE EASTERN WEALTH MANAGERS
Recruit and retain top talent. As the public face of an
institution, relationship managers (RMs) are critical
in building trust with clients. Their motivation,
recruitment, and retention must be a constant concern,
and can be improved by offering optimal financial
compensation, competitive rewards and recognition
and best-in-class training. This represents one of the
most pressing issues in the region today amidst a fierce
talent war characterized by RMs frequently changing
jobs, resulting in the loss of 30-50% of total book assets
in the most competitive markets.
Enforce a disciplined sales management process. Senior
managers should develop a rigorous sales process,
incorporating realistic top-down targets and rewards for
positive performance. Unfortunately, the link between
key performance indicators (KPIs) and incentives is
still largely absent in the region.
Coordinate marketing to reach mass and targeted
customers. Above-the-line (ATL) communications
employ broadcast and published media to reach to
mass audiences; below-the-line (BTL) communications
use media that are more niche-focused. In the region’s
wealth-management setting, ATL marketing should
be used to distinguish wealth management divisions,
while BTL campaigns should be targeted at specific
segments to generate foot traffic. Today, most local
players do a good job on ATL marketing and are
experimenting with BTL initiatives.
Set up a robust platform that supports RMs. Relationship
managers can only offer as many products and provide
as many services as the firm’s business platform
allows. These need to be integrated and seamless,
so that RMs can do their job effectively. They must
also accommodate client demands for low-cost
execution and enable consolidated reporting. While
such platforms have been developed by international
players, local competitors still lag considerably behind.
These seven success strategies are the means to only
one end: earning the trust and delight of high-networth clients who receive an experience that far exceeds
their expectations. That takes a holistic approach that
delivers the right products, services and constant
innovation, all without compromising on risk.
Figure 3: Seven winning practices of leading WM players
1 Comprehensive and high quality offering
Products &
advisory
Sales &
distribution
Marketing
branding
Operational
excellence
2 Distinctive “hook” to attract select customers
3 Highly tailored offering for target segments
4 Ability to attract, train and retain quality RMs by
offering a compelling value proposition
5 Disciplined sales management process
6 ATL marketing to establish brand and BTL
marketing to draw in customers
7 Establish robust, seamless platform to
ensure quality and efficiency
“Delight the client”
experience to exceed
client expectations
INTERVIEW | ABDULKAREEM ABU ALNASR, THE NATIONAL COMMERCIAL BANK
Increased
competition
''
and the likely emergence
of specialized players
will demand increased
skills, new capabilities,
and additional
infrastructure to
serve customers
''
INTERVIEW
Abdulkareem Abu Alnasr,
CEO, The National
Commercial Bank
INTERVIEW | ABDULKAREEM ABU ALNASR, THE NATIONAL COMMERCIAL BANK
Philippe De Backer: As the largest bank in
the Kingdom, how do you see future growth
opportunities and challenges for NCB?
Abdulkareem Abu Alnasr: We have a positive outlook
on our business for various reasons. We are operating
in one of the largest and most attractive markets,
with good prospects for future growth as a result
of high oil prices and production levels as well as
expansionary government fiscal policies. Secondly, the
Kingdom is under-banked, and we see positive signs
in demographic trends and the policy environment of
liberalization and privatization that will drive private
sector growth and contribute to further job creation.
However, we are living in a challenging environment
of low interest rates, which puts a drag on margins,
especially given the requirement for further investments
to serve new customers. Increased competition and
the likely emergence of specialized players – in fields
like real estate, auto leasing, and venture capital –
will demand increased skills, new capabilities, and
additional infrastructure to serve customers.
In order to address these challenges, we continue to
execute a three-pronged strategy: to strengthen the core
of retail and corporate banking; expand our scope of
activities in wealth management, project finance, and
Islamic Banking; expand regionally and internationally
to lock-in growth as the Saudi market matures.
PDB: You’ve mentioned previously that
NCB evolved from a trade finance house,
became a universal bank, and then moved
into specialty activities. As you look at the
future portfolio, how do you see that mix
evolving? Do you think some business lines
will take the lion’s share of investment?
AA: We see growth opportunities in different ranges.
First, core retail banking and corporate banking will
continue to grow in line with the economy, driven by
macroeconomic and demographic factors. However,
we also see above-GDP growth in selected areas,
including mortgage finance, project finance, and
wealth management. Overall, home ownership per
capita is very low in KSA compared to the global
benchmarks, with only 40% of Saudis owning their
own home which will drive the growth for mortgage
finance in the coming years. In project finance, as a
result of the government’s fiscal policies, the pipeline
of projects remains strong for the next 2-3 years. And
finally in wealth management, the Kingdom remains a
net exporter of capital, with a high allocation of high-
net-worth individuals’ wealth off-shore due to security
and advisory concerns. As the advisory skills and
product offerings available locally improve, more of
this wealth will move back onshore.
PDB: One of the challenges for most banks
in the region is service level. How do you
see average service level evolving — not
just in the Kingdom, but in the region at
large?
AA: It is always challenging to continuously improve
service levels, especially for large domestic players like
ourselves which deal with a wide range of segments
and have a large network of branches, distributed
throughout the Kingdom. This is also driven by our
dependency upon the infrastructure of external service
providers – such as telecoms and electricity – which
is not yet fully robust. While an ATM service failure
may be due to a communication issue, the customer is
unable to separate that responsibility from the bank’s
responsibility. The new generation of customers is on
Twitter and Facebook, continuously communicating
and evaluating you every second of the day. In order
to address these service trends, we have created
redundancies and put in place new capabilities to
monitor and respond to customer service issues that
appear on social media.
''
The new generation
of customers is on
Twitter and Facebook,
continuously
communicating and
evaluating you every
second of the day
''
PDB: Why is there no direct bank in the
Kingdom to provide retail banking services?
AA: I think it will happen. Overall, banks will continue
to draw a large number of new customers in the
coming years, including unbanked Saudis, who have
opened bank accounts to receive unemployment
assistance through HAFIZ, as well as expatriates.
These and similar trends may offer an opportunity
for the direct bank model. However, I think there
INTERVIEW | ABDULKAREEM ABU ALNASR, THE NATIONAL COMMERCIAL BANK
are several challenges. One is brand trust, which has
been an issue for all emerging small players in the
Kingdom. In the Saudi market you cannot have a
distribution based on clicks only; the advantage of
large established banks is that they can maintain the
trust of customers, even if a large percentage of their
business is online. Today, for example, we do 88% of
our transactions electronically, but our large network
builds trust. Another issue is building scale, because
direct banks need to be able to invest in technology
and people in order to get operations up and running.
Finally, in order for a purely electronic channel strategy
to work, you need to ensure that service providers –
such as telecoms and electrical utilities – are working
dependably since customers have no other avenue to
reach you.
PDB: Do you think that M&A activity is
inevitable in the Kingdom?
AA: I think M&A is inevitable in the capital markets
and insurance sectors because a lot of the startups that
remained after the brokerage and insurance license
gold rushes have failed to build scale and lost a lot of
money. In the banking sector, I don’t see domestic
consolidation happening in the near future for a
couple of reasons. First, the Kingdom is under-banked
and under-branched, so regulators are keen to have
adequate coverage throughout the Kingdom. Second,
the public is very sensitive to the issues of monopoly or
oligopoly and wants to see more competition.
''
I think M&A is inevitable
in the capital markets and
insurance sectors
''
PDB: In markets where consolidation at
the equity level is not possible, banks have
been able to find operational synergies
through consolidating operating platforms,
including Société Générale and Crédit
Agricole in France and Emirates NBD in the
UAE. Do you see this as an opportunity on
the minds of bankers today in the Kingdom?
the next couple of
'' Over
years where interest rates
are expected to remain
low, productivity will also
be high on the agendas
of executives
''
It’s a little bit of both. On the one hand, SAMA has
been very effective in bringing together banks to
collaborate. Examples include the SPAN network for
POS and ATM, and the credit bureau SIMAH. There
are also discussions ongoing exploring the need for
shared operational capabilities, because the service
providers in the Kingdom tend to be few and at times
unreliable. Over the next couple of years where interest
rates are expected to remain low, productivity will
also be high on the agendas of executives. But I think
consolidated operating platforms will only be adopted
in opportunistic cases where there is a clear benefit,
because the business environment is not yet ready for
this strategy.
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Contact information for Bain Middle East, Turkey and North Africa Financial Services Practice
Julien Faye
Partner
Bain & Company
Telephone: +971 4 365 7350
julien.faye@bain.com
Philippe De Backer
Partner
Bain & Company
Telephone: +971 4 365 7360
philippe.debacker@bain.com
Emmanuel Yoo
Partner
Bain & Company
Telephone: +971 4 365 7380
emmanuel.yoo@bain.com
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Partner
Bain & Company (Turkey)
Telephone: +90 532 3377 670
karaca.kestelli@bain.com
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