Digital wealth management: From exclusive to inclusive

By next year, the number of dollar millionaires in the Middle East is set to top 330,000 – a nearly 30 per cent increase from 2020 levels. The region’s affluent individuals are also proving to be avid investors.

Headlines through 2024 have regularly emphasised the eyewatering amounts being poured into real estate, and even relatively newfangled assets like cryptocurrencies – the latter evidenced in the fact that nearly three-quarters of UAE residents have invested in Bitcoin.

It therefore comes as a surprise that in a region with growing wealth and a healthy appetite for investing, the Middle East’s wealth management sector is largely underdeveloped.

True, high-net-worth individuals (HNWIs), and family offices are actively served by the region’s financial institutions. However, the larger segment of the population remains unpenetrated.

This strategy does of course boil down to economics – the top 10 per cent of income earners hold more than 60 per cent of the total regional income.

It has therefore made sense for service providers to maintain a narrow focus. A consequence of this has been an underwhelming level of digitalisation – after all, if HNWIs almost exclusively rely on dedicated wealth managers, then why pour funds into developing digital systems?

Winds of change

Today, however, there are new market factors at play. In just the last decade, Dubai has witnessed a 78 per cent increase in individuals with liquid investment wealth of $1m or more. While not in the same league as their ultra-high-net-worth counterparts, these potential investors represent a significant opportunity. Moreover, over the next five-10 years, globally, we’ll witness the largest transfer of wealth in the history of mankind.

More than $60tn in assets will be passed to a new generation, a group that’s a radical departure from those who came before.

Simply put, the current, manual, labour-intensive approach to wealth management cannot scale to accommodate the wants and needs of these emerging customer segments. Even today, investing in a mutual fund, or opening an investment account requires visiting a branch. Casting aside consideration for the staggering workforce investment that would be required to onboard thousands of retail investors in this manner, is this even likely to be their preference?

If the region’s financial institutions hope to realise the new revenue streams these underserved segments represent, they must figure out how to economically serve them. Doing so will first require an understanding of what it takes to effectively (and efficiently) cater to the wealth management needs of different client groups.

Wealth management: Making sense of segments

Broadly speaking, it makes sense to divide potential clients into three segments. Retail customers, with assets under $1.5m, are the largest and perhaps most untapped of the lot. Given that volume dictates success here, serving these customers while controlling costs, will require empowering them to self-serve as much as possible.

Keep in mind however that many in this group will be making their first forays into the world of investing. So, offering them as much educational material as possible will go a long way, as will virtual ‘hand holding’ by heavily customising offerings based on effective segmentation and behaviour analysis.

Moving up the range, between $1.5m to $5m, we have ‘affluent’ investors. They are discerning of the experiences they receive and expect a premium level of service. While the greater per-customer revenue warrants the added level of engagement, it doesn’t translate to investing countless sunk hours.

The solution then is to invest heavily in digitising workflows and streamlining processes through automation. To offer them the ‘human touch’ without overleveraging relationship managers, create a platform that delivers a ‘hybrid’ approach. This would present them with all the information they need digitally while offering channels such as live chat and virtual calls, to conveniently connect them to dedicated relationship managers without the need for in-person meetings.

Finally, let’s re-examine HNIs, the one segment that has thus far been the prime focus of the region’s wealth management endeavours, to understand why even here there is scope for improvement.

While the high-touch, human-centric nature of client servicing will undoubtedly remain a hallmark of this segment, digitisation will still bring considerable value. Take investing’s many procedural tasks – collecting documents, getting questionnaires answered, presenting investment proposals and so on.

While customers may welcome in-person meetings to discuss investments and performance, they certainly won’t appreciate having to be physically present for mundane tasks such as signing an agreement or having documents scanned.

Moreover, across segments, digitalisation also doesn’t just translate to better customer experiences. It enables employees to be more effective – whether that’s responding faster and more professionally or identifying opportunities for cross-selling and up-selling.

Digital, demystified

The region’s banks have recognised the value of digitalising their core operations, evidenced by the 52 per cent growth the digital banking sector saw between just 2021 and mid-2023. Stopping here though would be leaving opportunity on the table.

To seize the opportunity that digital wealth management presents, banks should first look for an engagement banking platform that can be layered on top of existing investments. This would enable them to play to their strengths and unlock the full potential of existing investments. For example, most banks would have already invested in industry-leading CRM systems, which are powerful tools for segmentation.

Augmenting this with an engagement platform would empower them to take the next logical step and push personalised offers based on data they already own.

Achieving agility with a hybrid approach

To effectively cater to diverse investor segments – whether retail customers or high-net-worth individuals – banks need a flexible approach that balances speed and adaptability. Leveraging engagement platforms allows banks to deploy out-of-the-box solutions quickly while retaining the ability to customise specific features for unique market needs.

For instance, banks can implement automated portfolio management and rebalancing for retail customers or offer advanced trading and order management systems for high-net-worth clients.

This hybrid buy-plus-build approach empowers banks to deliver competitive offerings rapidly while maintaining the agility to evolve and create tailored experiences.

Value for all

We are currently witnessing a shift in the definition of wealth, and along with this, shifts in the behaviours and preferences that financial institutions have come to expect from their customers.

What was once reserved for an elite few, now had the potential to deliver value on a never seen before scale. Not only is this to the benefit of customers, but banks too have an unprecedented opportunity to unlock the potential of thus far untapped demographics.

Trading legacy paradigms, for modern, scalable digital wealth management unpins success in this endeavour. Those that adapt will thrive, and like the investors they serve, see their profits grow.

Read: Dubai and Abu Dhabi race to lure world’s wealth managers

The writer is the regional director – Partner Business at Backbase.