The future of wealthtech in the GCC

Clear waves of change are expected in the GCC wealth management sector. Invested and investable assets are shifting towards younger generations of customers acclimatised to control, flexibility, and transparency. Customer loyalty and stickiness will decline.

Even older generations are becoming more exposed to technology solutions that commoditise product offerings and put control back into the hands of the consumer. These waves of change are driven by wealthtech firms which are defined as entities that either directly provide digital or robo-advisory and investment platforms or enable traditional wealth managers to provide such platforms.

Future Waves of Change
We anticipate following five waves of change impacting the future of wealthtech in the GCC countries.

Wave 1 – Explosion of robo-advisory and move towards ‘hybrid’ models: Wealthtech platforms use sophisticated investment models and automated solutions that try to maximise returns based on defined risk appetite of the investor. These platforms charge significantly lower fees (often 50 per cent-75 per cent lower) than traditional wealth management firms. Additionally, these platforms don’t require any minimum investment, leading to democratisation of wealth management.

Wealthtechs from the region such as Sarwa and StashAway have already gained substantial user base. Further, traditional financial institutions are also embracing the wealthtech bandwagon. In April 2021, Commercial Bank of Dubai (CBD) launched ‘CBD Investr’, a mobile application that uses smart algorithms to actively manage investment portfolios. CBD partnered with a Belgium-based wealthtech provider InvestSuite to launch the platform.

We see an increased converge to ‘hybrid’ models. Pure-play robo-advisory firms are increasingly looking to provide access to live advisers via phone or email, and traditional wealth management firms will look to blend automated advice and financial advisors.

Wave 2 – Intensification in price competition: Further, we will see price competition heating up. As wealthtechs reach scale and competition intensifies, robo-advisory fee (as per cent of AUM) will move down from the current 0.5 per cent – 0.9 per cent to 0.1 per cent – 0.3 per cent (as this has been the case in most of the more mature markets such as US and Europe where robo-advisory has grown in the last decade). This will also lead to pressures on traditional advisory fee.

Wave 3 – ESG based investments: This trend is a consequence of the information proliferation age and the rise of consumers’ awareness, especially millennials, on the impact of their investments. Both emerging wealthtechs and traditional players are going to act on capitalising on this trend and customer capture. Wealthtechs are better poised to be early market leaders in sustainable investment offerings, since traditional players are more likely to be weighed down by historic investments that were not sustainability-driven.

Wave 4 – Hyper-personalisation: Predictive analytics will be increasingly used to nudge customers towards trades as per risk appetite, coupled with automated goals-based planning and advice. Wealthtechs and traditional businesses will transgress boundaries to offer more personalised solutions.

Wave 5 – Value added services: We anticipate a shift towards value added services provide by wealthtechs. These include easy access to free resources, financial management tools, and simplified service offerings.

How to Play and Win?

Wealthtechs as well as traditional players in the region that are looking to reap benefits from wealthtechs, can define their winning strategy based on following three parameters across all customer segments:

· Proposition: This includes technical analysis tools, access to research and education for users, tradable asset classes including commission free offerings, ease of account opening, and seamless human based customer support or through Natural language Processing (NLP) chatbots.

· Platform: This includes stability of platform, low latency, ecosystem offerings with open Application Programming Interface (APIs), AI powered diagnostics, and developer consoles for customised solutions.

· Pricing: This includes transparency and full disclosure of charges and fee structure, account opening and annual maintenance fee, etc.

Piyush Dubey is a partner at Kearney Middle East and Africa – Financial Services Practice