In the first part of an extensive series of interviews, we speak with four high profie financial adviser firms based in the Middle East where all of them reveal how the pandemic and regulation has affected their businesses behind the scenes.
These adviser viewpoints form a key section of the in-depth coverage covering adviser viewpoints, interviews and market insights in International Investment's latest Special Report on the Middle East 2021.
Part one below covers the insights of Sean Kelleher, CEO, Mondial; Tim Searle, CEO, Globaleye; Sam Instone, director, AES International and Con Lillis CEO, Abacus Financial Consultants.
Sean Kelleher, chief executive, Mondial (Dubai)
"THE BIG CHANGE FOR LUDDITES LIKE MYSELF IS THE DISCOVERY OF STUFF LIKE ZOOM AND TEAMS. THIS IS HAVING A HEAVY DOMINO EFFECT"
How has regulatory change affected your business and advice in the region generally?
We are witnessing a veritable Tsunami of change for bodies who handle client monies. On top of Economic Substance and TFS (Targeted Financial Sanctions) we have now been through an extensive Securities and Commodities Association (SCA) inspection and lumbered with a new Rule Book which contains reference to what SCA's new Regulations Manual will look like. Yep, on the horizon we have BOD-49 for the Insurance Authority guys and our fellow "planners" from that sphere also seem occupied with reform.
Are we complaining? Not really. The changes must be good for clients, ultimately the professionals, and certainly the countries reputation. However, those stuck in the "old ways" where paperwork was a chore will continue to roll their eyes as management burden them with enforced behaviour.
We are still buried in dealing with the above so ask us in six months. In the meantime, those from previously regulated regimes will give us knowing looks.
How has the pandemic impacted on how you conduct your business and advice in the region generally?
The big change for Luddites like myself is the discovery of stuff like Zoom and Teams. This is having a heavy domino effect. Social Media as a means of client acquisition and the ability to deal more easily with cross jurisdiction matters for example. This may have happened anyway, but evolution has become revolution.
What are the key investment and advice trends that you have seen emerge this year and that you expect to continue into 2022 (ie ESG, Crypto, Multi Asset etc)? Is life assurance industry in the region near finished due to lower margins etc?
ESG is going from trend to mainstay. Or else, the End of The World is Nigh. Crypto is too Avant Garde for our current thinking whilst we bed down Zoom. Multi Asset has been with us since the Flintstones, and whatever happens to Life Insurance margins, the public still need it. All a lower margin does is increase the need for volume.
Have issues such as limited movement in expat world in the region affected business flows? How are things looking re growth, staff retention and expansion and general profitability for your business in Dubai and the rest of the region?
The pandemic was certainly a negative for our business. People dislike uncertainty and that creates a poor atmosphere for new business and early withdrawals. But that was then. We are now adapting to a new world. Staff retention is clearly a matter of the quality of retention.
Our view of the future, given the certainty of change with regulators, and economic changes as the UAE waves goodbye to its last barrels of oil, is quite rosy. We have had to cut, chop, prune, and we now expect to grow.
Tim Searle, chairman, Globaleye
"DEPLOYING THE RIGHT TECHNOLOGY NOW NEEDS TO BE AT THE CENTRE OF OUR PROPOSITION. WE INTEND TO START THINKING MORE LIKE A TECHNOLOGY FIRM THAN A WEALTH MANAGER"
How has regulatory change affected your business and advice in the region generally?
Regulatory change has and will continue to affect our business in many ways, but that is not necessarily bad. We have been aware of the changing landscape for a while and have taken steps to position the business accordingly. That said, the inevitable consequence of BOD49 has been the significant reduction in pure life assurance sales, which negatively affects this market more than it does us. The penetration of insurance in the UAE, compared to other markets, was extremely low, and this aspect of financial planning has and will most likely continue to be adviser-led.
It was expected in 2020, regulators IA and SCA would merge, however, this didn't happen, with the IA merging with the UAECB. We were prepared for any eventuality, so as a result of this news Globaleye acquired an SCA-licensed firm to join the very small club of dual-licensed advisories in the country. Operating two licenses comes with double the overheads, as both must function as two very separate businesses.
With the recent announcement of DFSA licensed firms being able to promote services outside of DIFC, it is clear that the regulatory landscape will continue changing, and we must be agile enough to adapt to it quickly.
Most of all, regulation has accelerated the change in our business model. Our focus has shifted to serving the HNWI segment, as the retail market is no longer commercially viable, with lower profit margins and additional compliance burden.
How has the pandemic impacted on how you conduct your business and advice in the region generally?
The pandemic has helped our business grow in terms of revenue generation and help us understand the efficiencies of technology. In addition, the pandemic has brought home the importance of having sufficient insurance coverage, which is keeping us very busy helping and advising clients.
From a technology perspective, we have since used it to leverage a cross-border offering in the region. For us, deploying the right
technology now needs to be at the centre of our proposition. We intend to start thinking more like a technology firm than a wealth manager.
What are the key investment and advice trends that you have seen emerge this year and that you expect to continue into 2022 (ie ESG, Crypto, Multi Asset etc)? Is life assurance industry in the region near finished due to lower margins etc?
As mentioned above, the retail life assurance market is facing some challenges in the future. We believe that D2C platforms by insurance companies and new InsureTech firms will prevail to capture this business.
ESG is an already prevalent trend that we believe is here to stay. We generally avoid the crypto hype, as there is too much risk involved. However, we are taking the time to develop our advisers on the broader subject of DeFi, to ensure we are prepared for the next frontier of finance and serve the new generations of wealth. NFTs have been topical as of late, and we are currently working on the tokenisation of a significant real estate asset in the UAE. We hope to be able to announce our work on this soon.
We are actively following the rise of venture capital and private equity investments in the region closely. Companies in the Middle East are attracting record amounts of funding, and soon we may see the UAE's first unicorn, Swvl, when it lists on the Nasdaq. In addition, clients in the region are waking up to private market investments. Naturally, they want access to these opportunities, which has historically only been available to a fortunate few.
Have issues such as limited movement in expat world in the region affected business flows? How are things looking re growth, staff retention and expansion and general profitability for your business in Dubai and the rest of the region?
In the first few months of the pandemic, there was initially a negative impact on business flows. However, after the world and our business adapted to the new norm, we saw business flows increase exponentially. We are investing heavily in recruiting top talent and scouting for further acquisition opportunities in the UAE and Asia. While profitability in the retail market is declining, this will increase over time with new technology and economies of scale. Our profitability continues to grow in the HNW segment, as does the complexity of client circumstances. In this space, there is a lot more value add services that we can and do offer.
Sam Instone, director, AES International Sam Instone, director, AES International
"WE'RE EXTREMELY OPTIMISTIC REGARDING GROWTH, EXPANSION AND PROFITABILITY BOTH LOCALLY AND REGIONALLY "
How has regulatory change affected your business and advice in the region generally?
Regulatory change and development has been extremely positive in the UAE. The DFSA has created a world leading International Financial Centre and the merger of the Insurance Authority with the Central Bank has led to very positive consumer outcomes within the Federal region.
How has the pandemic impacted on how you conduct your business and advice in the region generally?
We've experienced record levels of growth since the outset of the pandemic. I imagine this is because consumers are relying more upon online research and becoming increasingly aware of the difference between varying types of advice.
What are the key investment and advice trends that you have seen emerge this year and that you expect to continue into 2022 (ie ESG, Crypto, Multi Asset etc)? Is life assurance industry in the region near finished due to lower margins etc?
Increased consumer awareness is leading to a surge in demand for index funds, and just like in other parts of the world this area is booming.
Have issues such as limited movement in expat world in the region affected business flows? How are things looking re growth, staff retention and expansion and general profitability for your business in Dubai and the rest of the region?
We're extremely optimistic regarding growth, expansion and profitability both locally and regionally. The unparalleled opportunity for such growth is in our view likely to attract professional advisers from other geographic regions given the many benefits of living and working in Dubai.
Con Lillis, CEO, Abacus Financial Consultants
"WITH THE RULES CONSTANTLY CHANGING WE NEED TO BE NIMBLE IN THE MANNER IN WHICH WE OPERATE AND BE READY TO SWIFTLY ADAPT WHEN ADVISED TO BY THE GOVERNMENT "
How has regulatory change affected your business and advice in the region generally?
Regulations have changed many things in our region, not least the span of areas we can advise upon. Whereas in the past the lines between topics were blurred they are now more clearly defined. You are either an insurance adviser or an investment adviser and the normal holistic approach has been forced to adapt to focus on one or the other. Some companies form alliances or have interests in other licenced entities to broaden the offering of services to their clients but clear lines must be drawn between each service offered.
How has the pandemic impacted on how you conduct your business and advice in the region generally?
Clearly the reaction to the pandemic has had a massive effect on how we now work. We can no longer travel freely internationally and often clients elect not to meet face to face. With the rules constantly changing we need to be nimble in the manner in which we operate and be ready to swiftly adapt when advised to by the government.
Have issues such as limited movement in expat world in the region affected business flows? How are things looking re growth, staff retention and expansion and general profitability for your business in Dubai and the rest of the region?
Profitability is sound for us with increased levels of recurring income to the business although initial fees are lower this year than last. There is a tendency towards value and cost reduction as clients seek best returns. Expansion is slow as the market stalls and adapts to the new rules and regulations around Covid. With rumours of increasing capital adequacy requirements there is an air of caution among business owners.
To view this feature in the Middle East Special Report 2021, click here.
