In a recent webinar hosted by Connect Global Group and Temenos, wealth experts and top executives from the banking industry in the Middle East and Africa (MEA) discussed the key trends shaping the wealth management landscape in the region, highlighting technological advancements, cost-conscious investing, and a shift in client preferences towards digital channels as some of the biggest drivers of change in the industry.

The webinar, titled “Prospering in the Digital Era: Reshaping Wealth Management in MEA” and hosted in June 2023, featured a panel of experts comprising Eric Mellor, MEA and Asia-Pacific Wealth Specialist at Temenos; Jaysen Nundoosingh, Group Head of Wealth for ABSA (Mauritius); Ashoo Palayathan, Head of Investments and Portfolio Management for ABSA (Mauritius); Olusegun Omoniwa, Group Director Investments for Equity Bank; and Haitham Juma, Unit Head of Investment Solutions for the National Bank of Fujairah.

These experts shared insights into the opportunities and challenges affecting the wealth industry across MEA, exploring the areas in which their respective organizations are now focusing in, the threats they see in the sector, and the key trends emerging in wealth management.

Improving client experience and access

The National Bank of Fujairah’s Haitham Juma, based in the United Arab Emirates (UAE), highlighted the ongoing trend of digitizing the front-end of wealth management processes to enhance client experience and improve operational efficiency, subsequently helping drive operational cost down and make wealth management services more accessible.

Juma noted the rise of fractional investments, such as fractional shares or bonds, which are democratizing access to investments and are allowing a broader range of investors to participate by lowering ticket sizes.

ABSA’s Jaysen Nundoosingh discussed the transformative impact of technology, accelerated by the COVID-19 pandemic. He stressed the importance of providing clients with top-tier technology, an exceptional user experience, and cost-effective solutions.

“COVID … gave us an opportunity to rethink our business model, to accelerate the digitalization of the bank across segments, and in particular about wealth,” Nundoosingh said.

“We spent some time in the COVID years speaking to at least a dozen global vendors on the technology side … and we quickly came to the conclusion that if we wanted to compete in this market, we had to get our clients first-class technology and absolutely incredible experience in terms of using this technology … So fintechs … [are] not necessarily competing entities … but certainly people we can learn from and benefit from, bringing that technology to our clients rather than sitting across from them and going after the same segment.”

Price-conscious investing

Equity Bank’s Olusegun Omoniwa, based in Kenya, emphasized the growing awareness among clients regarding the costs of investing. With the rise of lower-cost investment vehicles like exchange-traded funds (ETFs), clients are becoming more price-sensitive.

“Clients are increasingly becoming more conscious of the costs of investing, particularly with the proliferation of lower cost investment vehicles, such as ETFs as opposed to actively managed funds, or even looking at narrower bids and narrower spreads around how they’re trading, depending on the maturity of the wealth management business that you’re running in the region,” Omoniwa said. “The market is still quite nascent generally but … there’s been a bit of maturity over the past few years that have been led by a couple of big players in the region, speaking specially, to East and probably Western Africa.”

Omoniwa also highlighted some macroeconomic trends that are shaping the wealth management industry, emphasizing the shift to a global high-interest-rate environment which has prompted wealth clients to seek returns free of risk.

“Globally now, for the first time in a very long time, we’re looking at a high-interest-rate world, and that’s likely going to persist,” Omoniwa said. “This speaks to the types of solutions that clients are going to be asking for more often than not.

“Gone are the days where clients would be happy to take risks. Today, you want returns that are free of risk and you are probably able to get that from even cash and cash management solutions. So I think the cost of investing access to investment and the interest rate environment are big trends that are affecting how our clients are looking at wealth management.”

Temenos’ Eric Mellor stressed the role of technology in cost reduction, as shrinking margins force wealth management providers to automate advisory processes. This has led to increased investment in technology, with a focus on self-service channels and automation to meet client demands for lower fees.

Generational wealth transfer

Mellor further highlighted the significant shift in technology investment toward enhancing client experiences, driven by the pending generational wealth transfer. As millennials inherit wealth, they seek new and innovative ways to engage with financial institutions, he said, demanding seamless experiences from the first point of contact to post-transaction.

“We’re going to see what’s believed to be the biggest transfer of wealth that’s ever occurred. Generation X has started to pass on and leave our ill gotten gains to our millennial offsprings,” Mellor said.

“The newsworthy story is that these millennials are set to take their relationships elsewhere. They’re not gonna be happy maintaining relationships with the same banks or the same organizations that their parents didi. They’re looking for new and interesting ways to engage.”

Modernizing legacy systems

Despite the inherent need to adopt technology and digital channels, banks in the region face intricate challenges and limitations largely because of their legacy systems. Juma cautioned against the risk of having a visually appealing digital interface that masks inefficiencies in the backend operations, stating:

“The biggest challenge for banks is that banks have a complex infrastructure. You can put on a fancy digital front-end, but then, the back-end, the infrastructure, becomes very challenging to upgrade easily. The reason for that is there are a lot of moving parts, a lot of systems, that make a complete transformation quite difficult … So the way I look at it is that it’s better to always redesign the process based on the new technology rather than try to adapt the technology to fit your legacy process.”

Sharing insights into the state of digitalization in sub-Saharan Africa, Omoniwa said that while digital interactions are reaching new heights in areas such as payments, face-to-face interactions are still crucial for wealth management due to trust factors.

“Clients and banks started reporting digital penetration in the high 90% in terms of the volume of transactions they were doing,” he said. “In wealth management, however, … face-to-face interaction, because of trust, was still required, making it maybe a bit more difficult to justify significant investments in a total technology stack review, at least at that time.”

But the advent of fintech has created demand for digital wealth management solutions, prompting traditional financial institutions to invest in end-to-end systems and embark on digital transformation journeys.

“Fintechs … have come in and have started to change the dynamic. What they’ve done is they’ve created demand. So your traditional financial institutions are now seeing there’s a demand here,” Omoniwa said.

“We’re starting to see the shift to investing new in end-to-end systems, whereas what you might have seen before would have been a hybrid of some face-to-face or digital first mile, analog paper drop at the back. The investments in my view are now going to be justified as we move further down that journey and as clients become more comfortable.”

Featured image credit: Edited from freepik