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Sanjoy Sen - On Wealth Management - Aug 2011


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Sanjoy Sen - On Wealth Management - Aug 2011

  1. 1. August 2011SPECIAL FEATURE – WEALTH MANAGEMENT38Over the last decade, the Middle East region hasseen an explosion of wealth. Most reports suggestthat the growth in the number of millionairesin this part of the world has outpaced all other regions.The wealth management industry in these places hasalso grown rapidly, fuelled by these swelling ranks ofmillionaires.Much has been said in various quarters about howSwitzerland, the original “safe haven”, may be losing itsposition as the traditionally dominant wealth managementhub of the world. In contrast, industry opinion suggeststhat private wealth management is experiencing a shifteastwards towards Asia, particularly in financial centreslike Singapore, Hong Kong and more recently, Dubai.The UAE in general and Dubai in particular has posi-tioned itself as a prominent offshore centre in the Arabworld, with Saudi Arabia, Turkey, Iran, Kuwait and Russiaemerging as the most important origins of offshore wealth.The recent geo-political unrest in the region has substan-tially increased the flow of investments into the UAE.Wealth management in the UAEFor wealth management organisations, especially banks inthe UAE, this is a time of great opportunity. The industryenjoyed a resurgence last year, with growth in both theabsolute number of local and expatriate high net worthinvestors, and the assets of this target client pool.However, this increase in flow of wealth is no rising tidethat will carry every bank and wealth manager with it. Inthe post-financial crisis world, supervisory authorities andinvestors are becoming more demanding about how assetsare managed, and Dubai is no exception. Wealth managersnow have to wrestle with a combination of evolving regula-tion, less stickiness of client assets, tougher fee negotiations,and an investor shift towards lower-margin products.To benefit from the potential opportunities, therefore,banks will have to demonstrate to existing and prospectiveclients that they can provide a compelling value propositionbuilt around exceptional service and robust investmentperformance. Only by meeting and preferably exceedingclients’ expectations will they be able to grow their assetsunder management and wealth management revenues overthe long term.Furthermore, banks will have to run their businessesever more efficiently if they are to reduce costs and im-prove profitability. Banks will have to expand their openarchitecture platforms, offer a wider range of products andmarry their own interests with those of their clients. Onlya few multinational banks will be in a position to leveragethe proper skills, products and support infrastructure todevelop a winning formula.Challenges for the wealth businessTransparency and communicationThe client relationship will be expected to remain the cor-nerstone of wealth management. Investors have becomeincreasingly sophisticated and more demanding in terms ofthe range of products and quality of services they expect toreceive. To meet and preferably exceed these expectations,wealth managers need to concentrate on transparency andcommunication.The industry’s lack of transparency was one of the mosthigh-profile problems highlighted by the financial crisis,and is one of the most prominent areas where investorsare now demanding change. To meet these demands, andregain investors’ confidence, wealth managers need toolsthat allow them to analyse how clients’ portfolios haveperformed. In addition, they must be able to communicateclearly and frequently with clients to explain their actionsand results. Crucially though, transparency is not merelyabout deluging investors with information. Rather, it meansproviding clients with clear and honest explanations aboutperformance, risk and fees.Wealth management after the financial crisisThe increasing level of wealth in the Middle East is no rising tide that will carry everybank and wealth manager with it. In the post-financial crisis world, wealth managers mustgrapple with demands from supervisory authorities and investors about how assets aremanaged. Mr Sanjoy Sen of Citibank looks at some of these challenges and the rolethat bancassurance can play in the wealth management August 2011SPECIAL FEATURE – WEALTH MANAGEMENT38 August 2011SPECIAL FEATURE – WEALTH MANAGEMENT38
  2. 2. August 2011SPECIAL FEATURE – WEALTH August 2011SPECIAL FEATURE – WEALTH August 2011SPECIAL FEATURE – WEALTH MANAGEMENTPerformancePerformance has always been important factor in the wealthmanagement business. However, as long as it was positive,investors did not ask too many questions in the past. Thefinancial crisis, during which many wealthy investors sawassets plummet, changed that. Post-crisis, investors are focus-ing more on risk-adjusted portfolio returns, and are keento see how those returns are achieved and to what extentthe performance can be attributed to the wealth manag-ers. High net worth investors in the future are expected tojudge their providers by the returns generated, and switchto another where performance is deemed disappointing.The future wealth management business is expected to bemarked by two clear requirements – returns and protection.ProtectionProtection has not been an integral part of wealth advisorybusinesses in the past, especially in this region. This can beattributed to many factors like lack of Shariah-compliantproducts, low awareness of insurance products and largefamily support systems in the past. However, with the totalinsurance penetration below 10% of insurable population inthe Middle East, it is expected that the region will witnessrapid growth in near future. It is also expected that in afragmented wealth advisory model like the UAE, banks andhence bancassurance will play an important role.The importance of bancassuranceThe sales synergies in bancassurance help drive down thecost of distribution and after-sales service. Life insurancedistribution is where this synergy is seen at its very bestand is expected to be the pivot of bancassurance businessin the UAE.The success of bancassurance in the life insurance in-dustry will depend on a number of factors. Bancassuranceis a partnership where both the bank and the insurer needto contribute. Every bank will need to start by selectingthe right partner – an underwriter whose products, servicequality and brand image is acceptable to the bank’s corecustomer segment. Banks will need to have a robust branchnetwork which can be used to sell insurance products.Banks generally tend to have more frequent contact withtheir clients. And banks, more often not, have a betterreputation than independent advisors.Bankers are seen as more trusted. This advantage willhave to be reiterated by offering the right products throughproper suitability checks. Most importantly, the success ofbancassurance will depend on the ability of banks to givea fresh look to the insurance business and develop a strongcustomer focus, resulting in simpler and more transparentproducts, mostly designed for high net worth customersin the region.Citibank and bancassurance in the UAECitibank pioneered the concept of bancassurance in theUAE market. Many years ago, when most other banks werebusy collecting deposits and giving out loans, Citibank tookthe initiative to launch insurance products in the UAE. Whatstarted as a set of simple products distributed through thetelemarketing channels has now developed into a set ofofferings for every client segment within the bank.Citibank had its fair share of learnings in the bancassur-ance business over the years and has managed to fine-tunethe model to the extent that it is by far the largest insurancedistributor in the Middle East. This success can be attributedto Citibank’s approach in bancassurance:• Building client loyalty Client loyalty is built through a complex combinationof products, services and customer experience. The shiftfrom a product-based approach to a “one-stop” approachsimplifies life for the customer. The customer’s trustincreases from his knowledge that this “one-stop” bankhas something that suits his need. Overall, the best way of building customer loyalty isby being able to offer a continuum of financial productscovering all phases of the client’s life.• The right products Insurance is generally perceived as a boring industry.Products do not differ much from one underwriter toanother. The traditional distributional model is evenmore staid. There is hardly any differentiating factorfrom one adviser to another. This is where Citibank made a big difference throughits bancassurance offerings. Products were differenti-ated from the rest of the market’s, made transparentand offered at lower charges. This was made possiblebecause of the bank’s understanding of its customersand the analysis that it possessed. Armed with this data,underwriters were happy to create a new set of productstargeted at specific customer segments within the bank.• Integrated sales process This was the toughest of all goals to achieve. An inte-grated sales process is easy to develop as a concept butpractically impossible to execute. It has several variablesto consider and senior management is pivotal in theorganisational acceptance. The process is successfulonly when it is supported by an open architectureproduct platform, proper suitability checks and the rightcompensation structure. Implementing it will increasetop-line revenues, and as the sales pipeline becomesmore manageable, the benefits for the customers andbank will increase.Over the years, Citibank has developed its bancassuranceofferings across various segments. The bank’s customersknow that whenever they step into a branch or speak toan adviser over the phone, there will be solutions they canlook forward to. It does not matter what stage of life theyare in or what their immediate or long-term financial goalsare. They know that they can trust Citibank to provide themwith a transparent, suitable product that performs to fulfilltheir financial needs.Mr Sanjoy Sen is Head ofCitibank’s ConsumerBanking in the MiddleEast, Pakistan andNorth Africa region.