By Santhosh V Perumal
Business Reporter
Expatriates are critical to retail wealth management market in the Gulf Cooperation Council (GCC) and the primary challenge for the industry in the region is to design solutions that can attract more retirement savings assets, according to a study.
Finding that the GCC has some of the largest expatriate populations of any region in the world; an Invesco study said expatriates are the key client segment for the GCC financial advisers and the broader retail wealth and asset management industries.
All six of the GCC states have higher weightings to expatriates than any of the largest six economies in the world, said Invesco Middle East Asset Management Study 2015.
Given the weighting to expatriates in the GCC, it would be logical that the retail financial advisory market would develop propositions for expatriates as well as locals.
However, local GCC nationals have significant welfare support which include attractive final salary pension, reducing their need for retail savings or financial advice, it said, adding GCC locals’ high propensity to invest in direct assets such as property is a further challenge for advisers in selling investment products.
Qatar’s expatriates constituted 74% of the total population, while it was 60% for Kuwait, 55% for Bahrain and 31% each in Saudi Arabia and Oman. The UAE has the highest expat concentration of 84%.
The most frequently cited reason for Western expatriates and NRI (non-resident Indian) clients staying in the GCC was the attractive tax rates, it said.
For Western expatriates, zero per cent personal tax rates were cited as the key driver and many advisers explained that the rate was not only attractive relative to home markets (such as the UK) but also attractive relative to other expatriate centres (such as Singapore).
For NRIs, low corporate and value added tax rates were key drivers for business owners, it said, adding for Arab expatriates, security was seen as a key driver given the ongoing political instability across the Middle East and North Africa region.
Highlighting that length of stay is expected to increase and drive more long-term investment; the study said 67% of respondents expected Arab expatriate timelines to increase.
“This is not only positive for the wealth management industry, which offers long-term propositions, but also clients should be prepared to take more risk and therefore better cope with the market volatility,” it said.
However, some respondents explained that increasing length of stay also increased interest in local property investments. “In the future, advisers may be competing more with long-term investment into property and less with short-term money in bank accounts,” it added.
Expatriate children who complete secondary education locally have a strong long-term affinity with the region and are increasingly likely to return to the GCC after completing university education abroad, according to Invesco.
“The ongoing improvement in education in the GCC is a key factor influencing the evolution of expatriate length of stay,” it said.
Observing that 53%, 32% and 36% of retirement savings are placed into property for Arab and Western expatriates and NRIs respectively; it said furthermore 20%, on average, remains in bank accounts or overseas pensions across these groups and only 25% of retirement savings are placed in GCC wealth management products such as mutual funds and life insurance investment wrappers.
