The United Arab Emirates (UAE) financial wealth grew by a Compound Annual Growth Rate (CAGR) of 3% from 2015 to reach a high of $600 billion in 2020 – 69% of which is investable wealth – as the UAE showed resilience in the face of the protracted COVID-19 pandemic, according to a new report by Boston Consulting Group (BCG).
The report, titled ‘Global Wealth 2021: When Clients Take the Lead’, reveals that despite the pandemic’s enduring financial impact, global prosperity and wealth grew significantly throughout the crisis and are likely to continue to expand significantly over the next five years, in line with the emerging economic recovery.
“Although the COVID-19 pandemic has posed many challenges, the UAE’s wealth segment has proven to be resilient in the face of adversity, hence the growth it has recorded. The National Agenda has driven economic activity, empowering the country to operate in an economy that continues to become increasingly global. As a result, growth in wealth has been recorded despite the mass disruption, placing the UAE in a favorable position for the years ahead,” said Mustafa Bosca, Managing Director and Partner at BCG.
The UAE, which represented 26% of the Gulf Cooperation Council’s (GCC) financial wealth in 2020, is expected to witness strong growth of4% CAGR to reach $700 billion by 2025, a $100 billion increase from 2020. Meanwhile, the region’s financial wealth is forecast to reach $2.7 trillion in 2025 from $2.2 trillion in 2020.
A spotlight on onshore asset allocation shows that equities and investment funds (47%) accounted for the largest proportion of assets in 2020. Looking ahead, the allocation of onshore assets is set to change slightly by 2025, with currency and deposits expected to take the larger share of onshore assets amounting to 47% of the overall onshore asset class in the UAE.
The Changing Landscape of the Wealthy in the UAE
BCG’s report also shows the UAE’s changing landscape of the wealthy in the coming years, with the rise of the next-generation affluent and high-net-worth clients. These individuals, between 20 and 50 years of age, have longer investment horizons, a greater appetite for risk, and often a desire to use their wealth to create positive societal impact as well as earn solid returns. Many wealth managers are not yet ready to serve these new ultras.
“Greater economic achievements have led to new entrants among the UAE’s wealthy. Nationwide wealth has been distributed to more members of the population, and, likely, client demands and expectations will also shift as wealth demographics continue to experience change. As such, those responsible for local wealth management will be tasked with tailoring their offerings to local needs or younger wealth segments with heightened proactivity in due course,” said Mohammad Khan, Partner at BCG.
To win the new segment of the next-generation segment, wealth managers must bring a bold and new digital business model to life. The five pillars of the new digital model include:
- Supercharged Relationship Management: All of the legwork is done with the use of technology and relationship management to become the key support in the digital conversion funnel
- Contextual and Consumable Learning: Streamlined, gamified, 100% digital content, placed strategically to nudge conversion
- Smarter User And Experience Design: Simple to use platforms, enriched with tools and simulators that clients can play with
- Simplified Pricing: Hybrid model combining asset-based pricing with flat subscription fees
- Democratized Access To “Haute” Investments: Customizable discretionary mandates, and scale-down of (U)HNWI products