Regulatory growing pains in the United Arab Emirates are making it more important than ever for asset managers to be on-the-ground and have a real commitment to market in order to provide valuable support to advisers.
During the UAE Leaders in Fund Distribution debate, representatives from Fidelity Worldwide Investment, HSBC Global Asset Management, Invesco Asset Management and Schroder Investment Management discussed the changing regulatory landscape and whether the distribution of products is set to change.
The senior industry figures also discussed how investors and clients are continuing to turn to the larger firms in a “flight to quality”.
Rather than seeing what seems to have been a glut of recent pronouncements from asset managers planning to enter the UAE market as a threat, these established firms see it as the natural progression for the country as it moves both to compete on the world stage with jurisdictions such as Hong Kong and Singapore and become a centre for servicing wealth within the region.
Feet on the ground
William Wells, head of intermediary sales, Middle East at Schroders, said:
“It is very positive, but I think a lot of these asset managers are trying to cover different parts of the market, more focusing on the institutional market.
“The retail market is still relatively small here. It is growing at a reasonably healthy rate, but it’s still in its infancy.
And many of the big names that have come here, have really come to focus on the institutional market.”
trueDan Rudd, regional head MENA at HSBC Global Asset Management, agreed that it was positive for the UAE and added that in order for the country to compete with other regions such as Hong Kong and Singapore, more managers must be based there.
However, he also said new entrants were not going to suddenly discover “a rainbow none of us have tried to seek ourselves”.
“You have to put someone here, have a team here, who are focused on the intermediary market,” said Rudd.
“You’re not going to generate large asset growth overnight – it takes a lot of time. A lot of relationships need to be built.”
Keeping friends close
Wells went further by suggesting that in order for fund houses to compete on any sort of a global basis you actually need to be able to work with distribution partners wherever in the world they operate.
“Whether they be international banks or international life companies, they are starting to look at their product offerings, rationalising these and looking to work with strategic partners over time which are able to be global strategic partners,” said Wells.
“If you haven’t got those relationships centrally, whether they’re run from London or wherever you run them from; if you don’t have those relationships, your distribution capability is going to be significantly hampered.”
Peter Duke, head of fund distribution, Middle East at Fidelity Worldwide, added that the attention from truesome of these players was not necessarily new and that many had expressed an interest in the region in the past, but had not yet taken action.
Duke suggested the reason these companies had not already established themselves in the UAE was because they realise “it’s still not a clearcut decision that you can set up in the UAE and automatically attract assets”.
He added: “Competition is increasing and that’s a good thing.”
A tale of two licenses
Andrew Downing, regional sales manager at Invesco Asset Management, added that greater choice for investors and advisers can of course only be a good thing.
Asked whether he had any concerns about the market shrinking following the implementation of the new Insurance Authority (IA) rules in November last year, Downing said his concern was more around potential market fragmentation between those licensed by the IA or the Emirates Securities and Commodities Authority (ESCA).
true“It seems that with the two regulators you might just see some slight short-term fragmentation, where those who do have the IA license will prosper and work with other IA licensed firms and those with the ESCA license will really have to focus on the investment side of their business,” he said.
“In terms of full, holistic financial advice, you need to be able to do everything, and as an adviser, being able to capture both of those in one piece, is quite important.”
Duke also argued that the number of advisers operating in the UAE would probably not decrease as a result of the changes and highlighted the non-resident Indian (NRI) portion of the market which is thriving.
“We often overlook the NRI brokers,” said Duke. “Those which are funded by local companies have got a very long-standing presence in the region, and are actually, now starting to increase their savings and investment business.”
Rudd however identified another potential consequence of the new regulatory environment, suggesting that there could be an uptick in merger and acquisition activity between advice firms looking to ensure they can offer a full suite of products.
“We don’t know what’s going to happen, what ESCA will communicate to the market in 2015, or the IA from a regulations perspective. But what we are seeing right now is more financial intermediaries looking to merge.
“Firms which are ESCA authorised are starting to see they still need an insurance license and vice versa. There are financial intermediaries in the market seeking opportunities to buy or merge with competitors, with the focus of acquiring joint licensing.”
Rudd added that over time the IA and ESCA will become more aligned and that the market will see “financial intermediaries actually becoming wealth advisers.”
Wells added that, regardless of whether an adviser is licenced by ESCA or the IA, asset managers will continue to have responsibility for servicing them and their clients.
The panel also touched on another trend which has continued over the course of this year – a “flight to quality” away from some of the smaller asset management companies offering alternative and arguably higher risk solutions, to more mainstream financial products and companies.
trueWells argued this is in part stemming from a desire on the behalf of the adviser to reduce the risk on their own business.
“Advisers are doing this by utilising, better-known asset managers with good brands, strong reputations, long-term track records and on-the- ground support, which is positive for all of us.
“In the end, we would also say that that is good for the end clients, so it is a positive step.”
Downing added that there is a definite draw for advisers and investors alike towards the larger more well-known brands.
“People like the big brands, the infrastructure and the quality,” he said.
“If you take the underlying point on trust and what it means and if you assume that the underlying adviser does have their client at the heart of what they’re doing; then there may be education or training pieces that need to be addressed as the market matures, and as more transparency comes into that.
“This is something that the global brands are able to commit to and support moving forwards. As that need arises, and as we become more regulated, that continual professional development is needed in the marketplace.
That is something we’re very well-placed to do and support within the advisor community.”
Duke added that this shift in the international market has been a “major change” which has benefited everybody but that some issues do remain.
“There are still issues with ongoing charges, total expense ratios, commission payments, transparency,” he said.
“Some of the companies that have benefited from this flight to quality don’t necessarily have the size and scale that allows them to properly commit for the longer term.
It is definitely a move forward but I still think there are some issues with what ultimately is recommended and for what reason.
Is the client at the heart of that or actually is the first consideration sometimes the adviser?”