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    Why expats and wealth managers are drawn to the Middle East

    Why expats and wealth managers are drawn to the Middle East

    Article initially published by TheWealthNet

    The growth of interest in the Middle East, both among wealth managers and wealthy expats, has been well documented. That said, the move is not always smooth sailing and challenges do persist.

    Amer Malik, Senior Executive Officer Lombard Odier Middle East Ltd., noted that one thing those interested in the region need to be aware of is that you “cannot just paint the Middle East with a broad brush”. Rather, the individual jurisdictions have their own characteristics.

    When people speak of growing interest in the Middle East, they tend to be referring to the UAE and Saudi Arabia, he noted, as these jurisdictions are “leading the charge”.

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    This is due to their government’s actively trying to attract more wealthy individuals and businesses as they transition away from having a predominantly oil-based economy. Due to creating attractive lifestyle opportunities, as well as work opportunities, now individuals are opting to stay in these countries when previously they might have only stayed for a couple of years to take advantage of a work placement.

    Despite many individuals’ desire to stay longer in these jurisdictions, there are still challenges expats face when transferring wealth across borders. These include difficulties in finding the right wealth manager, cited by 48% of respondents of Lombard Odier’s recent UAE expat survey.

    Read also: Lombard Odier research identifies expats’ motivations for relocating to the UAE

    While many may struggle to find the right wealth manager, they are not without options, particularly in the UAE. Within the Dubai International Financial Centre (DIFC), there are over 400 wealth and asset managers registered, collectively overseeing around USD 700 billion in assets.

    Meanwhile, there are also firms registered in Abu Dhabi’s equivalent centre – Abu Dhabi Global Market (ADGM). Through these two locations, wealth managers can serve the whole region.

    The number of firms registered in these centres demonstrates the fact that so-called suitcase banking – a practice where bankers frequently travel to meet clients rather than maintaining a permanent local presence1 – no longer works. “People want proximity” to their advisers, Mr Malik stressed.

    Due to the increased demand, Saudi Arabia is also setting up an equivalent IFC. “It will take time” for this to become established, Mr Malik noted, but believes it will be a success due to the demand.

    These IFCs are so important to the regions as they need “stability and a strong regulatory environment to attract businesses”.

    Suitcase banking no longer works. People want proximity to their advisers.

    When it comes to personal tax regulation and law, expats are not confident they understand their liabilities yet

    Indeed, Lombard Odier’s survey found expats’ knowledge still holds scope for improvement, as evidenced by only 27% feeling “very familiar” with the tax implications of holding wealth assets outside the UAE.

    Moreover, a notable 61% of expats have yet to make any tax or estate planning arrangements for their children abroad, indicating a keen interest in discovering tax-efficient wealth transfer solutions.

    Read also: Expats in the UAE: understanding tax residency rules

    Additionally, just one quarter of families has any form of structure in place for succession planning. This is particularly concerning, given the Middle East is expecting an intergenerational wealth transfer of approximately USD 1 trillion in the coming years.

    As a result, while investments will always be an important part of client service, wealth planning and structuring is a key focus for Lombard Odier.

    Expats are “highly under advised” on the offshore assets, Mr Malik noted, suggesting part of the reason for this is that they underestimate the time they will spend in the jurisdiction and therefore the structuring that may be required.

    First generation wealth creators can be the hardest to encourage to consider succession and estate planning.

    Just 30% of wealth is efficiently transferred from the first to second generation of a family. This reduces to 12% between the second and third generations

    Mr Malik noted they often will say “if I die” rather than “when I die” in conversations when the topic of succession is raised. They tend to not want to think about their own mortality.

    Using statistics can help with this. One that particularly resonates, according to Mr Malik, is the fact that just 30% of wealth is efficiently transferred from the first to second generation of a family. This reduces to 12% between the second and third generations.

    When families understand the threat to their wealth, they tend to be more receptive to succession planning conversations.

    “Families need to talk”, Mr Malik stressed, but having a neutral adviser present can facilitate these discussions and ensure they are productive.

    A key metric Lombard Odier uses to measure success is whether they have been introduced to the next generation in a wealthy family. If they have, it suggests they are doing their job well.

    Families need to talk but having a neutral adviser present can facilitate these discussions and ensure they are productive

    Within the UAE, there are plenty of opportunities to support wealthy individuals and their families, and these opportunities are only expected to increase.

    “The fastest growing segment [in the UAE] is the expat community,” Mr Malik stressed.

    And this is no longer just corporate executives, increasingly those that are experiencing a liquidity event are opting to relocate both for lifestyle reasons and to optimise their tax bills.

    This migration is “quite unprecedented”, he argued, noting the upward trend in migration looks set to continue for the time being.

    important information

    This is a marketing communication issued by Bank Lombard Odier & Co Ltd (hereinafter “Lombard Odier”).
    It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication.

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