The usual stumbling blocks along with cultural and regulatory impediments. Despite the attractions of a dynamic and growing market, Western firms looking to pick up wealth-management business in the Persian Gulf region face obstacles in the form of familiar things like margin pressures, eroding prices and rapid product "commoditization" bas well as a shallow talent pool and competition from providers of culture-specific products and services.

"Dubai is clearly continuing its consolidation of the wealth market, attracting more and more foreign and local players," Christian de Juniac, a London-based senior partner of Boston Consulting Group (BCG), told the business publication Emirates 24/7 last week. "Economic liberalization has stoked competitive fires across the region's wealth markets, and nearly all major international players are at some stage of establishing representative offices or onshore branches."

Tough sledding

In 2006 assets held by Middle Easterners with at least $1 million in financial assets increased 11.7%, according to Merrill Lynch and Capgemini's most recent World Wealth Report. That put the Middle East ahead of Asia-Pacific's, North America's and Europe's rates of personal-wealth creation among millionaires that year. The Middle East's population of high-net-worth individuals saw a year-over-year increase of 11.9% to about 300,000 in 2006.

But these statistics convey an inadequate sense of the wealth on hand in the Middle East's most dynamic market, the sparsely populated, oil-rich countries of the Gulf Cooperation Council (GCC), a customs union and common market of Saudi Arabia, Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates (U.A.E.).

Still, foreign wealth-management firms are finding it difficult to make headway in the Gulf region, according to BCG especially in the face of Shariah-compliant products from Islamic banks.

"Shariah" refers to a system of devising laws -- frequently touching on aspects of day-to-day life such as politics, business, and contracts -- based on Islamic texts and traditions.

"In terms of assets Islamic banking represents about 15% to 20% of local retail banking markets in the GCC," according to BCG's Global Wealth 2007 report. BCG sees demand for Shariah-compliant investment products growing by another 25% over the next 10 years.

BCG also points to a sharp shortage of experienced wealth-management personnel in the Gulf region as another challenge to foreign firms.

"With a growing number of players converging on a limited talent pool, many wealth managers struggle to maintain service levels and continuity in client relationships," says de Juniac. "Compensation costs have soared. RM salaries doubled last year and turnover rates are high."

Dubai's International Financial Centre (DFIC), a complex with separate business regulations allowing for allows full foreign ownership and profit repatriation and a distinct judicial system, is the entry point of choice for offshore wealth managers.

But some of the rules that make the DFIC an attractive place to do business also shut foreign players out of the local retail-banking market, "which includes individuals who have less than $1 million in net assets and small businesses with less than $5 million in turnover," says the BCG report.

"Nearly all international players are working to establish representative offices or a more substantial presence in the GCC. Many face a challenging and highly competitive environment," says de Juniac. -FWR

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