Research from Oxford Risk finds that wealth managers across MENA expect clients to switch more money into collective schemes such as mutual funds over the next three years.
Its study with independent financial advisers and wealth managers in MENA who collectively manage assets of around USD290 billion, found more than three out of four (77 per cent) expect a surge in investment in collective schemes.
More than a fifth (21 per cent) questioned in the research with wealth managers in the United Arab Emirates, Saudi Arabia, Qatar, Bahrain, Egypt, Kuwait, and Oman, believe there will be a dramatic expansion in the use of mutual funds and ETFs.
The switch to mutual funds and ETFs is set to change the focus on cash in wealth management across the region – currently as much as 45 per cent of total wealth in MENA is in cash.
Around 61 per cent of wealth managers predict the share of cash will drop by 2025 with nearly a quarter (23 per cent) forecasting it will drop significantly. Not all are convinced, with 20 per cent saying the share of total wealth in cash will rise while 19 per cent expect no change.
Oxford Risk is urging wealth advisers in the region to make more use of technology to provide improved services to clients based around understanding their needs through detailed profiling.
Greg B Davies, PhD, Head of Behavioural Finance, Oxford Risk says: “The shift to more use of mutual funds and ETFs puts the onus on advisers to deliver more consistent support to clients focused on risk tolerance and asset allocation.
“The same applies to the reliance on cash – the worry is that many potential investors are missing out on stronger returns because they are not emotionally comfortable with taking appropriate amounts of risk.
“Employing software to guide decisions helps them become more consistent. Once a specific framework for the measurement of risk tolerance, risk capacity and other relevant factors is established it can be run at scale and speed.”
Oxford Risk’s behavioural tools assess financial personality and preferences as well as changes in investors’ financial situations and, supplemented with other behavioural information and demographics, build a comprehensive profile. Oxford Risk’s financial personality tests can measure up to 18 distinct dimensions, of which six reflect preferences for ESG investing.
It believes the best investment solution for each investor needs to be anchored on stable and accurate measures of risk tolerance. Behavioural profiling then provides an opportunity for investors to learn about their own attitudes, emotions, and biases, helping them prepare for the anxiety that is likely to arise. This should be used to help investors control their emotions, not define the suitable risk of the portfolio itself.