Navigating the Great Wealth Transfer in the UAE - Innovation in Legacy Planning

Natalie Burke

Published on March 19, 2024

Modern Legacy Planning Strategies for Preserving Wealth Across Generations

The great wealth transfer is underway. In the next decade, the HNWI families and others in the Middle East are expected to pass down AED3.67trn (£820m, $1trn, €980m) to the next generation. Legacy planning can be a challenging task, especially because of the emotional weight it carries. Additionally, many families are unaware of the difficulties that their heirs may face when it's time for them to take over the family estates. Cross-border businesses, international laws, and tax implications require professional advice.

The UAE's international environment, lack of infrastructure debt, and rapidly growing economy make it an attractive market for wealth managers. However, there are some challenges the region faces when handing over assets to the next generation. According to Lombard Odier’s survey, 87% of HNWI in the Middle East indicated that their family businesses are ready for an “efficient intergenerational wealth transfer”, but just 24% have created an estate plan for when the younger generation takes over. The region’s wealth management and advisory providers mostly offer a transaction-based, siloed approach to their client’s queries, but with the foreseeable amount of wealth reallocation in the region set to run into the trillions, a more proactive legacy planning strategy is needed.

In today’s blog, we investigate the unique wealth planning landscape of the UAE and explore how financial advisors can leverage technology to help the older generation achieve and visualise their legacy planning goals amidst this monumental wealth transfer.

The Great Wealth Transfer in the Middle East

Some challenges that wealth transfer presents are universal – many clients refuse to discuss legacy planning with their financial advisors. One of the main reasons is, of course, the emotional nature of the topic. “... Typically, when wealth is created through the entrepreneurial efforts of the older generation, these companies become an integral part of who they are. So, to initiate a conversation of succession, it is sometimes a very challenging moment for an entrepreneur, as it is almost like giving up who they are,” says Nuno Matos, CEO of Wealth and Personal Banking at HSBC.

Second, according to Lombard Odier’s survey, 67% of respondents believed having a Sharia-compliant succession plan was important, with older business owners (74%) placing slightly more importance on it than younger clients (62%). Sean Kelleher, chief executive of Mondial Dubai, said, “Shariah Law is Sharia Law, and if families are intent on complying, they don’t need too much advice. Why pay for something which is already enshrined in law and which you accept?”

Third, many clients in the UAE are unaware of the scale of this process's regulatory and tax implications. “Families with assets in multiple jurisdictions fail to appreciate that they could be exposed to taxes and the impact it would have in the event of their demise, not only on their family but the businesses they head,” says Hannah Greenwood, managing director of Finsbury Associates.

Fourth, according to Financial Planning, the reluctance to discuss the topic may stem from the complexity of family relationships. For example, some clients may fear that their heirs may develop a sense of entitlement and not work as hard to pursue their accomplishments, while some parents or grandparents may decide to leave more to one heir than another, which can create conflict. Some clients believe that it's inappropriate to talk about money.

The government recognises the need for a change in mindset in the region and encourages citizens and residents to take a proactive approach to planning the financial future of their families. In August 2022, the Dubai International Financial Centre (DIFC) launched a global family business and private wealth centre to help individuals and families in the region and worldwide with legacy and succession planning. With an increasing number of expatriates, golden visa holders and mixed religion families, the demand for advisory services on legacy planning outside Sharia Law is expected to increase.

Aside from client attitudes, there are a few other factors that slow down the development of legacy and succession planning services in the region. For example, The International Adviser highlights the need for international expertise and collaboration in the industry. Moreover, effective estate planning requires a collaborative environment for legal, fiduciary, banking, insurance, trustee, and realty functions, while, presently, the clients are treated in siloes, reducing the opportunity to present the client with a holistic picture of their finances.

Unified Financial Analytics Supporting Legacy Planning

One of the post-pandemic best practices for wealth managers’ operations suggests a hybrid model, where clients may choose between meeting the advisors in person or using a digital platform. Legacy planning is a space where human empathy may have a central role. The emotional factors that hinder clients from planning their legacy and succession make physical financial advisors particularly effective in this area.

However, it is crucial to acknowledge the importance of the tools utilised by wealth managers to facilitate these sensitive conversations. For instance, unified financial analytics providers like Kidbrooke® provide financial simulation tools that visualise, project, and optimise any financial queries in seconds. These tools can be used to illustrate and explain the impact of various strategies on clients’ and their heirs’ economies on the fly.

Professional legacy planning has many advantages, including asset protection, control, and confidentiality. Modern financial advisors leverage unified analytics to achieve a 360-degree view of the client’s economy to manage the process in detail, considering the complexity of tax regimes, insurance contracts, different asset types, and real estate specifics. We break down how financial advisors can help clients overcome their anxieties when handing over their business using this technology.

Formulating the goals of the estate planning process that matches clients' values and the legacy they wish to leave behind.

Financial advisors help customers develop and visualise their estate planning goals considering their values and preferences. At this point, it is important to consider all aspects of the complex personal economy of wealth holders and simulate the situations of the heirs. At Kidbrooke®, we provide KidbrookeONE, an analytics suite that can simulate the customers’ economy on a balance sheet level – enabling the financial advisor to consider and model any financial contract or asset – and simulate the development of its value over time. Equipped with superior analytical tools, financial advisors can better explain to their clients how different goals could affect the outcomes on a holistic level – without spending too much time on Excel calculations.

Explaining the implications of different wealth planning strategies.

Financial advisors are best equipped with tools and knowledge to help their clients develop strategies to preserve their wealth and legacy over generations. Kidbrooke’s extensive background in the intersection of financial mathematics, computer science and customer experience helped us create market-leading simulation tools to visualise these strategies and simulate their implications over decades.

Establishing clear communication channels between wealth holders and heirs.

Having a financial advisor facilitate a family conversation about legacy planning is one of the strategies to reduce the likelihood of family disputes. Fifty-seven per cent of Edward Jones' respondents said having an advisor guide their discussions made them easier to manage. It is often the case that legacy planning discussions with clients’ families is an iterative process. It implies that a financial advisor would answer questions and illustrate the impact of different options. Our analytics platform can facilitate this process and enable the wealth manager to answer the widest possible range of your clients’ families’ questions in real-time.

HAYAH Insurance - KidbrookeONE Transforming Financial Planning in the UAE

From a technical standpoint, the siloed approach to wealth planning is one of the most challenging hurdles the UAE’s advisory community must overcome. However, we already see this happening. We have recently partnered with HAYAH Insurance, an Abu Dhabi-based insurer specialising in life, medical insurance, and savings products, who has the ambition to provide financial guidance based on a 360-degree view of their clients’ economy.

KidbrookeONE’s financial simulation capabilities powers HAYAH's self-service investment journeys, enabling personalised, goal-based financial planning experiences. This technology empowers HAYAH Insurance to address the modern consumer's demands for convenience, and access to sophisticated financial planning tools.

HAYAH Insurance’s CEO, Mohamed Seghir, is committed to making comprehensive financial advice accessible and tailored to the region's diverse, mobile, and increasingly expatriate population. By leveraging unified financial analytics, HAYAH Insurance aims to stay ahead in a rapidly evolving insurance landscape where digitalised, customer-centric services are becoming the norm. Read our interview with CEO, Mohamed Seghir here.

Bridging Generations: How Financial Advisors Can Secure the Future of Wealth Transfer in the UAE with KidbrookeONE

As we stand on the brink of the UAE’s most significant wealth transfer in history , the role of financial advisors becomes more critical than ever. They are uniquely positioned to guide families through the complexities of intergenerational wealth transfer, and many of the challenges they face can be overcome by advanced technology.

Equipped with cutting-edge analytical tools like KidbrookeONE, wealth managers can provide a more nuanced, comprehensive, and personalised planning experience. In doing so, they would enhance their services, reduce costs, and contribute to a smoother wealth transition, fostering financial security and harmony for future generations.

This proactive and future-focused strategy ensures that the legacy planning process is not just about wealth preservation but also about building a bridge between generations, aligning with each family's values and visions.