Islamic wealth management: Adding value to financial services

GROWTH POTENTIAL: Malaysia can lead in Islamic wealth management, which is still in its infancy, just as we are world leaders in sukuk industry

ASEAN continues to be a very exciting region. The region has weathered through the 2008-09 financial and economic crises and we are coping well in dealing with the resulting economic fall-out.

The Asean region is expected to have sustainable economic growth of at least 5-6 per cent over the next decade, bringing wealth and prosperity to its 600 million population.

Anticipating this development, our regulatory authorities have identified wealth management, especially Islamic wealth management, as one of the major thrusts for Malaysia's financial services industry.

It is still in its infancy with various domestic banking groups dipping their toes, quietly gathering expertise and talent, to take on the challenges in developing their wealth management businesses.

It has been estimated that last year there were 780 ultra high net-worth Malaysians, each with a minimum of RM100 million of net assets, with collective wealth of RM330 billion.

Managing wealth at this level requires a very high degree of expertise. However, in this globalised, borderless cyber-connected world, one can manage funds from anywhere.

What is instrumental in providing "stickiness" are the personal relationships a high net worth individual develops with his or her advisers.

Malaysia began industrialising its economy some 30 years ago. Now, in this second decade of the 21st century, the founders of first generation wealth are looking for succession planning solutions.

It would be a loss to our economy if businesses of these families were broken-up because there was insufficient predeceased planning.

Yes, traditionally it may be a taboo to speak of these things, but we must be pragmatic in our ways of the world.

Kuala Lumpur has the infrastructure and expertise in the Islamic finance space to develop a strong competitive value proposition in syariah-compliant wealth management. Both the public and private sectors have worked very hard to develop the sukuk industry. Our present success is only too evident.

I believe we can devote just as much energy and resources, if not more, in building our future Islamic wealth management industry. In the early days of the sukuk industry, regulatory and taxation impediments were numerous, talent was sparse and the supporting syariah doctrines few, but we determinedly soldiered on.

Look where we are now -- seventy per cent of all sukuks in the world originated here in Kuala Lumpur. In the sukuk field, we hold supreme.

Malaysia's wealth management industry, targeted at both local and regional wealth, can bring numerous benefits to our financial services industry.

The industry's value chain is long, from acquisition of assets, to advisory and management services, in addition to legal, taxation and syariah advice, to trust and custodial services and, right at the end, distribution of the assets.

This value chain can be diced and divided across a number of enterprising businesses, each offering its specific value-added competency to the chain.

Labuan International Business and Financial Centre (Labuan IBFC) serves to complement our domestic offerings. After all, at the end of the day, there will be far more millionaires outside Malaysia then in.

Labuan IBFC offers a range of legal entities for the purpose of wealth management, from foundations to special trusts, both conventional and Islamic.

However, we do not want to come to a situation where even though the asset holding entities are from Labuan IBFC, the fee income, derived from accompanying advisory services across the aforesaid value chain, fall into foreign hands. As much as possible, these services should emanate from Malaysian advisers with international expertise.

It is for this reason that Labuan IBFC took the initiative to host, in association with the Financial Times, the Asean Wealth Management Summit today, followed by the Islamic Wealth Management Seminar tomorrow.

The summit, graciously officiated by Second Finance Minister Datuk Seri Ahmad Husni Hanadzlah is the first major wealth management event ever held in Malaysia. We are proud of this fact.

Building this ecosystem is not easy but I can already see stirrings of interest. Let us build domestic collaborations and develop our international inter-linkages, to grow our domestic high-value wealth management industry.

(New Straits Times / 26 Dec 2013)

---
Alfalah Consulting - Kuala Lumpur: www.alfalahconsulting.com
Islamic Investment Malaysia: www.islamic-invest-malaysia.com