Investment products must evolve to ward off 'savings time-bomb', says new report

Many avoid investing due to high fees, indecipherable statements and a perception of exclusivity

Wealth Managers have benefited from more than 8% annual wealth growth on average, however, Covid-19 has introduced a different reality, according to an Oliver Wyman and Morgan Stanley study. Getty Images
Beta V.1.0 - Powered by automated translation

Easy to understand savings and investment products that are available to all are urgently needed, a report by the global accountancy and finance body ICAEW found.

According to the organisation's Audit Insights: Investment Management report, high fees, indecipherable statements and a perception of exclusivity means many feel alienated from the investment world, or see it as just something for the wealthy – an issue that has contributed to a savings "time bomb".

Philippa Kelly, ICAEW’s head of financial services, said many investors are deterred from investment management because they find it “complicated”. However, even those who do understand are "left feeling frustrated that they don’t have a clear picture of where their current saving or investing levels will leave them in the future".

A recent study from financial services companies Old Mutual International and Quilter Cheviot found 59 per cent of UAE residents depend on their end of service gratuity payment to fund their retirement. The study highlighted the retirement gap facing many residents as the gratuity is considered inadequate to fund a retiree's life after work because it does not factor in the lifespan of an employee, only the years of employment at a company.

According to the ICAEW report, globally over half of people between the age of 21 and 30 make the minimum pension contributions or have no pension at all – a phenomenon fuelled by the growth of self-employment and the "gig economy".

Funding that gap between the gratuity payment and the amount expatriates actually need is a long-term issue in the UAE, with many buying poor performing long-term savings and investment plans riddled with high fees and hidden charges.

ICAEW’s report, which collected insights global management audit specialists such as BDO, Deloitte, EY, Grant Thornton, KPMG and PwC, said the investment management industry can help avert a potential global “savings gap” of £25 trillion by 2050 by offering products that are “valuable, affordable, appropriate and increasingly personalised".

“We need easy to understand savings products now more than ever. Increasing life expectancy, decreasing state provision and outdated pension schemes in most of the countries in the Middle East and North Africa mean many now face an uncertain retirement,” said Ms Kelly.

According to the GCC Wealth Insight Report 2018, more high-net-worth people are keeping their assets closer to home and increasing their exposure to regional markets.

“This trend ... will translate to more customers requiring investment management services. But it also means investment management firms have to evolve and update their old business models. Old ways of operating are no longer sufficient,” said Michael Armstrong, FCA and ICAEW regional director for the Middle East, Africa and South Asia.

The report also highlighted the role technology can play in improving the sector. The UAE, for example, now has a small number of robo-advisory companies, such as Sarwa and WahedInvest, which gauge an investor’s risk tolerance and assign them a tailored investment portfolio of exchange-traded funds.

Ms Kelly said digital platforms, robo-advice and artificial intelligence are "putting investing within reach for almost everyone".