DUBAI // The US internet share dealing giant E*Trade is closing its Dubai branch, which serves the entire Middle East, three months after it was fined Dh1.1million for deficiencies in money-laundering controls.
Customers have been assured it will be business as usual and they will be able to trade despite the closure. But it is understood that, at least for now, investors in the region will not be able to open accounts.
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The E*Trade Securities office at the Dubai International Financial Centre (DIFC) will close on Sunday, meaning the company will drop its presence in the region.
It enables online customers in the Middle East to buy and sell shares, bonds and funds listed on major US markets, including the New York Stock Exchange and Nasdaq.
The company has sent an e-mail to account-holders saying: "We write to inform you that the Dubai International Financial Centre branch of E*Trade Securities Limited is in the process of being closed.
"This development does not require you to take any action as you will be able to continue using your E*Trade account in the same way as you have done previously."
The e-mail gives new contact details to be used by customers from next Monday. It says requests for administrative help should be sent to the E*Trade Securities office in Jersey City, the US, and any complaints should be sent to the company's UK office in London.
The huge fine was imposed at the end of April by DIFC's regulator, the Dubai Financial Services Authority (DFSA).
The authority said E*Trade Securities had failed to obtain enough documented proof of the origin of funds, or the sources of clients' wealth.
The DFSA also said E*Trade had failed to implement adequate policies to "address the need to assess the money-laundering risk of its clients".
The company tried to rectify the situation by asking customers to supply more documents, but 1,196 investors failed to do so and their accounts were closed.
"We made a business decision to close the branch in Dubai as the current and projected opportunity does not support the investment required to maintain a local branch," said Susan Hickey, E*Trade's New York-based senior vice-president for corporate communications.
"Our business there represents a very small part of E*Trade's business - fewer than 400 customer accounts. We are working with customers to ensure a smooth transition."
The loss of E*Trade Securities comes at a time of change at DIFC, where last week Abdullah Mohammed Saleh was appointed governor. Meanwhile DIFC Investments, which manages a portfolio of assets owned by the banking and financial services hub, is working on plans to sell off properties.
New York-based E*Trade was founded in 1991 and has 3.1 million customers worldwide.
csimpson@thenational.ae
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
Should late investors consider cryptocurrencies?
Wealth managers recommend late investors to have a balanced portfolio that typically includes traditional assets such as cash, government and corporate bonds, equities, commodities and commercial property.
They do not usually recommend investing in Bitcoin or other cryptocurrencies due to the risk and volatility associated with them.
“It has produced eye-watering returns for some, whereas others have lost substantially as this has all depended purely on timing and when the buy-in was. If someone still has about 20 to 25 years until retirement, there isn’t any need to take such risks,” Rupert Connor of Abacus Financial Consultant says.
He adds that if a person is interested in owning a business or growing a property portfolio to increase their retirement income, this can be encouraged provided they keep in mind the overall risk profile of these assets.
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