Wealth Management gif
management through the eyes of the client, but what of the service provider? We will now examine our topic from the viewpoint of private banks. After all, as Sandwick said while he was still at Encore Management S.A. “Private banking is the art & science of wealth management”.
Private banks that properly fulfil their duty to their clients will naturally be able to iden- tify and meet those clients’ wealth manage- ment needs. The ideal Islamic private bank will have knowledge of each client’s require- ments, monetary worth, commitments and responsibilities and will therefore be able to offer wealth management prod- ucts appropriate to each individual client or family. This will involve the development of a portfolio that in- cludes asset classes suitable to a particular investor.
As above-mentioned, wealth plan- ning as a family is extremely im- portant to the Islamic investor and a good Islamic private bank will recognise this. The bank will, when creating wealth management solu- tions for a specific client, therefore take into account the client’s chil- dren, retirement plans and future intentions for his or her estate.
As for whether a private bank should serve clients onshore or off- shore, it is an interesting debate. Given that the majority of Islamic finance hubs, and therefore client bases, are based in the Middle East and Asia, but the major fund management centres are in Lux- embourg, and the Channel Islands, offshore funds, to an extent, make sense.
therefore a gap in the market. In this case, the gap needs to be filled by an Islamic fund that can qualify UK-based Islamic investors for tax exemptions under the Individual Sav- ings Account (ISA) scheme.
Despite the dominance of offshore power- houses such as Jersey and Luxembourg, there are some key on-shore centres that can be considered in terms of Islamic wealth management.
These are Saudi Arabia, Malaysia, Kuwait, Indonesia and Bahrain (Birgen, 2009). In
Saudi Arabia is
easily the biggest market;
its investment market size is ap- proximately worth US$40 billion. A
substantial 77% of funds are Shariah- compliant, giving the Islamic investor plen-
ty of options. As the dominant Islamic mar- ket in South-East Asia, Malaysia is also the largest domicile in regards to funds. It hosts 23% of all the funds in the world. Well regu- lated, this Asian country is home to IFSB. Kuwait is an important centre in the GCC region and enjoys 9% of mar- ket share in relation to num- bers of funds
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The market certainly reflects this opinion, with seven Islamic funds being managed from London whilst being promoted in the Muslim world. Designed for clients in Saudi Arabia and the GCC region, the funds’ prices are denominated in dollars and the funds administered from offshore tax havens. One such fund is The HSBC Amanah Global Eq- uity Fund, which is listed in Luxembourg and provides exposure to top companies on a global scale (Wilson, 2010).
However, as far as offshore is concerned, private banks will find they are not able to tap into the large potential market amongst British-based Muslims, as UK residents are vulnerable to potential tax liabilities on both income and capital gains.
This means they therefore cannot take ad- vantage of offshore funds. As with many ar- eas of Islamic wealth management, there is
terms of assets, Saudi Arabia is easily the biggest market; its investment market size is approximately worth US$40 billion.
A substantial 77% of funds are Shariah-com- pliant, giving the Islamic investor plenty of options. As the dominant Islamic market in South-East Asia, Malaysia is also the largest domicile in regards to funds. It hosts 23% of all the funds in the world.
Well regulated, this Asian country is home
to IFSB. Kuwait is an important centre in the GCC region and enjoys 9% of market share in relation to numbers of funds. Although Indonesia continues to develop its Islamic finance industry, it also needs to further de- velop its investment culture in order to really fulfil its rich potential as an Islamic onshore hub. Like Malaysia, however, its market is well regulated.
Bahrain, the biggest international domicile for Islamic funds, has 6% of its funds do-
miciled and is well regulated. Currently, the Middle Eastern Islamic finance hub is home to 100 funds; figures of US$9 billion by 2012 are presently being projected.
The Issues Ahead
The issue confining Islamic wealth manage- ment to such a tight corner of Islamic finance, itself a niche market, is not lack of demand or interest on the part of would-be clients. Conversely, the challenges lie with lack of supply. If Islamic wealth management is to become a formalised force, the amount and variety of suitable, truly Shariah-compliant assets must both be increased. Gaps in the market must be filled with products that are not only competitive but adherent to Islamic principle.
Service providers must also have a wider outlook than even this, given the importance of both the family and philanthropy. These two mat- ters must play a part in the wealth management strategy of any client and therefore must also be prior- itised in the strategies of wealth management service providers.
Furthermore, onshore and offshore options alike must be developed and diversified to tap into the poten- tial Islamic market for wealth man- agement not just in one country, or one global region, but worldwide.
Additional Reading:
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If these issues can be addressed, then it will prove to clients that they are not the only ones taking Islamic wealth management seriously-the whole of the Islamic finance indus- try is as well.
Ismail, S (2010), ‘Preparing an Islamic Inherit- ance Strategy in Light of the Inheritance Taxa- tion Laws of England & Wales’, 1st Ethical Ltd.
Malik, T (2008), ‘Experts push alternative as- set classes’, Arabian Business
Abu Bakar, D (2008), ‘More Islamic ETFs in the Works’, Islamic Finance Asia
Comments by Sandwick, J A (2002), ‘Islamic Private Banking’, Encore Management S.A. Geneva, Switzerland
Wilson, R (2010), ‘Islamic Investment Products Available in the United Kingdom’, Institute of Islamic Banking and Insurance
Birgen, G (2009), ‘Islamic Finance and Islamic Funds’, HSBC Securities Services
2010 June GlobalIslamic Finance 21
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