Modernizing Operations Guide for Saudi Arabian Investment Firms

As the country progresses in accordance with Vision 2030, investment firms in Saudi Arabia must do their part to modernize their operation. Failure to adapt will threaten their ability to remain relevant, competitive, and ultimately profitable.

Since the country’s first discovery of oil in 1938, Saudi Arabia has played an integral role in the world economy.

Acting as an economic lifeblood ever since, oil has allowed the Kingdom a great deal of prestige and influence on the global stage.

In the process, the country has flourished, as rising oil prices have led to rising fortunes. 

Saudi Arabia Wealth and Prosperity

With 224,000 millionaires and 71 billionaires (US dollars), Saudi Arabia is home to many wealthy individuals and families who tie most or part of their fortunes to the “black gold.”

National industry stands out as well. State-run Saudi Aramco is one of the most valuable companies in the world in terms of market capitalization, regularly competing with Apple and Microsoft for the top ranking.

And according to the Sovereign Wealth Fund Institute, the company's investment arm, Saudi Aramco Investment Management Company, manages approximately USD $48 billion (SAR 180 billion) in assets.

The oil and gas revenues make it possible for the government to provide generous subsidies to its citizens for health care, education, energy, and utilities. The state also a history of paying its own citizens, including through the Citizen's Account Program.

And if that's not enough, Crown Prince Mohammed bin Salman Al-Saud (MBS) has even more ambitious plans in store for the Kingdom.

Saudi Vision 2030

Launched in 2016, Saudi Vision 2030 is a government-led initiative to reduce the country's dependence on oil, diversify the economy, and develop its public services sectors (health care, education, infrastructure, recreation, and tourism).

The Vision is built around these three main themes:

  1. A vibrant society - greater urbanism, culture and entertainment, sports, Umrah, UNESCO heritage sites, life expectancy
  2. A thriving economy – gains in employment, women in the workforce, international competitiveness, Public Investment Fund, foreign direct investment, non-oil exports
  3. An ambitious nation – increases in non-oil revenues, government effectiveness, e-government, household savings and income, non-profit organizations, and volunteering

And there are plans for the private sector as well.

Saudi Financial Services Industry Development

As part of the Vision for 2030, Saudi Arabia hedge funds, asset managers, wealth managers, and family offices will be called upon to modernize their approaches, along with the broader range of investment management and financial services providers.

Through the Financial Sector Development Program, the three main areas of progress will be:

  1. enabling financial institutions to support private sector growth
  2. ensuring the formation of an advanced capital market
  3. promoting and enabling financial planning

Financial Technology Growth

Fintech in Saudi Arabia will see a boost of support from Vision 2030.

The Saudi Cabinet approved the Kingdom's financial technology development strategy, focusing on growing the number of fintech players in the country from 90 (in 2022) to 525 by 2030.

The idea is that with more competition in fintech, there will be more services, more innovation, more specialization, and more growth for the sector all around.

Abdulaziz Saja, general manager of Tabby Saudi Arabia, a leading buy now, pay later platform, shared his view:

“If you look at Saudi Arabia today, there are a lot of financial services that require advancement and improvement in consumer experience."

As the competition increases, some have expressed concerns, but others welcome it.

Ali Alhazmi, CEO and founder of OXO E-Shops, a digital commerce platform, shared his opinion:

"Competition is a good thing for the market. Adding new players will be healthy as it makes existing companies fight harder for their market share and deliver the right values for their customers, which will boost the economy.”

Vision 2030 Not Just a 'Nice-to-Have', But a Necessity

Oil is undoubtably important, but the leadership knows too much dependence on a single source of income is not sustainable.

According to an IMF report:

  • oil accounted for roughly 40% of real GDP in recent years
  • revenues from oil averaged 75% of total budget revenues in Saudi Arabia since 2010, with fluctuations as high as 93% in 2011 and low as 53% in 2020 during COVID-19 lockdowns.

While oil still enjoys its dominant place in the world of energy, that may not be the case forever.

Whether its peak oil production or alternative energy sources to replace oil, either of these developments would put the Saudi economy in a rough position if changes aren't made.

And that's why Saudi Vision 2030 exists.

The time to diversify is now while oil revenues remain high, and use the time and funding to develop other sectors of the economy.

Financial Services Talent Shortage

As part of the transformation, the talent must be there to make the transformation happen.

At present, it's not all there.

As reported by Global Finance Magazine, one of the main difficulties shared by all financial sector players in Saudi Arabia is the lack of a qualified workforce in fields like open banking, machine learning, product development, data analytics and software engineering.

“Availability of tech talent” was stated as an obstacle by 82% by one survey conducted by Endeavor and Impact46. Respondents also particularly noted the lack of available managerial talent, as was talent retention.

Investment Firms in Saudi Arabia Must Modernize

In line with Saudi Vision 2030, wealth and asset must think and do things differently.

Modernization one's operation, including the front-, middle-, and back-offices, means doing away with old approaches.

Why Change?

Change is not always easy or fun, especially if things are going well at present.

But that's exactly the point: it's better to prepare now when things are going relatively well, rather than wait several years. By that time, change will be even harder and less enjoyable.

There are many reasons to begin the transformation right now:

  1. Increased competition: The industry is becoming more competitive locally and globally, and Saudi investment firms need to keep up with the latest practices and technologies to stay ahead of the competition.
  2. Changing client expectations: In this digital age, clients are always using smartphones. So, be mobile-friendly.

    They expect investment managers to offer more efficient and convenient services, such as online platforms and mobile apps. Firms that fail to provide such services risk losing their customers to competitors that do.
  3. Compliance requirements: Regulatory requirements are constantly evolving, and firms need to adapt to comply with new regulations. Modernizing their systems and processes can help firms stay compliant and avoid potential fines or other penalties.
  4. Technological advancements: Automation, AI, and blockchain, are transforming the investment industry. Those that fail to incorporate these technologies into their operations will move at a slower pace compared to their competitors.
  5. No guarantee of future oil revenues and subsidies: If a wealth or asset manager in Saudi Arabia has relied heavily on oil investments to fund their business, what will happen to them without an alternative strategy?

    Similarly, subsidies and tax breaks long enjoyed are being cut and phased out. It's a sign that oil won't support Saudi finances forever, and the Kingdom's leadership is serious about increased self-sufficiency.

8 Areas of Opportunity to Modernize for Wealth and Asset Managers

1. Saudi Investment Managers Must Leverage Automation; Stop Relying on Manual Work

Download our Automation Guide

When investment firms in Saudi Arabia have large sums of work to be done, they typically hire a bunch of people to produce the reports and compile the data manually.

It's a time-consuming process that results in a lot of mistakes, and it's additionally time-consuming to go back and the fix errors.

If the workflows are routine and repeatable, it's time to automate those tasks. Check out our Automation Guide and see up to 20 workflows to automate.

One investment firm, Riyad Capital, was able to automate their workflows using Robotic Process Automation (RPA), and they saved 20,000 working hours each year!

2. Adopt Artificial Intelligence (AI)

As machine learning continues to develop, there will be many options when it come to AI for asset management and wealth management.

  1. Portfolio Management: Analyze large volumes of data, including market trends, company financials, and news articles. Machine learning can identify potential investment opportunities and manage portfolios more effectively.
  2. Risk Management: Assess and manage investment risks more effectively by analyzing market activity, economic indicators, and other factors that may impact investment performance.
  3. Trading: Develop and execute trading strategies more effectively by analyzing market data and making trades based on predefined criteria.
  4. Client Servicing: Improve client service by providing personalized investment recommendations, answering client inquiries through chatbots, and offering online financial advice.
  5. Fraud Detection: Detect fraudulent activity by analyzing patterns and identifying anomalies in transaction data and device logins.
  6. Regulatory Compliance: Ensure compliance with regulatory requirements by analyzing data and identifying potential compliance issues.
  7. Research: AI can be used to analyze vast amounts of data to identify emerging trends and investment opportunities, and to conduct more efficient and accurate research.
But Don't Be Dependent on AI

Saudi investment firms should leverage AI as much as possible, but they should not be reliant on it either.

AI won't solve everything, and that's why it's important to remember that AI should be used in conjunction with human expertise and judgment.

3. Move Away from Print; Digitize Everything

The COVID-19 pandemic showed how important it is to work remotely and digitally.

So, don't let the lack of in-person contact stop business from getting done.

Make it easy to do business with anyone, anywhere:

  • Convert paper forms into electronic/digital forms
  • Make use of electronic signatures
  • Store files of all types in a secure cloud-based setup
  • Share online calendars; make it easy for people to set up meetings
  • Meet electronically; allow for video conference calls
  • Produce content and marketing material that is digital-first and mobile-friendly
  • Leverage automation tools for any of these workflows
  • Leverage chat bots wherever appropriate
  • Invest in a well-designed website and make it easy for people to contact the business

Use Fintech and Digital Platforms

Clients want to manage their investments online, including accessing account information, viewing trades, and monitoring their portfolio performance.

Of course, they need a mobile app or web portal to access all of it.

Ideally the more simplified the setup (one place to see everything), the better the client experience and the higher likelihood of client retention.

Wealth and asset managers could build the tech in-house, but that's often a clunky process. It's better to take advantage of what established financial technology services providers have already built.

Along with Vision 2030, there will be more fintech companies in Saudi Arabia that offer a range of services. Additionally, there are global fintech providers that already offer digital tools.

One example is the the TAMP1 platform from Empaxis. It is a cloud-based system that allows wealth and asset managers to see all their information in one spot: portfolios, reports, documents, and data points.

Public Investment Fund Embraces Digital

Keeping with the times, Saudi Arabia's Public Investment Fund launched the National Real Estate Registration Services Co. to digitize and develop the local real estate sector with a comprehensive digital platform.

This will "build a comprehensive digital database of all public, residential, commercial, and agricultural properties across the Kingdom and ensure transparency in the sector."

Saudi family offices and others that invest in real estate will find the platform very useful, as they have reliable data on all the properties, owners, and values.

4. Focus on Data and Analytics

According to this S&P Global Market Intelligence Report, 90% of survey respondents said data will be more important for their organization in the next 12 months or 12 months from now.

And when asked to select all that apply for the most significant benefits their organization would expect from being more data-driven, these were their selections:

  • Improving business agility (56%)
  • Improving/automating business processes (49%)
  • Improving/developing products and services (49%)
  • Increasing sales (44%)
  • Enhancing customer service and engagement (43%)
  • Empowering and aligning internal decision-makers (41%)
  • Increase competitive advantage (40%)
  • Improving regulatory compliance (40%)
  • Reducing risk exposure (39%)
  • Lowering costs (36%)
  • Developing new data monetization services (33%)

Similarly, Saudi investment managers can use data analytics tools to gain insights into client behaviors and investment trends, both of which help them make more informed investment decisions and improve their overall performance.

Focus on Quality Data

But data is only as good as its quality:

  • Make sure the data is clear, clean, and easily accessible
  • Invest in quality data sources
  • Make sure systems are integrated and fields matched to display accurate data
  • Centralize the data into a single hub
  • Refresh old data sets with new ones
  • Designate team members to monitor and maintain the data's quality

5. Watch Spending

Firms with large budgets and cash reserves may be tempted to throw money and bodies at a problem, as seen in the above example.

However, it's an inefficient approach.

Investment companies, when planning their investment strategies, always consider the return on investment (ROI) for their clients. They should also think about the ROI for what they spend on technology and third-party vendors

And as mentioned above, there could come a time when money doesn't flow in like it used to, and it's time to build investing and revenue-generating capacities in other areas.

Even family offices in Saudi Arabia should heed this advice. There is no reason to overspend for anything, whether or not they are a profit-seeking entity.

6. Cybersecurity

When adopting so much technology, always think about cybersecurity.

  • Watch out for scammers and phishing attempts
  • Always work from a secure, password-protected Wifi network
  • Encrypt data
  • Enable multi-factor authentication
  • Change passwords regularly
  • Educate team members; cybersecurity is not just a question for IT

Make sure there is enough budget to account for cybersecurity spending.

On average, financial services firms spend between 6% and 14% of IT budgets on cybersecurity.

7. Outsource to Third Parties; Leverage Offshore Investment Operations Talent

It Is Not Necessary To Import Talent from Abroad

It's a common practice for Saudi banks and financial institutions to bring in skilled labor from other countries. They'll hire large groups of fintech talent as well as middle- and back-office operations specialists, primarily from India.

Now living in the country, the talent will be physically present at the office.

While this hiring practice is common in Saudi Arabia and the Gulf region, it is not the case in other mature financial markets.

When it comes to investment firms in North America and Western Europe, they too follow an outsourced model, but they do not hire the staff to work on-site.

Rather, these outsourced teams will be in a secure facility with secure connections to the environments they're working in. They don't need to move to another country to do the job.

While there are benefits to hiring staff on-site, those are unnecessary expenses in the bigger picture.

Reporting and data management activities do not have to be done from an office in Riyadh or Jeddah. As long as the environments are secure and the outsourced partner gets the work done on time, the work can be done anywhere.

Every household name bank in the world has followed this approach for years. They've managed all the security matters, and there are no signs of them changing course. Certainly, wealth and asset managers in Saudi Arabia can benefit from a similar approach, resting assured their data is secure.

Find a BPO Outsourcing Partner

Make sure to find the right vendor and ask the right questions.

The most cost-effective solution is to work with a qualified middle-office and back-office partner like Empaxis, which actively provides outsourcing services for investment firms in Saudi Arabia.

Empaxis is flexible in its approach. If Saudi wealth and asset managers require their staff to be on-site, Empaxis can send over trained portfolio accounting and automation development specialists to do the job.

8. Transform One's Mindset

Know when to embrace tradition and also when to embrace the future.

Be forward-thinking. Be a visionary for the business:

  • What activities will generate the most revenue and profit?
  • Can larger amounts of work be done with the least amount of input?
  • What are the most cost-efficient ways for doing anything and everything?

Technology is the driving force; take advantage of its benefits.

Imagine if Saudi Arabia decided oil wasn't worth the hassle of extracting or exporting, while other oil-producing nations grow rich. Certainly, losing out on vast fortunes is not a fun thought.

But it was precisely that embrace of change that allowed Saudi Arabia to flourish.

Now imagine if Saudi investment firms decide that new technology and new ways of doing business weren't worth the hassle. Meanwhile, competing firms in the UAE, Singapore, Western Europe, and North America adopt all the best practices.

Never get too comfortable in the old ways of operating; stay ahead of the curve.

With Modernization, The Future Is Bright for Financial Services in Saudi Arabia

Saudi Vision 2030 has been an effective way to encourage development, innovation, and versatility across all economic sectors, including finance and investments.

Visionary thinking is about looking beyond the present. Just because things are ok now doesn't mean it will be that way forever.

The world will be a different place by 2030, and investment managers have to be ready.

That is why they must make full use of data analytics, automation, AI, digital platforms, and outsourced solutions. They should prioritize cybersecurity and put the clients' needs first with digital-first and mobile-friendly solutions, providing a top-notch client experience.

Invest the time and resources into changing now.

Following these steps, wealth and asset managers in Saudi Arabia will not be laggards, but leaders.

As a leading provider of middle-and back-office outsourcing and automation for investment managers in Saudi Arabia and globally, Empaxis Data Management here is to help Saudi investment firms modernize and transform their operation. With nearly two decades of experience, the Empaxis team is proven and trusted in serving clients at a world-class level. Contact us for a free consultation.

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