The following commentary is an edited version of a speech by Douglas Clark Johnson, CEO and chief investment strategist at Calyx Financial in New York, at the World Islamic Funds Conference in Dubai.

The Islamic banking business is poised to move ôbeyond the transactionö as it wrestles with unprecedented growth. It is fast evolving from a niche within the global banking system to what may become û in the next generation û a track parallel to conventional financial services. Certainly the wealth management business will factor into this transition, as wealth advisors partner with Islamic investors for the benefit of their underlying investment portfolios.

Recent momentum in issuance of sukuk (aka Islamic bonds), following some suspension in activity related to the subprime crisis, is fully consistent with what youÆd expect from a young industry. Such bond-like issuance is an early-stage activity, along with project finance and real-estate development, that provides generous transaction income for many players in the business. I believe this focus will change as the industry matures and looks to stabilise its revenue flows with income based on relationships, such as fee-based wealth and asset management.

The Islamic industry has yet to focus on wealth and asset management, in my view, because wealth management requires better segmentation of the individual-investor client base, and asset management demands more forthright product ideas. Neither of these requisites is broadly in place within the Islamic banking industry at this time.

If anything, the need for these disciplines has been masked by unprecedented growth in savings surpluses in both Southeast Asia and the Middle East. This relative lack of attention to date for wealth and asset management creates opportunities for profitable business-line growth among both established and newly formed sharia-compliant institutions.

This is familiar territory for anyone with broad industry experience. Yet bringing an Islamic wealth/asset management nexus to fruition does require sharia-compliant organisations to think in terms of ôsolutionsö rather than to simply push product. I find it ironic that the notion of providing investment funds to (1) fulfil global diversification parameters and (2) implement asset allocation decisions, currently seems foreign to an Islamic world that is steeped in traditions of research and debate.

Islamic private banking û the pairing of wealth and asset management û can readily expand beyond the early localisation weÆve seen in the Gulf and Southeast Asia. An effective approach will include ways to bolster international distribution, launch globally oriented products, and enhance multilateral credibility. Certainly thereÆs more to Islamic private banking than a retail network, a small set of me-too funds, and a sharia label. The faster the Islamic industry embraces globalisation, the more apparent the commercial opportunity will become, as Islamic bankers aim to compete with the conventional names on price, pedigree, and performance.

I do acknowledge that innovation is not always commercially expedient. Many organisations will find it beneficial to offer common products to meet market expectations. For context, IÆm reminded of my recent visit to a gift shop in Gujarat, India, with a placard boasting of its ôunique handicraft itemsö. After surveying the store, I remarked to the shopkeeper that many of his products could be purchased all over South Asia. His poised reply: ôSome things simply have a high commercial value in our merchandise inventory.ö

One missing ingredient needed for the development of a true Islamic private banking industry encompasses preparation of investment-strategy insights and portfolio analytics. Granted, high growth has obscured the need for such research. But I challenge any firm aspiring to make an impact on this sector to start addressing issues like mean-variance optimisation, home-market bias, and global allocation strategies in an Islamic context. IÆve never seen such work broadly disseminated, let alone debated.

An effective private-banking business is research-based and market-responsive. Certainly the ability to provide a portfolio-planning process will help to ensure stability and growth within a firmÆs client base. Most conventional firms have a seven-step process for setting up the portfolios of high-net-worth clients, addressing areas such as identifying investment objectives and time horizon, determining the appropriate asset mix, and choosing specific vehicles for implementation. These analyses should not be dismissed as mere ôsales noise.ö Ascertaining expectations about changing wealth circumstances, as well as shifts in the global economy and market landscape, help to ensure a vibrant client dialogue û and the fees that come with it.

Building this advisory role does suffer from a ôchicken versus eggö problem. While Islamic wealth management is an increasingly attractive business, the industry cannot reach high-impact activity without a broader array of products. Yet the ability to increase the breadth and depth of the product universe is held back by weak demand from underdeveloped Islamic wealth management.

The cultivation, and communication, of a sophisticated analytical perspective has the potential to drive both product-development and client-acquisition strategies. But this requires staff professionals who are forward thinking and aggressive. Questions that come to mind today range from the portfolio impact of an oil-induced inflationary spiral; to the currency impact of a potential dollar rally; to a decoupling (or re-coupling) of the emerging markets to the US economy. Depending on where the talent lies within an organisation, firms may opt to position product-development staff in either the asset management or the wealth management areas.

IÆll end my thoughts with a call to action for the Islamic finance industry overall. We need more strategic (or rational) and less tactical (or emotional) approaches to building a private banking enterprise. One key step is for Islamic banks to fund larger research budgets: not as a cost centre, but as a way to contribute to firm-wide profits. Another might be to create true marketing departments, with sales as a sub-group rather than vice-versa. Still another might be to offer an increasingly wide range of innovative û but not controversial û Islamic investment products.

The common thread among these suggestions is the imposition of professional discipline, whether analytically-based, organisationally-based, or product-development-based. In my view, such discipline is the route to long-term success in the Islamic banking industry.