One firm’s mission to introduce passive investing to the masses
SARWA WANTS TO MAKE INVESTING TRANSPARENT AND LOWER THE COST OF WEALTH MANAGEMENT
Sarwa Digital Wealth Limited
Around the globe, startups are increasingly attempting to demystify the world of investing: Removing acronyms, jargon, and, ultimately, avaricious middlemen.
Simultaneously, investors’ money is increasingly flowing out of active funds where traders pick stocks, and in to passive funds which follow the general performance of the market, the preferred approach of legendary business magnate Warren Buffett.
Now, one company based out of the Dubai International Financial Centre (DIFC) financial technology (fintech) hub is looking to marry these trends for investors in the UAE.
Sarwa is a digital investment advisory firm that claims to combine transparent, low-cost wealth management services with the philosophy of passive investing and cutting edge technology.
It is part of a wave of roboadvice platforms, which recommend portfolios of cheap passive funds to investors based on their risk appetite, that has swept Europe and North America in recent years. In essence, the platform is entirely automated: An investor puts his or her money in, and the service’s algorithm decides which funds to invest in, devoid of emotion or bias. Sarwa then offers human advisers too, for investors who prefer to have a human touch.
“In 2016, we noticed that in North America people had access to really good investment solutions. Through an app and within a few clicks you were able to get expert advice, and with very low account minimums,” says cofounder and CEO Mark Chahwan.
An account minimum refers to the amount of money a person is required to hold in their investment account. According to Chahwan, the account minimum for Sarwa is $2,500 (Dh9,181).
“Meanwhile, in the Middle East, you had nothing close to that,” he continues. “It was still brokerage, high fees, and commission-based traditional advisers.” Realising that he and his network of friends and contacts had what it takes to build a new kind of product for the Middle East, Chahwan set about designing Sarwa.
“We needed a good set of exchange-traded funds (ETFs), tailored to a personal risk profile and a human element to educate people around investing,” he said.
An ETF is a type of passive investment, designed to track the market, not beat it.
“All the research points to the fact that passive is really the way to go,” Chahwan said.
Better returns
In the first half of 2017, $500 billion flowed out of active and into passive funds, according to Bloomberg. Many analysts say that passive investing is far more likely to provide better returns than active investing. “Ninety per cent of traders will fail to hit their benchmark,” says Chahwan of active investors.
Enter Danny Jabbour, the company’s head of wealth advisory, and an ex-banker who worked for the likes of UBS and Merrill Lynch in the US, before moving to Dubai to join the start-up.
Jabbour’s belief about the future of wealth management being dominated by passive investing and robo-advisers aligned closely with Sarwa’s philosophy.
“I saw how such services were just taking the market by storm in North America and I couldn’t believe how starved the region is for options, and how no one had implemented this yet,” he said. ■
That is, until he saw how excruciatingly difficult it was to get regulated as a financial advisory firm in the UAE.
Nevertheless, by applying for the DIFC Fintech Hive, and being selected as one of 11 start-ups to gain a place at the hub, the company was able to overcome the regulatory hurdles, and received its licence in November 2017.
“I feel every day we get so much amazing feedback, because people were just waiting for something like this to come. People who weren’t able to hit the high minimums from traditional brokerages, are forced and funnelled into the schemes of savings plans and insurance plans,” Jabbour said. “We wanted to offer a product that was completely transparent, and just a good-feeling product for clients,” he added.
Since launch, Jabbour has acted as the face of Sarwa’s advisory services.
The company says that some investors are perfectly happy to place their money on the platform, and let it run its course, while others have more questions and need greater amounts of human interaction.
Currently, Sarwa has around 1,000 users, not all of whom have invested yet.