Stian Over­dahl talks to ex­perts mak­ing low-cost in­vest­ment easy for res­i­dents

The National - News - - BUSINESS MONEY -

Anew wave of dig­i­tal in­vest­ment plat­forms in the UAE aim to pro­vide low-cost op­tions for young pro­fes­sion­als and af­flu­ent clients.

Robo-ad­vis­ers, which gauge an in­vestor’s risk tol­er­ance and as­sign them a tai­lored in­vest­ment port­fo­lio of ex­change-traded funds (ETF), of­fer lower fees than many tra­di­tional in­vest­ment op­tions, plus con­ve­nience – with man­age­ment fees reach­ing as low as around half a per cent.

Sarwa, one of the first robo-ad­vi­sories to launch in the UAE, re­ceived a full op­er­at­ing li­cence in Novem­ber fol­low­ing a phase in Dubai In­ter­na­tional Fi­nan­cial Cen­tre’s sand­box.

The com­pany, which has around 2,700 reg­is­tered users, is look­ing to reach an un­der­served cus­tomer base, with its mis­sion to “democra­tise the whole wealth man­age­ment in­dus­try,” ac­cord­ing to Na­dine Mezher, Sarwa’s chief mar­ket­ing of­fi­cer and a co-founder.

Sarwa, whose man­age­ment fees range from around 0.85 per cent per an­num for ac­count bal­ances un­der Dh183,662 to 0.5 per cent for bal­ances over Dh367,325, de­scribes it­self as a hy­brid robo-ad­vi­sory, with wealth ad­vis­ers avail­able to help over the phone or in per­son if a cus­tomer needs fi­nan­cial plan­ning for spe­cific goals.

“We want to make in­vest­ing easy, sim­ple and ac­ces­si­ble to ev­ery­one, re­gard­less of their net worth,” says Ms Mezher.

One in­vestor is Fran­cois de Klerk, 37, who works in Dubai as a se­nior project man­ager for an IT and se­cu­rity com­pany. At present he is sav­ing 40 per cent of his monthly in­come, a third of which then goes into Sarwa, in a bid to re­tire by 53. Then he wants to buy a cata­ma­ran and sail the world.

“It was al­ways my dream to buy a sail boat, and sail around,” says Mr de Klerk.

To achieve this he is us­ing spend­ing dis­ci­pline – a spread­sheet lay­ing out planned monthly in­com­ings and out­go­ings for the next 13 or so years un­til he re­tires.

Hasan Hei­der, a part­ner at 500 Star­tups, a ven­ture cap­i­tal com­pany which has in­vested in Sarwa, says robo-ad­vis­ers have a “mas­sive op­por­tu­nity” in the Mid­dle East be­cause so much of the ex­ist­ing bank­ing and wealth man­age­ment ef­forts are fo­cused on ul­tra-high net worth and high net worth peo­ple.

“A lot of in­vestors don’t qual­ify for these wealth man­age­ment ser­vices, and it hasn’t been cost ef­fec­tive for banks to re­ally pro­vide those ser­vices to the ‘mass af­flu­ent’ mar­ket,” he says.

An­other robo-ad­viser gain­ing trac­tion in the UAE is Wa­hed In­vest, which was founded in the US in 2012 and of­fers sharia-com­pli­ant in­vest­ment port­fo­lios. The com­pany has fees of 0.99 per cent for ac­count bal­ances from Dh367 up to Dh918,313, and fees of 0.49 per cent on bal­ances greater than this amount.

Chief ex­ec­u­tive, Ju­naid Wa­hedna, says while there is a rel­a­tively young and ma­te­ri­al­is­tic de­mo­graphic in the GCC, which con­trib­utes to “a cul­ture of spend­ing”, the lack of in­vest­ment op­tions for seg­ments such as mil­len­ni­als is also a fac­tor in low sav­ings rates.

“How do you save? You would have to go to a bank and to their wealth man­age­ment depart­ment,” says Mr Wa­hedna.

In the past, res­i­dents turned to banks and fi­nan­cial ad­vi­sory com­pa­nies to top up their pen­sion pots. How­ever, many were mis-sold poor per­form­ing long-term sav­ings and in­vest­ment plans rid­dled with high fees and hid­den charges.

Roughly half of Sarwa’s users, for ex­am­ple, have pre­vi­ous ex­pe­ri­ence with in­vest­ing, says Ms Mezher. Of those who have in­vested be­fore, many have been ac­tive traders, “who po­ten­tially have not seen good gains on their money”.

“A lot of them lost a lot of money be­cause they didn’t have the knowl­edge to do it prop­erly,” she says.

Nev­er­the­less, in­vest­ing via a robo-ad­viser does come with risks: a big drop in the US stock mar­ket or global shares could see your in­vest­ment lose value, though most ex­perts be­lieve that stock mar­kets pro­vide solid re­turns if you stick with your in­vest­ment over the long term.

How­ever, as chal­lenger robo-ad­vis­ers set up shop, tra­di­tional play­ers such as banks and brokerages are also look­ing to get in on the ac­tion.

In Kuwait, NBK Cap­i­tal – a sub­sidiary of the Na­tional Bank of Kuwait – has launched a robo-ad­vi­sory plat­form called Smart Wealth for Kuwaiti res­i­dents.

And rather than rein­vent­ing the wheel, in­cum­bents can use third-party soft­ware so­lu­tions to quickly be­gin of­fer­ing robo-ad­viser and other dig­i­tal in­vest­ment ser­vices.

WeIn­vest, for ex­am­ple, a Sin­ga­pore com­pany that pro­vides dig­i­tal wealth plat­form soft­ware, launched in the UAE last Novem­ber.

Its chief ex­ec­u­tive, Bhaskar Prab­hakara, says while banks in the re­gion are “far be­hind the curve com­pared with the US or even Asia” when it comes to in­vest­ment ser­vices and the tech­nol­ogy to sup­port them, he ex­pects the land­scape will trans­form dra­mat­i­cally in the next 12 to 24 months.

WeIn­vest has al­ready signed a con­tract with one of the largest bro­kers in the re­gion, and is in the process of clos­ing an­other with one of the re­gion’s largest banks, says Mr Prab­hakara.

How­ever, tra­di­tional play­ers such as banks may not com­pete di­rectly with chal­lenger robo-ad­viser com­pa­nies such as Sarwa, given the slim mar­gins that can sup­port a start-up may not be at­trac­tive to banks with far higher costs.

Smart Wealth in Kuwait has higher fees than Sarwa, rang­ing from around 1.5 per cent for lower ac­count bal­ances to 0.7 per cent for the top in­vest­ment ac­counts.

“Banks are very slow to in­no­vate,” says Ms Mezher. “That’s why you have start-ups which are grow­ing so fast, be­cause we are so flex­i­ble.”

Nev­er­the­less, even if there are more ac­ces­si­ble in­vest­ment op­tions, peo­ple them­selves need to make the de­ci­sion, and ef­fort, to save.

When Mr de Klerk first came to Dubai in 2007, he was sav­ing just 5 to 10 per cent of his in­come he says.

Then in 2011 he used his sav­ings to buy a boat he uses recre­ation­ally, go­ing wake­board­ing ev­ery Fri­day – an ex­pe­ri­ence that has made the cost worth­while, he says.

But Mr de Klerk’s ad­vice for young pro­fes­sion­als is to save reg­u­larly, even if it’s just Dh1,000 or Dh2,000 a month.

“You need to start early, that’s what I’ve learnt now,” says Mr de Klerk. “The ear­lier you start the more money you’ll have in the long-term at the end. The later you start the less time you have left.”

An­other in­vestor with Sarwa, Roula Had­dad, who works as an ac­count man­ager at Twit­ter, says for many Arabs sav­ing is not some­thing they learnt about at a young age.

“You have to fig­ure it out on your own, or have peo­ple who are into in­vest­ing, and who have done their own re­search, tell you how to go about it, whether in­vest­ing or sav­ing.”

She says Sarwa ap­peals to peo­ple that don’t know much about sav­ing or in­vest­ing. “It a re­ally easy en­try point be­cause ev­ery­thing is au­to­mated,” she says. “There was al­ways a per­son to talk to which I ap­pre­ci­ated.”

Given the level of au­to­ma­tion on their plat­form, one fi­nan­cial ad­viser can cater to around 500 to 1,000 clients, says Sarwa’s Ms Mezher.

Savers also need to avoid temp­ta­tion. Un­like long-term pen­sion plans, robo-ad­vis­ers typ­i­cally make it easy for in­vestors to with­draw their money, which means savers need to rely on their own willpower not to draw down their sav­ings to fuel short-term spend­ing.

Chris Whi­teoak / The Na­tional

Na­dine Mezher (left) of Sarwa with her co-founders Mark Chah­wan (cen­tre) and Danny Jab­bour

Fran­cois de Klerk

Ju­naid Wa­hedna

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