The advent of robo-advisers in the Middle East and North Africa region has encouraged savings, improved investor decisions, democratised investing and promoted financial inclusion, according to experts speaking at a personal finance webinar on Wednesday.
“Ten years from now, people will spend less time with human financial advisers,” Michele Ferrario, co-founder and chief executive of digital wealth manager StashAway, told the Robo Advisers and Mass Affluent Savings in Mena webinar, which was organised by Bahrain-based FinTech Robos.
“Robo-advisory tools enable people with less financial literacy to get access to professionally managed investment platforms.”
Robo-advisers are digital investment platforms that calculate an investor’s risk tolerance based on a series of questions. Using automated algorithms, they then assign investors a tailored investment portfolio of exchange-traded funds or index funds. Typically, they charge lower fees compared with traditional financial advisers and wealth managers.
While the US is the leading market for robo-advisers, they are growing in popularity around the world, the World Bank said in a 2019 report.
“Emerging economies have also witnessed the emergence of their own robo-advisers. For example, the number of robo-advisers is growing fast in Asia, driven by an emerging middle class and high technological connectivity,” the Washington-based lender said in the report.
In the US alone, the World Bank projects the robo-advisory sector to grow at an average annual rate of 31 per cent to reach about $1.5 trillion by 2023 from more than $400 billion in 2018.
There are three advantages to using a robo-advisory service: accessibility, customisation of an individual investor's needs and transparency on fees, according to Marie Briere, head of the investor research centre at Europe’s biggest asset manager Amundi.
“Individuals are not well-equipped to take complex financial decisions because of many biases, under-diversified holdings and limited time and attention to dedicate to their portfolio,” Ms Briere said. “People with low financial literacy are more subject to biases.”
However, robo-advisers cannot entirely replace human financial advisers, said Saad bin Atyan, founder of Saudi Arabia-based FinTech start-up Madhkol.
“There needs to be a human element in investment since people have a high emotional reaction when it comes to managing their finances,” he added.
Robo-advisers have also gained acceptance among the wealthy, with StashAway noticing that 20 per cent of its assets in the region derive from high-net-worth people, Mr Ferrario told the webinar.
“We initially thought we would target mass-affluent individuals,” he added.
“However, people who can afford financial advice have found out that banks charge high fees and have their own interests at heart, rather than the client’s. A lot of wealthy people, especially the younger ones, also prefer to manage finances on their phone rather than meet an adviser.”
Meanwhile, retail investors have little to no access to costly human financial advice and women and young people are often treated with bias by the advisers, Amundi’s Ms Briere said.
Robo-advisory tools democratise financial advise and reduce costs and biases, she added.
Investors have also had difficulty accessing Islamic investment funds, said Omar Shaikh, founder and chief executive of Cocoa Invest, a Bahrain-based Sharia-compliant investment solutions provider.
“We had a huge uptake from first-time investors who were below 35 years and have a digital-first mindset,” Mr Shaikh said. “We have a lot of opportunity since the region has a high proportion of unbanked and those below 35 years in the population. Robo-advisers can help to cater to their financial needs.”
The future of asset management has to be integrated with automation, where humans will provide strategic advice and machines will offer tactical suggestions, according to Mehdi Fichtali, founder and chief executive of digital wealth manager FinaMaze, which is licensed by the Abu Dhabi Global Market.
However, the robo-advisory industry needs to build trust and awareness for better acceptance, the experts said.
“There is nothing more sensitive than managing people’s hard-earned money,” Mr Shaikh said. “FinTechs need to earn that trust. Correct regulation and transparency of information can help build trust.”
Aligning incentives between the client and the robo-advisory company is also core to building trust, said StashAway’s Mr Ferrario.
The only fee robo-advisers earn is the one clients pay them, unlike human financial advisers who also charge high commissions, he added.
Meanwhile, “entrepreneurs are running faster than regulators” and this needs to change, Mr bin Atyan said. “The ecosystem needs to evolve from a regulatory and product perspective.”
Rather than viewing FinTechs as a threat, smart banks will choose to work with them to complement their human advisers, according to Mr Shaikh.
“Banking networks crucially need digital tools for their human advisers. Both models can coexist,” Ms Briere said.
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Who's who in Yemen conflict
Houthis: Iran-backed rebels who occupy Sanaa and run unrecognised government
Yemeni government: Exiled government in Aden led by eight-member Presidential Leadership Council
Southern Transitional Council: Faction in Yemeni government that seeks autonomy for the south
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Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
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ACC 2019: The winners in full
Best Actress Maha Alemi, Sofia
Best Actor Mohamed Dhrif, Weldi
Best Screenplay Meryem Benm’Barek, Sofia
Best Documentary Of Fathers and Sons by Talal Derki
Best Film Yomeddine by Abu Bakr Shawky
Best Director Nadine Labaki, Capernaum
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Name: Back to Games and Boardgame Space
Started: Back to Games (2015); Boardgame Space (Mark Azzam became co-founder in 2017)
Founder: Back to Games (Mr Azzam); Boardgame Space (Mr Azzam and Feras Al Bastaki)
Based: Dubai and Abu Dhabi
Industry: Back to Games (retail); Boardgame Space (wholesale and distribution)
Funding: Back to Games: self-funded by Mr Azzam with Dh1.3 million; Mr Azzam invested Dh250,000 in Boardgame Space
Growth: Back to Games: from 300 products in 2015 to 7,000 in 2019; Boardgame Space: from 34 games in 2017 to 3,500 in 2019
PROFILE OF STARZPLAY
Date started: 2014
Founders: Maaz Sheikh, Danny Bates
Based: Dubai, UAE
Sector: Entertainment/Streaming Video On Demand
Number of employees: 125
Investors/Investment amount: $125 million. Major investors include Starz/Lionsgate, State Street, SEQ and Delta Partners
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