10 minute read
Evolution in Action
The new financial landscape is pushing banks to digitise faster and Mark Chahwan Co-founder and CEO, Sarwa expects to see more Robo-advisory players entering the market with the younger demographics of the region offering growth opportunities
At the beginning of 2022, there were six Robo Advisory platforms operating in GCC– CBD Investr, Derayah Smart, FinaMaze, Haseed Invest, NBK Capital SmartWealth, Sarwa – can we expect to see many more coming online in the near future?
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As you know Sarwa was the first company in the region to receive the Innovation Testing License and to launch the robo-advisory service to young professionals back in February 2018. Today, Sarwa is the fastest growing investment platform with more than 100k users that trust us with their financial journey.
The future of wealth management in the region is changing rapidly alongside Consumer behavior especially with the new narratives that we have seen post pandemic. You see more and more adoption of online financial services and products.
Today’s clients are more mindful of fees, but also want to be in control of the options they have. That is why they are looking for apps that offer low cost, ease of use, intuitive interfaces, and investing options.
Generally speaking, with regulatory precedence and ease of business today, I believe you will continue to see more players penetrating the market. However, it is now about consolidation and offering the right services to the right segment. The expanding young generation of MENA offers many opportunities for growth, as long as companies know how to listen to their clients. Sarwa today for example, went from being only a robo-advisor, to becoming a one-stop-money management and investing platform that has hands-off investing, self-directed trading of stocks, ETFs as well as cryptocurrencies with fractional investing, free local transfers, watchlists, daily and weekly news, access to free education articles and
Mark Chahwan, Co-founder and CEO, Sarwa
videos, free workshops and many more products to come soon.
Let us start with the basics. A big percentage of the population in the region still has their money sitting in savings accounts. While a savings account is good to have as an emergency fund, it is important to also put money to work for you and hedge against inflation. That extra money you have sitting in the bank is losing its value.
Financial advisors are professionals that help you make decisions about what
you should do with your money and how to invest it. In today’s world, it is easy to open an account online and put your money to work for you within minutes. With apps like Sarwa, you also have all the information and the options in one place - you can access free education, through articles on the dos and don’ts, videos, free webinars, and workshop, all free of jargon. Digital financial advisory made smart investing easy, accessible and affordable.
Massive. Traditional banks and wealth advisors failed to cater to a younger segment that is looking for low cost, convenience and practicality. The young generation has a very high mobile penetration and is looking for practicality and convenience above all. You do not want to go drive somewhere, or take a cab, only to wait for hours to get someone
to see you so they can take your money. Today, young professionals use apps for everything in their day-to-day life. Investing should not be any different.
Platforms like Sarwa make it super convenient. It takes a few minutes to answer a few questions, upload a couple of documents, take a selfie and you are all set. Technology can accomplish activities in a few seconds, which otherwise take hours and days, such as flagging anti-money laundering activities, doing the QA for any process you have in place and removing a lot of repetitive work. Before, the overhead and operational costs of traditional advisors was so high.
A big percentage of the industry was built around commissions with lack of transparency. This new landscape pushed companies to digitise faster, to listen to the market and to be more transparent.
Can Robo Advisory practically cater for more than just the HNWI and mass affluent sectors of society?
The use of smart algorithms and financial technology allowed for the democratisation of investing and made it possible for anyone to start their journey towards long term wealth. It used to be that you needed wealth to create more wealth. Now if you have a steady income, and an emergency fund, you can easily start investing. Sarwa caters to everyone: we have clients with $500 and we have clients with $5,000,000. The important thing is for you to start somewhere to build on that, one step at a time.
Robo-advisors generally mix the advantages of low management fees from passive management and the use of technology to lower cost while retaining the benefits of a personalised portfolio that fits the risk tolerance of financial goals of the client. With Robo advisory, you can:
Provide better performance. It removes the human emotion elements of trading that drastically harms the performance of a portfolio and decreases returns over the long run. Investments tend to outperform their investors. One of the reasons being investors tend to panic in downturns, and sell at low prices, and get greedy in upward markets, and buy at high prices. When it should be the opposite.
Provide a faster service, at the client’s convenience: They can sign up from the comfort of their couch and their phone, no time wasted on roads, and paperwork.
Cater to a wider customer base, at a lower cost. You also provide a better experience: clients have access to their own dashboard anytime.
One of the disadvantages of new robo platforms is that you do not have any lock-in periods and exit fees. It is both an advantage and a disadvantage. You can withdraw at any point in time, which can be a bad thing to do if you have not reached your goals. With traditional advisors, you pay exit fees and penalties, which can protect you from yourself sometimes.
That said, it does not have to be an either-or answer. It is not about completely removing the human element, but about making it more efficient, and more cost effective.
Relationships building is still important. In today’s world, you still need both, that is why we at Sarwa have a hybrid model – technology to optimise and be more efficient; the human touch because we are human after all, and our clients need to know we are there. Our clients have the support needed from our customer excellence team right in their hands.
Ultimately it is about doing what is best for our clients and our community, which is the only way to succeed as a business.
IBM AI powered autonomous lab
A Symbiotic Relationship
Anthony Butler Chief Technology Officer, IBM Middle East and Africa provides a clear assessment of how Robo Advisory could bring more investors into the market, even benefiting human investment professionals and creating opportunities benefiting all players
At the beginning of 2022, several new Robo Advisory platforms were launched in GCC, can we expect to see many more coming online in the near future?
The first robo-advisors appeared in 2010 and the market has grown rapidly in recent years. We are seeing new products enter the market that are increasingly sophisticated or targeting different segments of the market. For example, robo-advisors targeting people interested in Islamic finance or ESG-focused investing are an example of how these platforms will segment the market; we will also see increasingly sophisticated use of artificial intelligence and machine learning as both these technologies and their applications to the financial world continue to evolve. The GCC will not be an exception and I believe that, in particular, the demographics of the Gulf, with its youthful digitally-native population, make it well suited to the adoption of robo advisory technologies.
In general, digital financial advisory can play multiple roles.
Firstly, they can democratise access to financial advice for people who might otherwise not have access to a financial advisor or be able to afford their services. Someone who wants to invest passively today could simply install an app, set some broad investing objectives (such as growth vs income), some risk parameters, and then let the application manage. They don’t need to be able to read a balance sheet or perform technical analysis, yet they are able to invest in a way that is better informed than would be possible normally.
Secondly, these types of technologies can use artificial intelligence to provide investors with a broader and often richer set of insights than would be available if they were to attempt to do this themselves. For example, whilst analysis of company financial performance or share trading histories are widely available, there are an emerging class of insights based on alternative data sources that can help inform investment decisions but are very difficult for ordinary investors to process or get access to. For example, we have been working with different entities in the region to explore how weather data can influence company performance.
Thirdly, these technologies make possible a high degree of automation. A person could, for example, select an investment strategy from a catalogue, crowdsource the strategy, or create their own and have the platform automatically make investment decisions – within defined parameters – based on this strategy. The speed, ability to operate 24x7, and ability to ingest vast amounts of data to form decisions can put these platforms at an advantage to human investors who are time-constrained.
There is an entire section of the market that was not able – for financial or other reasons – to get access to financial advisors and robo-advisors have played an important role in addressing that part of the market.
Whilst there are some pure-play robo advisory platforms, I am also seeing that hybrid approaches are common and offer a richer experience. For example, an investor might choose trading strategies of a set of humandefined offerings and the robo-advisor will then just execute or, as is often the case, the investor will still consult and engage with human advisors in addition to using a robo-advisor to trade within certain narrow parameters.
I am also seeing that there is a continuum of maturity where people may start with robo-advisors as their entry point into investing and then, as they become more sophisticated, their
need for more bespoke advisory services increases. Given they are addressing a market that is often not served by banks or asset managers, it could be argued that deployment of robo-advisors can actually lead to growth in the classic part of the business as a subset of these users graduate to more sophisticated investment products. In this case, rather than replacing the role of financial advisors, robo-advisors could be a useful customer acquisition strategy for these higher value services.
Anthony Butler, Chief Technology Officer, IBM Middle East and Africa
Robo Advisors can monitor multiple markets 24x7, act immediately, and are not swayed by the normal human emotions that can sometimes cloud our judgement. They are digitally-native and therefore can be accessed and used anywhere in the world and at any time. Their trading or investment heuristics are often pre-defined, based on some objective function, or based on a catalogue of trading strategies that a user can choose from. This makes them a much simpler and lower cost way for someone with no investment experience to enter the market.
Human advisors are, unlike robo advisors, better able to understand and build strategies that are far more bespoke and take into account factors that a robo advisor would find it difficult to accommodate. For example, a person’s
family situation, complex tax scenarios, or ethical and other constraints on the types of fund or equity that they will invest in. As robo advisors will typically address a broad market, there are often products, strategies or opportunities that only a human advisor would be aware of or be able to discern. That said, this level of advisory typically comes at a higher price to robo-advisors.
