MENA ripe for digital wealth management
Around 45% of the total wealth in the Middle East and North Africa region, is held in cash, which is a very high percentage by any standard.
This goes to show that there is a huge amount of money sitting idly and not generating any returns for investors.
There was a gap in the market for available local platforms to help facilitate the digital investing of cash easily and effectively, without having to turn to international platforms, which can result in higher fees.
But thanks to advanced technologies, digital wealth management has become more accessible and more affordable.
And technology has enabled traditional market analysis to incorporate more real-time variables. Such efficiency can optimize hundreds or even thousands of portfolios within seconds, improving results that humans cannot physically accomplish.
However, with digital wealth management, the sophistication is kept behind the scenes, leaving things simple for the end-user.
Not involving technology to manage investments may turn out to be even more costly than the alternative. There is also the issue of fees and other costs when discussing digital management of assets. Anyone going into the bigger private banks, the financial planners, and wealth managers, typically face a higher minimum to invest and large fees to pay (withdrawal fees, management fees, entry fees, etc.).
In that sense, digital wealth managers are largely able to charge lower cost for these improved features and experience due to the efficiencies the technology creates.
To better explain it, a traditional advisor would charge more, resulting in the return on the investment plan being up to a third lower than if you were to invest money with a digital wealth manager.
And with digital wealth management platforms, the client can enjoy direct access to markets, and the technology creates more efficiencies that result in significant operational cost savings.
Low, or sometimes even zero, investment minimums also mean that more people can now afford to invest their money, which is another reason why these investment platforms will soon be the new standard investment tool.
With the advancement of technology, the ease of managing one’s wealth digitally, is changing the concept in this region. People can invest their wealth in a new fashion without having to go through the hassle of traditional tools, or higher fees.
Fees play a very important role while selecting the platform to invest. In the long run, paying less fees for a similar sophisticated investment methodology, can lead to higher net returns.
The industry average for digital wealth managers is between 0.5% and 1% per annum. Other larger asset managers or traditional players, can charge up to 5% p.a. in addition to other fees, like entry, withdrawal or transaction fees.
Some digital platforms offer a very competitive management fees structure, like StashAway for example, where management fees structure starts at a certain rate for a set investment, and decreases to as low as 0.2% once the investment crosses a certain number.
A very important note to keep in mind when opting for digital wealth management, is to be careful which platform through which you wish to invest your money. Make sure that the platform is regulated by official authorities, and have a custodial structure in place.
This means that when a customer invests with a digital wealth management platform that is officially regulated, at no point are their funds commingled with that of the platform.
So, if you take StashAway as an example, which is regulated by the DFSA, when a deposit is made, it goes to a customer Trust account.
Once the funds are invested, the securities are kept at a registered custodian bank.
This means that, in the unlikely situation, if the platform ceases to exist at any point in time, its clients would still have a claim on their assets through the custodian banks.
Such registered platforms are also not allowed to touch or draw down on their customer’s funds at any point in time.
Below are the main points to look out for when investing with a digital wealth manager:
- As aforementioned, make sure they are regulated by the local authorities
- Ask where your money is held
- Understand the digital wealth manager’s fee structure to avoid paying any hidden fees
- Understand the product they offer. You want to stay away from leveraged products and fund managers who short the market
- Make sure the portfolios are well diversified both on the asset and geographical side
The industry is moving very fast, and we’ve seen that even the banks are becoming more digital and want to offer similar products as the robo-advisors.
Robo-advisors are not just a substitute for traditional wealth managers, they are also redefining how individuals can manage and grow their wealth.
Therefore, it’s imperative for digital wealth managers to keep innovating and provide their clients with the best investment options to complement their “core investment portfolio”.
All players are looking to augment their product offering and are looking at new investment products such as Crypto, ESG or Thematic investing which are of increasing interest to investors.
As for those who are interested in Sharia-compliant solutions, there are options within some platforms, like StashAway, which allow for a Sharia-compliant cash management portfolio with higher yields than those offered by traditional banks.
* Ramzi Khleif is the general manager of StashAway, an award-winning digital wealth management platform. His experience spans over a decade in finance, consulting, private equity, and strategy. Formerly, he was the head of corporate at Careem, consultant with Strategy& (formerly Booz & Co.), and an associate at NBK Capital, a leading private equity firm in Kuwait.
Ramzi holds an MBA from the Wharton School at the University of Pennsylvania, USA and a Bachelor of Commerce with a Major in Finance from McGill University in Montreal, Canada.