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Rise of the robo-advisers

Younger investors are happy to track their portfolios on their phones Unsplash
Younger investors are happy to track their portfolios on their phones

The number of robo-advisers is set to increase dramatically in the next three years, according to MENA independent financial advisers and wealth managers surveyed by Oxford Risk.

The behavioural finance company interviewed 100 advisers across Egypt, Kuwait, Oman, Qatar, Saudi Arabia, the UAE and Bahrain who collectively manage assets of around $290 billion – with one in three predicting a big rise in the number of digital-only solutions available to investors by 2025.

The coronavirus pandemic was cited as a key driver of the trend, with 68 percent of respondents saying it had accelerated the technology revolution in the MENA wealth management sector. 

Greg Davies, head of behavioural finance at Oxford Risk, told AGBI: “People are becoming increasingly comfortable in using technology to manage their money and investments.

“Second, the regulatory environment for wealth managers is becoming much more sophisticated and wealth managers need to become better at illustrating the reasons for their recommendations for clients and to ensure that they have a good understanding of their risk profiles and needs. Technology and robo-advice have an important role to play here.

“Third, clients are becoming much more demanding in terms of the services they want from their wealth advisers – and the only way to meet these is to embrace technology more.”

Davies added that the number of mass affluent individuals (sometimes defined as a person with liquid assets of more than $100,000) and high net worth individuals (liquid assets of more than $1 million) in the MENA region was “increasing dramatically and to capitalise on this opportunity wealth managers need to embrace technology more. This is especially true for younger mass affluents and HNWIs.” 

Michele Ferrario, co-founder and chief executive of digital wealth manager StashAway, told a MENA robo-adviser webinar on May 18: “Ten years from now, people will spend less time with human financial advisers. Robo-advisory tools enable people with less financial literacy to get access to professionally managed investment platforms.”

Robo-advisers are already proving popular among the wealthy in the Middle East, he told the webinar, which was organised by Bahrain-based FinTech Robos. StashAway has found that 20 percent of its assets in the region derive from high net worth individuals. 

“We initially thought we would target mass-affluent individuals,” said Ferrario. 

“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.”

Also speaking at the webinar, Marie Briere, head of the investor research centre at Europe’s biggest asset manager Amundi, highlighted three advantages to using a robo-adviser: accessibility, customisation of an individual investor’s needs and transparency on fees. 

“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,” she said.