While the digital wealth management industry is full of competition, there are few local players in the MENA region that provide the services needed. This provides a large gap in the market to local platforms to rise up and provide investment opportunities, as well as educating people with the cash available to invest in these opportunities.
Ramzi Khleif is General Manager at StashAway MENA, a wealth management platform that recently launched in the MENA region. With over ten years of experience in industries spanning finance, technology and investment, among many others, Ramzi here offers his views on how digital wealth management firms approach the Middle East and North African Market compared to South East Asia.
Since the launch of digital wealth managers, their fundamental goal and mission has been to simplify wealth management services and to provide opportunities for the financial growth of their clients. Even with the fluctuating markets, the prospects are vast, especially when looking at a mature market such as South East Asia (SEA) and developing markets such as the Middle East and North Africa (MENA). The Assets Management market, of which digital wealth advisors are a part of, is projecting significant growth in the coming years. In SEA market expectations are to exceed the USD 3 trillion mark by 2025, and the MENA region is anticipating a total AuM growth to exceed USD 2 trillion by the same year.
If we look at the industry in both SEA and MENA there are many similarities in terms of the pain points customers typically face, as well as the solutions on offer. However, given that the sector in the MENA region is considered to be at an early stage in comparison to SEA, it is still developing a level of maturity in terms of the acceptance of using such services, as well as the limited number of competitors operating in the market.
The ever-growing landscape of digital wealth managers is opening up healthy competition, there are a few local players in MENA and SEA that provide similar services. However, looking closer at the MENA region and for a Robo-advisor such as StashAway (operating in both markets), traditional banks can be considered as the key competitors. The reason being that banks charge incredibly high fees for unsophisticated services and impersonal products, meaning they reduce the wealth accumulation potential significantly.
In the MENA region, around 45% of the total wealth is in cash, 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 huge gap in the market for local platforms to help facilitate investing cash easily and effectively, without having to look to international platforms, which can result in higher fees.
Not only that, the figure shows that there is a lack of accessible platforms that can help educate people on what the benefits are, and the best way to manage and invest funds. Many might have long term financial goals that they want to achieve such as retirement, purchasing a house or even have funds ready to send their child to higher education. In addition, it is clear that many in MENA are still saving traditionally, parking money into bank accounts as a way of saving, but people need to understand saving is only the first step, and investing is what will enable people to achieve their financial goals.
Robo-advisors tend to use sophisticated investment models that that would otherwise not be available to the average investor, such as the strategy adopted by StashAway – ERAA (Economic Regime-based Asset Allocation) which simply enhances the Modern Portfolio Theory (MPT, a Nobel Prize-winning theory) by addressing external economic forces, which ultimately drives asset class’ returns, volatility, and correlations. ERAA’s three pillars, Economic Regimes Determine Asset Allocation, Risk Shield, and Valuation Gaps, together with deliver a macroeconomic portfolio management strategy that minimises risk and maximises returns for personalised portfolios across any economic environment.
With the opportunity and appetite for the sector in the MENA region and the current size of cash deposits, there is huge growth anticipated. In the coming years, you can expect more players to enter the market who will play a pivotal role in pushing and supporting the Fintech industry as a whole. In addition, the regulations are developing and opening up, making it more accessible to have such models active in the region. Both the Central bank and Dubai Financial Services Authority (DFSA) are exploring new ways to enhance and facilitate such operations. Digital Wealth Management in the region is very much here to stay.