The growing Muslim population worldwide, coupled with the increasing demand from the same for Shariah-compliant products, is creating a huge opportunity for the development of financial technology (FinTech) in terms of Shariah-compliant investment-related products.
It offers a massive potential for digital investment advisory services providers to tap into the growing needs for robo-advisors in Asia particular the ASEAN markets, which has more than 600 million population.
Although the usage of Shariah-compliant robo-advisors are still in the nascent stage in Asia, but there are already signs for embracing these new FinTech in the market as investors are looking for an alternative platform with lower cost and high-quality services.
Farringdon Group’s CEO Stuart Yeomans said the robo-advisory services can be used at a very low cost and caters for both the common man on the street to the ultra-wealthy.
Malaysia has higher chances of becoming a global hub for Shariah-compliant robo-advisors in the Southeast Asian region, as there is a huge market for Shariah-compliant investment products.
“Somehow, we have a massive legacy here in Kuala Lumpur, such as building software products and coding system. And it is very economical and cheaper,” Yeomans told The ASEAN Post in an interview.
Farringdon Group, which launched Shariah-compliant robo-advisory services in Malaysia on July 10, is also looking at broadening its horizon in the Southeast Asian markets by tapping into the Indonesia market, which has a large quantity of Muslim population as well.
The platform known as Algebra is based on Shariah investment guidelines and uses a Shariah investment strategy that has been approved by Amanie Advisors’ Founder and Group Chairman, Dr Mohd Daud Bakar.
Algebra, which uses Virtual Mutual Fund Technology (VMFT), is charging only 0.85% fee annually with a minimum initial investment of US$4,000.
“Yes, Asia has a lot of potential but we have to see the take up rate here first, before penetrating into newer markets,” he said, adding that the company is also planning to make presence in Middle Eastern and Indian markets.
Assets under management (AUM) managed by robo-advisors in the Asian markets is expected to grow exponentially, with the shift from the traditional advisors.
Consulting firm A.T. Kearney forecasted that AUM by robo-advisors will grow by 68% annually to a whopping US$2.2 trillion by 2020. The robo-advisory services adoption rate is forecasted to grow by 5.6% of the total investment assets using robo-advisory services within the same time period.
Robo-advisory is the next step evolution for asset management and financial advice as it is fully digitalised and priced low. The strategic implication of the emergence of robo-advisory services could be profound with increasing consumer expectation for transparency, low-cost products and digitally agile solution.
Having human financial advisor would restrict the quality of the investment management with room for human error and insufficient analysis as there are possibilities to compromise on investors’ interest.