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Come One, Come All

Deepak Mehra, Head of Investment Solutions at CBD tells MEA Finance that while already a one trillion-dollar business, Robo advisory is expected to continue growing, especially where backed by established financial institutions, as more consumer segments gain new access to the investment opportunities it can now provide them.

Deepak Mehra, Head of Investment Solutions, Commercial Bank of Dubai

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? 

The number of Robo Advisory platforms has increased across the GCC since its emergence. However, despite this impressive growth in less than a decade, challenges exist for new entrants, especially for standalone robo-advisors.

Robo advisory platforms backed by investment firms or banks are predicted to grow much faster than their “pure” robo-counterparts as investors feel safe, knowing that their money is being managed by a well-established and reputed investment firm or bank.

What is your view of digital financial advisory and the role it plays in managing portfolios? 

Digital technology has taken the financial services industry by storm and continues to drive waves of disruption that have fundamentally changed how financial services, including investments, are provided and consumed.

While there is a wide range of technology trends impacting the financial industry, from blockchain to artificial intelligence, I think Robo-advisory solutions will be one of the main drivers of this financial disruption. It is already a trillion-dollar industry and is growing significantly.

Robo-advisory platforms play a significant role in managing portfolios. The robo-advisors design the portfolios based on the customer’s specific goals, risk appetite and investment time horizon. They are then actively monitored and optimised based on changing market conditions to deliver the best possible performance over the long term.

CBD Investr App algorithms have been extensively back tested using real market data over the past ten years and have consistently outperformed market benchmarks over the same period.

The High Growth portfolio, which allocates 100% of the investment to equities, has returned over 12% per annum on average over the past ten years. The average annual performance of the four risk profiles from 2011-2020 is Conservative at 4.9%, Balanced at 8.2%, Growth At 11.3%, and High Growth at 12.2%.

It is also important to highlight that if you look at past data, even in the best-performing years, markets crash at some point in time and eventually recover. Through the back tested data, we have empirical evidence that when markets fall, the CBD Investr portfolios tend to fall less and when markets rise, the algorithms try to capitalize and capture the full returns.

Can Robo Advisory practically cater for more than just the HNWI and mass affluent sectors of society? 

Wealth management solutions have traditionally been accessible only to a small segment of consumers. A large majority were unable to receive personalized services or the best risk-adjusted returns.

Automation has significantly changed that paradigm. Robo advisors can offer a highly sophisticated solution at a reasonably low threshold due to a fully digital and straight-through process that does not require manual intervention. The portfolios are optimized to deliver the best possible risk-adjusted returns investing in global markets across asset classes and are suitable for all investors.

At CBD, we have many customers across all segments already investing in the app: from high-net-worth private banking customers who invest lump-sums from time to time to young customers who have just started their careers, investing on a regular basis when they receive their salaries.

Since the app allows customers to invest and withdraw at their convenience, without any lock-in period or withdrawal penalties, it has made goal-based investing easy and accessible to a wide segment of the market. The best part is that customers can start investing with just $500 and withdraw at any time.

What impact has the development of Robo Advisory had on asset management and banking businesses? 

Robo advisors have democratized the wealth management industry.

By providing customers with easy access to globally diversified and personalized portfolios of stocks, bonds and other asset classes at a low investment entry-level, banks are able to attract a large number of new investment customers.

Where particularly do Robo Advisors have advantages over human advisors, and visa-versa? 

Robo-advisory platforms make investment services available to both wealthy customers and those with smaller investment portfolios. This is achievable because robo-advisors are built with a low-cost framework. Hence, with the emergence of robo-advisors, a new low-budget investor class has emerged, which traditional investment advisors have not previously served.

Moreover, robo-advisors provide an easy and simple account opening process, offer constant monitoring and automated rebalancing, and are available 24 hours a day, seven days a week. Customers can access their accounts at any time of the day and view their transactions and balance.

Overall, a robo-advisor can be an excellent choice to manage investments, especially if the investor is new to the market and has just started their journey and their needs are simple and straightforward. As investors’ needs become more complex and require detailed expertise, it makes sense to consult a financial advisor to help them optimize the situation and get the best advice.