June 6, 2017 / 12:16 PM / in 6 months

Robo-adviser Wahed targets Muslim investors in U.S. and beyond

SYDNEY (Reuters) - New York-based Wahed Invest will offer its automated investment services across the United States after raising $5 million in seed capital, making it the first robo-adviser to cater to Muslim investors through a sharia-compliant platform, its founder said.

A computer shows the Wahed Invest robo-adviser that caters to Muslim investors. Courtesy Wahed Invest/Handout via REUTERS

The firm raised the funds from Gulf-based investors and hopes success at home will allow it to eventually expand to Europe and the Middle East, chief executive Junaid Wahedna said in an interview.

Wahed joins a number of wealth management firms building robo-advisers, a market initially developed by startups such as Wealthfront and Betterment, to tap affluent but not necessarily very wealthy customers.

The scene is now crowded, with large firms including Charles Schwab Corp SCHW.N, Bank of America Corp BAC.N and Vanguard joining the fray.

But Wahed hopes to claim a slice of the market by catering to Muslims seeking religiously permissible investments, which are either scarce or costly in most Western markets.

“Through our research we found that they either keep their savings in cash or in real estate, there is literally no diversification. The Muslim demographic ends up losing out.”

Wahed has 21 full-time staff and its plans include developing a range of exchange-traded funds. It now has registered users across 48 U.S. states, Wahedna said.

“Around 10 percent of our clients are coming from existing robo-advisers, but 90 percent are not. Many are first-time investors or come from old-school advisory products.”

Its initial focus will be the United States with scope for trials in Britain and the United Arab Emirates to follow, Wahedna added.

Islamic investment products use filters to adhere to religious guidelines such as bans on tobacco, alcohol and gambling, in much the same way as socially responsible funds.

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Muslims represent a geographically-diverse but affluent population in the United States which means means they can be difficult to reach via traditional branch networks but appeal to robo-advisers, said Wahedna.

The company estimates there are around four million Muslims across the U.S., with two-thirds earning more than $50,000 a year and a quarter earning more than $100,000 a year.

Until now, however, their choices for sharia-compliant investments have been limited, especially compared to markets such as Malaysia and Saudi Arabia where Islamic wealth management is commonplace.

Another element is cost, since robo-advisers typically use computer algorithms to create and manage portfolios made up of low-cost financial products.

In the case of Wahed, its annual management fee ranges from 0.29 percent to 0.99 percent. This is comparable to other robo-advisers but lower than the fees charged by most Islamic mutual funds.

Reporting by Bernardo Vizcaino; Editing by Eric Meijer

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