Islamic wealth management is a stepchild of Islamic finance. While other Islamic finance sectors grew substantially (deposits, Sukuk, consumer finance), Islamic finance rarely allocated resources to Islamic wealth management. Despite this, individual efforts and unique stories have emerged in the landscape of Islamic finance around the world. We review these here.
Review of 2020
There were no events during 2020 indicating any significant shift in Islamic wealth management.
In June 2020, robo-advisor Wahed (New York) received a US$25 million equity investment from Saudi Aramco Entrepreneurship Ventures and small regional venture capital firms. The capital will be used to expand Wahed’s footprint in various jurisdictions, including the US, the UK and Malaysia.
Another robo-advisor, Aghaz Investments (Seattle), is beta-testing its new platform, obtaining Shariah compliance and finishing regulatory approvals. An angel US$400,000 round was finished in August 2020, with further rounds planned. Aghaz could prove a powerful onshore competitor when fully launched.
The only other Islamic robo-advisor is ShariaPortfolio (Florida). Its business and client volumes are unknown. Founded in 2014, ShariaPortfolio can claim to be the oldest Islamic robo-advisor on the continent. Two other Islamic wealth management entities are Azzad Asset Management (Virginia) and Canadian Islamic Wealth (Manitoba). While Azzad has a robust business, expanding assets under management (AuM) and a long history, little is known of the Canadian counterpart.
Islamic wealth management barely registers in Switzerland. Safa Investment Services, the world’s pioneer in global, multi-asset Shariah investing, was put into liquidation during the coronavirus crisis, but will reopen in January 2021.
Lombard Odier delivers Islamic wealth management, but limited to UAE clients. In January 2020, a spokesman stated Middle Eastern clients now comprise 10% of the bank’s US$300 billion AuM, a fast-growing ‘new market’ segment. Given its legendary reputation, this segment may catapult the bank’s Shariah compliant AuM. In July 2020, QNB Suisse, the Geneva representative of the Doha bank, began seeking an Islamic wealth management capability. The bank appears to be poised to initiate this segment in 2021.
Three UK banks — Al Rayan, BLME and Gatehouse — made no Islamic wealth management announcements. The long-standing retail units of Merlyn Wealth Management and TAM Asset Management continue to offer Islamic wealth management. Kestri, a new robo-advisor with bank-like features, launched a partially functional mobile app (Shariah compliance is not overt). It may give Wahed a run for its money in the UK market.
Asia and Australia
Crescent Wealth (Melbourne) remains the Australian champion, with AU$260 million (US$190.75 million)-worth of AuM. Bank Brunei Islam launched Islamic wealth management in 2019 and substantially improved its online Islamic wealth management image, but remains restricted to larger-volume clients.
Pragmatic Wealth Management (Mumbai) is perhaps the sole equity services provider in India with a dedicated Islamic offering.
In Malaysia, the venerable Malaysian Financial Planning Council continues to promote Islamic wealth management, including an August 2020 event, but Malaysian banks maintain a low Islamic wealth management profile.
Singapore’s Financial Alliance, founded in the mid-1990s, is the sole provider of Islamic wealth planning in the city state, after the long-ceased operations of Islamic Bank of Asia.
Saudi Arabia and the Gulf
Islamic wealth management’s relative absence in Saudi and Gulf markets remains puzzling. Most offerings appear as add-ons to retail banking (eg QIB, Bank Nizwa). Other candidates (Masraf Al Rayan, Sharjah Islamic Bank) have no Islamic wealth management whatsoever.
Abu Dhabi Islamic Bank (ADIB) is one of the few with visible Islamic wealth management services, but digging deeper indicates mostly a mutual fund referral service. The unit contributes a small portion of ADIB earnings and, perhaps oddly, won a ‘Best Islamic Wealth Management’ award in 2020.
None of the Saudi banks increased or improved Islamic wealth management visibility during 2020. Only non-bank Jadwa, which launched its global Shariah portfolio service in 2019, has a credible Islamic wealth management unit, now thought to have passed US$750 million in 2020. However, it appears these services are limited to a minimum US$26 million account size.
Preview of 2021
2021 may end up like 2020, meaning little Islamic wealth management development worldwide. But, like COVID-19 in 2020, surprises abound.
Robo-advisory continues to gain attention as part of fintech. But this service remains unproven. Traditional wealth management continues to rule the vast majority of AuM. The aforementioned Shariah robo-units do have potential to change this landscape in 2021. Many eyes will be focused on their success or failure. At the same time, 2021 may be the breakthrough year where conventional managers focus on Muslim wealth. A number of major wealth management institutions appear to be preparing for new Islamic wealth management units in the new year.
Non-bank financial intermediation is key to the efficient movement of capital. Mutual funds are the favored entry point for family or individual savings. The mutual fund AuM to GDP link is a bellwether for wealth management. And economies increase efficiency when fund AuM increase as a percentage of GDP. In an advanced economy like the US, it is almost 120%. In less-developed economies it is lower, eg Brazil (60%) and Malaysia (48%). Saudi Arabia registers 4%, indicating low penetration in this potential key market for Islamic wealth management.
The combined AuM of all Islamic wealth management units mentioned previously barely pass US$1 billion, with the bulk in just two managers. If fund numbers and volumes are an indicator of wealth management, Shariah compliant investment products are a tiny fraction of their conventional peers. Islamic finance policymakers should take note, and perhaps close the wide gap in financial services that this indicates.
Dr John A Sandwick is the general manager of Safa Investment Services. He can be contacted at [email protected]