Halal, is it me you’re looking for? Sharia-compliant robo advisor launches

A core tenet of financial products for savers or investors is that they either generate or charge interest; this presents a problem for Muslims who want to abide by Sharia law, because according to Islamic teachings ‘Riba’ – usury or interest – is forbidden. A new robo advisor now allows them to invest in line with their beliefs.

However, Islamic finance is one of the fastest growing financial services sectors in the UK, with six standalone Islamic banks and 20 conventional banks currently offering Sharia-compliant financial products and services.

To adhere to Sharia principles, savings products offered by the likes of Gatehouse Bank deliver an expected profit rate rather than guaranteed interest; now, Wahed Invest has launched the first Sharia-compliant robo advisor in the UK, offering investors the opportunity to invest in ethically responsible stocks, Islamic bonds called – sukuk – and gold.

There is no requirement to be a Muslim to become a Halal investor, you just need an initial investment of £100 or more;  in common with its peer group, the new platform asks a series of basic questions to gauge whether investing is appropriate to your circumstances

However, in common with other online wealth managers offering ethical or sustainable investments, it is not cheap; those with less than £250,000 invested pay 1.73% on average plus an additional transaction charge.

‘sukuk, are structured so that they generate returns without infringing Islamic law’

To be compliant, shares and dividends are acceptable but speculation is forbidden; sukuk, are structured so that they generate returns without infringing Islamic law, and Wahed Invest offers exposure to these financial assets by serving up six readymade model portfolios that scale up in risk from very conservative to very aggressive.

With confusion remaining regarding the precise definition of what is on offer, Wahed Invest does not deliver ‘advice’ – the investor has to decide which portfolio is appropriate to their ambitions and appetite for risk; the company steers clear of describing itself as a robo advisor, although the ‘robo’ element comes in its white-labelled technology, provided by WealthKernel which provides its suitability test and manages its portfolios.

In announcing its launch a spokesman said: ‘In the UK our investors self-select their own risk profile and we don’t provide any guidance on the most appropriate strategy, as such, we refer to ourselves as an investment platform rather than as a robo-adviser.’

Mohammed Ibrahim Morshed, head of UK at Wahed Invest, said: ‘Our mission is to make Halal investing an accessible and affordable means of long-term saving for the millions of UK Muslims who currently feel excluded from mainstream financial services.

‘For too long, the needs of the community have been overlooked, with many Muslims finding it impossible to build nest eggs that are in line with their faith.’

‘many Muslims finding it impossible to build nest eggs that are in line with their faith’

It currently offers general investment or stocks and shares ISA accounts, but no self invested personal pension as yet; the company has operated in the US since 2015 and has now been authorised by the Financial Conduct Authority in the UK.

Wahed Invest has a familiar sign-up process that would reject you if it considered that investing is not right for you; the online wealth manager says that all securities used in the portfolio selection process are continuously monitored by its ethical review panel to ensure they comply with Sharia requirements.

How much does it cost?

Wahed Invest charges 0.99% admin fee for portfolios of up to £249,999 and 0.49% thereafter; in addition there is an investment charge which averages 0.74%.

Those with less than £250,000 pay a not inconsiderable 1.73% on average, which can rises to 1.87% for the most conservative portfolio; transaction costs are added at 0.05%.

This means that investing through Wahed Invest is far more expensive than investing through other UK robo advisors (see comparison table) which Kareem Tabbaa, chief product officer explains: ‘The Islamic Finance Industry is not as mature as the conventional finance industry, and therefore fund costs tend to be higher due to certain inefficiencies.

‘We have already started taking the steps to redefine this space, starting in the US, by releasing our own Wahed S&P Halal Index funds which have zero management fees, thereby significantly decreasing the costs for our clients. We aim to share that same efficiency globally across our different jurisdictions.’

‘For the avoidance of doubt, the total fee range is between 1.1%  and 1.87% – the lower end of this range is competitive even when compared to conventional providers, but in Islamic Finance is almost unheard of.’

Investment costs average 0.21% on conventional portfolios and 0.54% for those with an ethical slant; its charges reflect the fact that the cost of Halal investments, is significantly more than the conventional shares and bonds, and for non-Muslim seeking to invest in a socially responsible manner, they may find cheaper ways to do so than Sharia-compliant investments.

Wahed Invest is trail blazing by offering a platform that enables Muslims to invest in a way that is aligned to their beliefs, but at a significant premium to the other robo advisors offering ethical portfolios, and with underlying investments necessarily more expensive, it will be interesting to see how Halal investing develops.