Islamic finance is one of the fastest expanding financial services sectors in the UK with specialist savings and loans products now widely available.
There are six standalone Islamic banks and 20 conventional banks offering Sharia-compliant financial products and services in the UK at present – and these numbers are expected to rise.
Savings products that operate under Sharia principles – where savers are given an expected profit rate rather than guaranteed interest – offered by the likes of Gatehouse bank often find their way into our savings best buy tables.
Now the first Sharia-compliant robo-adviser, Wahed Invest, has launched in the UK, allowing savers to invest in ethically responsible stocks, Islamic bonds called sukuk and gold.
Halal investing often get bracketed under the socially responsible investing banner because sin stocks such as alcohol
All you have to do is chose the portfolio that aligns to your attitude to risk.
It’s important to mention that Wahed Invest’s classification as a robo-adviser is a misnomer because no advice is offered – you will have to decide which portfolio to choose for yourself. In fact the company steers clear from the robo-adviser classification.
A spokesman for the firm 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.’
However, the ‘robo’ element comes in the form of the white-labelled technology, provided by financial services firm WealthKernel, Wahed Invest uses for suitability assessments.
You’d need at least £100 to invest through the platform. You can do so through a general investment account or the tax-efficient stocks and shares Isa, but not a self invested personal pension as yet.
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.’
Wahed Invest already operates in the US after being launched in 2015 but has now been authorised by the Financial Conduct Authority to expand into Britain.
How it works
Just like most robo-advisers, Wahed Invest asks you a series of basic questions including why you want to invest and how long for to gauge whether or not investing is appropriate for your circumstances.
The algorithm would reject you from the application process if it considers that investing is not right for you.
You’re then asked for the type of account you’d like to open, followed by how much you’d like to invest.
Unlike most robo-advisers, which have an in-house investment team that manages ready made portfolios, Wahed Invest outsources this responsibility to WealthKernel.
However, 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?
The robo-adviser levies a yearly admin charge of 0.99 per cent for portfolios on sums up to £249,999 and 0.49 per cent thereafter.
This is on top of an investment charge which averages 0.74 per cent. So, those who choose to invest less than £250,000 face a bill of 1.73 per cent on average.
This charge rises to 1.87 per cent if you opt for the most conservative portfolio.
You’ll also have to factor in transaction costs which are charged at 0.05 per cent.
| Robo-adviser | Admin fees | Investment fees | Transaction fee |
|---|---|---|---|
| Wahed Invest | 0.99 per cent for portfolios on sums up to £249,999 and 0.49 per cent thereafter | Averages 0.74% | 0.05% |
| Nutmeg | Fully Managed Portfolio: 0.75% up to £100k, 0.35% beyond. Fixed Allocation Portfolio: 0.45% up to £100,000, 0.25% beyond. | 0.19% and 0.33% for standard and ethical plans respectively | 0.08% |
| Wealthify | £1 – £15,000: 0.7% £15,001 – £50,000: 0.6% £50,001 – £100,000: 0.5% £101,000+: 0.4% | 0.21% on conventional portfolios and 0.54% for those with an ethical slant | 0.03% |
How does it compare?
Investing through Wahed Invest is far more expensive than investing through other robo-advisers in the UK market.
Nutmeg, the nation’s first and arguably best known robo-adviser, levies 0.75 per cent up to £100,000 and 0.35 per cent thereafter for both its fully managed portfolios and socially responsible portfolios.
It also offers fixed allocation portfolios which cost 0.45 per cent up to £100,000 and 0.25 per cent thereafter.
This is in addition to the investment cost which averages 0.19 per cent and 0.33 per cent for standard and ethical plans respectively.
Another robo, Wealthify, operates a tiered charging structure ranging from 0.7 per cent on balances up to £14,999 to 0.4 per cent on balances above that amount.
Reason behind the cost
Kareem Tabbaa, chief product officer at Wahed Invest, said: ‘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 per cent and 1.87 per cent – 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 per cent on conventional portfolios and 0.54 per cent for those with an ethical slant.
In fairness to Wahed Invest, the cost of Halal investments, is significantly more than the conventional shares and bonds.
But if you’re not a Muslim but seek to invest in a socially responsible manner, it could pay to stay clear of costly Sharia-compliant investments.
Investing in an ethical proposition offered by Nutmeg and Wealthify is around a third cheaper than Wahed Invest Halal offerings on average (1.08 per cent and 1.24 per cent versus 1.87 per cent).
Verdict
Offering a platform that enables Muslims to invest in a way that is aligned to their beliefs without having to worry about important investment considerations such as portfolio diversification is commendable. The trouble is, it’s simply too expensive.
Non-Muslims who, for one reason or another, might be considering to invest in a Sharia-compliant manner are probably better off investing in an ethical portfolio offered by another robo-adviser from a charges standpoint.
It’s nigh impossible to give you an indication on how both types of portfolios stack up against each other as explored here.
Halal investing is an area that is not often explored in the financial industry and many bona fide investment advisers aren’t well versed in the area.
In truth, many Muslims in the UK are also already invested in a way that isn’t aligned to their beliefs without even knowing – through their workplace pension.
Most standard auto-enrolment workplace pensions aren’t Sharia compliant – they’d probably be too expensive if they were.
