Malaysia to have first shariah-compliant robo adviser


KUALA LUMPUR: Malaysia will have its first automated shariah-compliant wealth management service, Algebra, that will be operated by private wealth management company Farringdon Group.

Based in Labuan, Farringdon chief executive officer Stuart Yeomans said with a minimum investment of US$325 (RM1,400) a month, Algebra will cut the need for expensive consultant costs.

“Algebra can operate with its funds, fees and administration costs coming to roughly 0.85% of total investment expenses per year,” he said at Algebra’s launching here today.

A traditional fund adviser may charge up to 5% of total investment expenses in the beginning to enter a fund. The adviser would impose a consultation fee up to 2.5% for the subsequent year.

Farringdon Group launch and pc of Algebra, Malaysia's first sharia compliant investment robo advisor.
Farringdon Group launch and pc of Algebra, Malaysia’s first sharia compliant investment robo advisor.

Algebra will follow basic Islamic principles. It has obtained the approval of shariah scholar Daud Bakar of Amanie Advisors for its shariah investment strategy.

“We will facilitate Farringdon in the human part of it by putting our experience and expertise in identifying stocks in its system that comply with the shariah screening,” said Daud, who is also president and chief executive officer of the International Institute of Finance.

The shariah screening, set by the Malaysian Securities Commission (SC), ensures no stocks may derive income from gambling, alcohol, tobacco, pork products, adult entertainment or military equipment.

It also restricts the use of some mainstream financial instruments such as debt-financing, charging of interest or use of derivatives.

By using algorithms, the Algebra builds a diversified portfolio for investors according to their risk profiles without the use of human financial planners, hence carrying lower fees and affordable minimum investment amounts.

Currently, Farringdon is in the midst of talks with a few local finance institutions and targets to tie up with one firm by end of the third quarter (Q3).

“Basically, the partner company will use our system to complement their services in providing an automated fund management to investors,” said Yeomans.

On the same note, Malaysian Securities Commission (SC) recently released its Digital Investment Management Framework which outlines specific conduct requirements to better protect investors.

“This includes the requirement for the board to be accountable for the governance of the digital investment management business by ensuring that the requisite technology capabilities are in place,” the statement said.

It also includes the board of directors ensuring the risk management framework is sufficient, including in cyber security resilience.