Wahed Invest: A Look at the Islamic Robo-Advisor

Wahed Invest is a robo-advisor that focuses on Sharia-compliant investing. For Muslims who want to follow tenets such as not investing in vices like alcohol or gambling or profiting from usury, this makes Wahed Invest an intriguing option. The company, which launched in 2015, claims to be the world's first automated Islamic investment platform.

Pros & Cons

Company Overview

Wahed is a targeted robo-advisor. Established in 2015, the company launched two years later in the United States and the United Kingdom in 2018. It claims to be the world’s first automated Islamic investment platform governed by Sharia law. The law governs religious rituals and certain areas of the day-to-day lives of Muslims, including important decisions like finances and investments.

As such, Wahed is certified as an ethically compliant wealth advisor that adheres to halal investing principles. It actively seeks out socially responsible investments (SRIs) that have no ties to the tobacco, alcohol, firearms, and adult entertainment industries to name a few. These investments are scrutinized by a committee of Islamic scholars. And the platform is designed to appeal to Muslims across the globe.

It's little surprise that a robo-advisory platform focusing on Sharia-compliance has appeared. Since 2010 when Betterment and Wealthfront started offering robo-advisory services to retail customers, the robo-advisors market has grown exponentially in popularity, becoming even more so in recent years, with assets under management (AUM) said to set to exceed $16 trillion by 2025. With nearly 1.8 billion Muslims in the world, Sharia-compliant investing is a huge market.

With Wahed, access and investments are tailored for the smaller investor, with a $100 minimum investment requirement. It also boasts no lock-in periods, which means investors can make deposits and request redemptions at any time. And the company states its fees are lower than traditional investment firms because investing is done on its digital platform.

Account Setup

Wahed Invest is mobile-focused. It's website pushes you to download the app if you're interested in trying the service. Once you've downloaded the app, you can click the "Get Started" button and enter your email address to start the sign up process.

The first thing you'll select is the type of account you want to open. You can choose a taxable brokerage account, traditional or Roth IRA, or a SEP IRA. Next, you'll answer a few questions to help Wahed understand the type of portfolio that will work best for you. It'll ask about your finances, experience with investing, risk tolerance, and your goals.

Based on your answers, it will suggest a portfolio. Wahed Invest has six portfolio types available, ranging from very conservative to very aggressive.

Once you've selected a portfolio, you can set a savings goal, including a target balance and timeline.

Lastly, you'll provide the final details required to open your account, such as your name, birthday, and address, as well as how you plan to fund your account.

Account Services

The thing that sets Wahed Invest apart from the competition is its unique focus on Sharia compliance. It offers investors a way to invest without compromising their morals.

Sharia-Compliant Investing

Although its approach is similar to other robo-advisors, Wahed's investments are distinct. The key difference is that Wahed is aligned with Islamic financial principles or Sharia-compliant investing. This is often considered to be a subsector of ethical and socially responsible investing. In contrast with the goals of traditional investing to maximize returns and minimize risk, Sharia-compliant investing is designed to fit with the ethics and social-welfare beliefs of Islam.

The company's governing board uses a strict set of guidelines to scrutinize individual investments. Wahed doesn’t invest in companies that provide non-Islamic financial services. The ethical board also shuns investment in providers/supporters of things such as:

• Gambling
• Liquor
• Tobacco
• Pornography

In order to remain compliant with Islamic lending practices, Wahed won’t invest in companies that generate interest income greater than approximately 5% of total revenue unless the excess is given to charity. Investments are also required to maintain a certain percentage of non-liquid assets.

The compliance and financial ethics of individual Wahed holdings are overseen by a Sharia board. These board members provide their approval of the pool of investable securities along with Wahed's platform.

ETFs

In addition to its robo-advisory services, Wahed has two ETFs available for investors who wish to invest without using a robo-advisor.

The Wahed FTSE USA Shariah ETF (HLAL) is a passively-managed portfolio that aims to track the FTSE Shariah USA Index. This index includes a diverse group of large and mid cap businesses across 16 sectors while excluding those that don't comply with Shariah standards. Companies involved with excess debt, alcohol, weapons and defense, impure foods, conventional financing, adult entertainment, gambling, and tobacco are excluded.

The Wahed Dow Jones Islamic World ETF (UMMA) is a similar fund that is focused on non-US equities.

Portfolio Construction

Here's how the process works. An investor who is interested in using Wahed's services begins by responding to several risk-related questions. The initial queries focus on investment goals, liquidity needs, time horizon, and risk comfort levels. The Wahed approach uses modern portfolio theory, which optimizes the investor’s portfolio with Sharia-compliant investments. As such, it promises to offer the greatest returns for the minimum amount of risk.

The broad investment categories include global equity, emerging markets equity, U.S. equity, REITs, commodities, and fixed income. Using investments from these categories, the investors' percentages in specific asset classes are determined according to their risk category:

• Very conservative
• Conservative
• Moderate
• Moderately aggressive
• Aggressive
• Very aggressive

For example, a very conservative portfolio would own 92.5% fixed income, 5% gold, and 2.5% cash as of May 2022.

The frequency of rebalancing is determined by several factors. If the investor’s goals or risk profile changes, the portfolio will be rebalanced. The assets will be rebalanced when funds are added to or withdrawn from the account. A major change in market volatility might spur rebalancing. The portfolio may also be rebalanced if there’s a great deviation from the consumers expected return.

Portfolio Customization

Wahed Invest also lets customers build a customized portfolio by selecting a custom asset allocation. The robo-advisor invests in equities, sukuk, and gold, so you select a portfolio that is composed of a mix of any of those assets.

Portfolio Management

As a robo-advisor, Wahed Invest handles the day-to-day management of your portfolio for you. It says that investing is as easy to choosing a portfolio and letting it do the rest. Unfortunately, Wahed Invest doesn't provide much information about how it does rebalancing or otherwise manages your portfolio.

One feature that is common among the best robo-advisors, but that is missing from Wahed, is tax-loss harvesting. Other robo-advisors use this strategy to reduce your tax liability, which could increase long-term returns. Wahed does not advertise this service at all.

User Experience

Desktop Experience

Wahed Invest is a mobile-focused robo-advisor. Though it has a desktop site, it does not offer a way to sign in and manage your account. Instead, it prompts visitors to download the company's Android or iOS app.

Mobile Experience

Wahed Invest's app is user-friendly. The design is good and responsive and the account creation process is relatively easy to go through. The user interface is clear, so it's easy to figure out where you need to go to do things like make deposits or withdrawals.

Customer Service

Wahed Invest offers three ways to get help:

• An online Help center with FAQs
• Phone
• Email

The FAQ section includes answers to basic, common questions, such as explaining what different accounts types are or how Sharia-compliant investing works.

The company's phone number is easy to find on its website and there isn't a complicated phone tree to deal with after you call. However, assistance is only available during normal business hours. Having to call between 9 AM and 5 PM could make it difficult for some to contact support.

Of note is that you can only get technical assistance over the phone. You can't speak to a human financial advisor for assistance.

Security

Wahed Invest does not offer information about its security practices on its website. Instead, it prompts users to email customer support for a copy of the company's privacy policy and how it handles account security.

Wahed Invest is covered by SIPC insurance. This coverage protects up to $500,000 against loss of cash and securities, such as is if Wahed goes bankrupt or otherwise loses your holdings and can't return your money. SIPC insurance does not protect against your investments losing value.

Commissions and Fees

Wahed has a wrap account approach to fees. Like most robo-advisors, the company levies fees based on investors' total assets under management without charging commissions for trades and other activities. Here is the current fee structure:

• $100 to $99,999: 0.79%
• $100,000 and over: 0.49%

Wahed doesn't charge investors any rebalancing fees. There are no transaction fees involved when it comes to buying and selling securities and Wahed promises investors that it doesn't charge any hidden fees.

Final Verdict

For religious Muslims governed by Sharia, which requires strict compliance with high moral and ethical standards, Wahed is likely a welcome platform in the robo-advisor environment. This automated investment platform is especially important for smaller investors as it opens the door to a professionally-managed investment portfolio for those who lack large sums of money, Even non-Muslims who may be interested in an ethical investing approach may want to investigate Wahed Invest.

Correction—Jan. 22, 2024: This article has been corrected to state that Wahed charges a fee of 0.79% for accounts under $100,000.