Generation Start-up: How Vault seeks to reshape investment practices in the UAE

It was through their work in the UAE’s wealth advisory industry that Bilal Abou-Diab and Sami Abdul Hadi noticed how most high-net-worth individuals in the region were receiving inconsistent investment advice , being mis-sold investment products, and were left in the dark by their “adviser” once an investment product was sold to them. So Mr Abou-Diab, 34, and Mr Hadi, 31, leveraged their industry experience to address these issues and launched a digital private wealth management platform , Vault, in Abu Dhabi in June. “Vault was designed with the intention of solving the region’s most prevalent problems faced by affluent individuals,” says Mr Abou-Diab, a Canadian-Lebanese resident with a career in investment advisory, who has been a CFA charterholder since 2018. The two co-founders of Vault were colleagues at HSBC, working within wealth advisory. “We are addressing the issue of affluent individuals facing challenges such as encountering mis-selling, receiving inconsistent advice, and maintaining underwhelming relationships with their financial advisers,” says Mr Hadi, a British-Palestinian resident who has a passion for behavioural finance and economics. “This problem is further compounded by a lack of awareness and understanding when it comes to making well-informed investment decisions.” He cites the Credit Suisse Research Institute’s Global Wealth Report 2022 which found that the UAE’s total wealth exceeds $1 trillion, with financial assets accounting for more than 60 per cent of this amount. More than 9 per cent of adults in the Emirates possess more than $100,000, with the average wealth per person being approximately $122,841. About 177,000 people in the UAE can be classified as US dollar millionaires, the report revealed. However, the prevailing trend in the UAE is to hold most financial wealth in cash while, in stark contrast, in the US the majority of financial wealth (more than 80 per cent) is actively invested, the study found. The UAE is expected to attract 4,500 new millionaires this year, according to a June report by Henley & Partners, which tracks private wealth and investment migration trends worldwide. The number of high-net-worth individuals in the UAE is expected to rise 39 per cent by 2026 to more than 228,000, according to a report last year by consultancy Knight Frank . The study defined high-net-worth individuals as people with $1 million or more. In a separate study conducted by Swiss banking group UBS in September, 54 per cent of women in the Middle East and North Africa rated their knowledge of investments as low, even as their wealth continues to rise exponentially in the region. It is these investment gaps that Vault seeks to address. Customers must have a minimum account balance of $100,000. Any individual or family is eligible to open a Vault account. “Each client gets access to a financial adviser, from the very beginning, with a complimentary financial review to discuss how Vault can add value in bridging the gap between their current circumstances and financial objectives,” Mr Abou-Diab, who is also chief executive, explains. “In the near future, we intend to give access to the platform instantly upon signing up. Our advisers then work closely with each client to create a personalised financial plan, and then work with them to monitor progress, adjust their plan as needed, and provide ongoing support and guidance.” Customers can access different investment opportunities on the platform and personalise their portfolios based on their unique circumstances, risk profile, and financial objectives. Vault offers both diversified portfolios and thematic portfolios. The platform’s investment philosophy revolves around generating a yield from a diversified range of assets. Vault’s diversified portfolios, composed of bonds and equities, are designed to be core investments that make up the largest part of an investment portfolio. “Diversification is the cornerstone of our strategy. Through ownership of companies [equities] and lending to high-grade institutions [bonds], we diversify our capital risk over a long period of time, while managing short and medium-term volatility, finding the best way to achieve long-term capital preservation while maximising the ability to yield returns,” Mr Abou-Diab explains. “Equity pricing can vary significantly over a year, so we look to bonds to manage that volatility. Bondholders are rewarded with a fixed income for financing operations and higher profitability. As fixed income is more predictable, it is added to the portfolio to manage the short-term volatility.” The advisers at Vault recommend investing cross-sector to own exposures to sectors that are both high in value and have potential for growth. They also recommend spreading earnings exposure across geographies to “ensure we are not fixated on any specific region”. The platform also offers access to five thematic funds: artificial intelligence and robotics, health technology, sustainable energy, real estate, and commodities. “These themes provide additional diversification and the potential to outperform core investments,” Mr Hadi, who is also Vault's chief product officer, says. “We do not recommend an average exposure to thematic investments, however, we do advise limiting exposure to 5 per cent of a client’s total wealth to any theme.” A private markets fund will soon be available for professional clients (those with a minimum net worth of $1 million) to access alternative investments such as venture capital, private equity, and private real estate for enhanced diversification and risk-adjusted returns, he adds. Vault, whose investment strategy is a blend of passive and active approaches, is regulated by the Financial Services Regulatory Authority and licensed by the Abu Dhabi Global Market to provide investment advice. “Vault’s advisers operate as true fiduciaries. This means that each of our advisers put the client’s best interests first, are incentivised by them [not incentivised by fees or commissions], and have a regulatory requirement to do so,” according to Mr Hadi. “To counter advisers being incentivised by fees, we’ve eliminated any entry and exit fees or any other product-sale commissions. Instead, we charge an annual platform fee of up to 0.7 per cent, which varies based on the tier that a client falls into: priority, private, or family office." The platform also intends to offer customers the opportunity to switch to a performance-based fee, instead of paying an annual platform fee, Mr Hadi says. Upon signing up with Vault, a US offshore account will be opened in the customer’s name with Interactive Brokers. Money will be held offshore in the US. “This means that you can invest with confidence, knowing that your assets are protected by a comprehensive system of safeguards. Your investments will remain yours and will not be affected by any unforeseen circumstances such as leaving the country, for example,” Mr Abou-Diab says. The platform also allows customers to enjoy a passive income every month, from the returns that their investments generate. “Our income generation strategy is designed to create a steady stream of cash flow, while compounding growth maximises clients’ long-term returns,” Mr Hadi explains. “Clients have the flexibility to decide whether to use the generated income for financial independence or reinvest it.” Meanwhile, the SmartCash facility allows customers to earn up to 5.36 per cent (six times the national average) interest on idle cash. Think of SmartCash as a money-market fund, says Mr Abou-Diab. A money market is similar to holding cash in a bank, where you have the liquidity to take back your money anytime you want. “These funds pool clients’ assets and place deposits wholesale, resulting in access to higher rates and better terms. It has daily liquidity and is meant to give clients a return on deposits, similar to the overnight rate defined by the central bank," he explains. “Clients can earn interest each day, with the ability to withdraw at any time and can earn a competitive return without the pressure of timing the market.” The wealth management platform, which has started onboarding users in the UAE, says it aims to democratise investing by offering investors access to asset classes that are traditionally accessible only to ultra-high-net-worth individuals. Vault, which currently operates only in the UAE, aims to further enhance offerings for affluent individuals, with more focus on expanding its portfolio of alternative investments, according to the co-founders. The company, which employs 14 people and is located in ADGM, recently secured funding of $1 million. “Our future financing will be aimed for market expansion initiatives,” Mr Hadi says. “We have the support of our institutional backer, Outliers VC, among other strategic angel investors.” Vault’s biggest challenges include competing with mis-sellers and bad actors, he explains. These mis-sellers lure individuals in by “guaranteeing” exorbitant returns on investments. They do not act in the best interests of clients, but are rather incentivised by commissions, Mr Hadi adds. “Our mission is to redefine the way investments are practised in the UAE, by providing transparent advice and improving financial literacy. Our vision is to become the most trusted wealth management platform in the GCC.” Bilal Abou-Diab: I don’t wish to have started any other successful start-up. Entrepreneurship wasn’t originally in our plans. We are driven by a profound passion for addressing a specific problem. During our journey, we’ve witnessed individuals who diligently saved their earnings only to be misled into products that weren’t in their best interests. This is what motivates us, and we are resolute in our mission to bring about positive change in this regard. Mr Abou-Diab: I haven’t thought about a new big dream, yet. I’m fully dedicated to our current mission because we believe there’s endless potential and opportunities in what we’re doing. Sami Abdul Hadi: As a wealth manager, building a tech product was completely foreign to me. In fact, I had no idea that “product manager” was a role that existed. However, very quickly, I learnt the importance of agile product management to ensure fast delivery of product with high impact. Mr Abou-Diab: It’s been a substantial learning experience, arguably more instructive than any formal degree. Among the most noteworthy skills I’ve developed are in the areas of legal and regulatory compliance. Mr Hadi: So far, things are going very well. However, building a product in a heavily regulated industry hinders you from developing the product quickly. If I could go back, I would, in parallel with getting regulated, build a very simple product that still adds value to our clients but does not fall under a regulated activity. Mr Hadi: I’m not sure I have one specific role model; however, I do look up to Elon Musk as someone with very high conviction and relentless execution in delivering value to his end customers – a management style I hope to adopt and implement as well. Mr Abou-Diab : I see myself remaining deeply involved in our mission to help people achieve their personal and financial goals through Vault.

Generation Start-up: How Vault seeks to reshape investment practices in the UAE

The ADGM-licensed digital wealth management platform aims to provide high-net-worth individuals with transparent advice