The UAE Securities and Commodities Authority’s approval of regulation for robo-advisory services this week will help establish a secure digital investment environment in the country, experts have said.
Licensed portfolio management firms such as large banks and financial firms are now authorised to provide robo-advisory services through digital platforms that utilise artificial intelligence and advanced algorithms to deliver automated investment recommendations. However, robo-advisory services will remain subject to client agreements, the SCA announced.
Robo-advisers are digital investment platforms that calculate an investor’s risk tolerance based on a series of questions. Using automated algorithms, they then assign investors a tailored investment portfolio of exchange-traded funds (ETFs) or index funds. Typically, they charge lower fees compared with traditional financial advisers and wealth managers.
“The specialty of this regulation is that robo-advisory services are now legally regulated on a nationwide level by the SCA,” said Vijay Valecha, chief investment officer of Century Financial. “Platforms that already offer robo-advisory services in the UAE are currently only regulated by DIFC or FSRA (ADGM) laws, which are financial free zones,” he added, referring to Dubai International Financial Centre and Abu Dhabi's Financial Services Regulatory Authority.
“Therefore, the laws in these free zones are different from the country’s laws. For example, Sarwa is regulated by FSRA in Abu Dhabi, while StashAway is regulated by DIFC.”
Having robo-advisory services regulated on a federal level, nationwide, would provide further protection and transparency to retail investors, as these platforms will be scrutinised on a deeper level, Mr Valecha said. It will also help to increase the attractiveness and competitiveness of the UAE financial markets across the world, he added.
Assets under management in the global robo-advisory market are projected to reach $2.06 trillion in 2025, according to Statista, while the number of users is expected to reach 34 million by 2029.
Retail investors are increasingly seeking direct access to markets with the help of technology, leading to a surge in popularity for zero-commission trading apps such as Robinhood, eToro and Interactive Brokers, as well as robo-advisers in the UAE including Sarwa, StashAway and Baraka.
Robo-advisers in the UAE will now operate under strict governance guidelines, such as independent IT audits, strong cybersecurity systems, regular investment algorithm reviews, and transparent disclosure of fees and risks to ensure investor protection, the SCA announced.
The new SCA licence allows robo-advisers to directly serve customers in mainland UAE and is a “positive step” towards expanding digital investing in the UAE, said Raaed Sheibani, country manager – UAE at digital wealth manager StashAway.
“As regulatory support grows, more people will have access to the tools they need to build long-term wealth – that’s a win for everyone. We also welcome a more cohesive framework across regulators, ensuring that clients can access services from digital players licensed by different UAE regulators with confidence,” Mr Sheibani added.
Robo-advisers offer benefits like low cost and accessibility, but they also have “notable drawbacks”, warned Rupert Connor, partner at Abacus Financial Consultants.
They typically offer a standardised set of investment options, primarily ETFs and index funds, which may not always align with an individual’s preferences or financial planning goals, he said.
They may not also be suitable for investors with complex financial situations, such as estate planning and tax optimisation, or significant life events like inheritance or business exits, or those seeking personalised investment strategies, he cited.
Robo-advisers can often be problematic during market volatility or periods of emotional stress, as algorithms may not be able to provide the same level of reassurance and guidance as a human adviser, Mr Connor explained.
“For someone who is just beginning their financial planning journey by saving a modest amount on a monthly basis or a lump sum investment, a robo-adviser is their friend,” he added. "Once a portfolio reaches a certain level, then perhaps the guidance of an adviser is prudent as a robot will never be able to truly manage one’s wealth."
Agreeing with this, Jay Adrian Tolentino, a UAE-based financial coach, said the recommendations of robo-advisers is based only on the data you enter, such as age, risk appetite and investment horizon, so it “may miss important personal context”.
The investment decisions are driven by fixed algorithms, which may not respond well to unusual market conditions. While fees are usually lower than human advisers, there may still be limitations in terms of flexibility, customisation, or support when markets are volatile, Mr Tolentino warned.
Robo-advisers also offer limited flexibility. Investors who want to focus on specific sectors, regions, or asset classes may find robo-advisers too rigid, as their portfolios are typically based on preset models, Mr Valecha highlighted.
“Relying too much on automation comes with its own risks. Though rare, technical issues like system outages, software glitches, or problems connecting with custodian platforms can disrupt how investments are executed,” he warned.
