The disruption to savings and investment markets and the emergence of digital wealth management has had huge implications but the sector remains quite small, says Daniel Tammas-Hastings.
The digital asset management boom that was predicted a few years ago has yet to occur and in many ways it feels like the fintech buzzwagon has moved on from robo-advice being the next new thing. In 2017, when the second generation of robo-advisers (post-Nutmeg) were entering the scene, robo-advice was flying high.
It felt, at least from my vantage point in Level 39, that a new robo-advisor was launching every week, and asset managers and financial advisors were both curious and fearful.
But the digital wealth managers (as they prefer to be called) have struggled to generate the market share they need and was predicted for them. Some financial service consultants estimated that the biggest players would need to manage multiple billions to charge enough to cover their costs, and this has proved tricky.
However the sector is still young and growing fast, Nutmeg the best known UK player, now has £1bn AUM and has been constantly growing revenues at approximately 70 per cent a year. Other newer players are growing even faster and attracting equity investment from the world’s best known VCs and some of the largest incumbents players.
Now at the start of 2019, Nutmeg the largest domestic digital player has less than a tenth of one per cent of the assets of the largest UK traditional manager L&G – the potential for further growth is still clear.
The main issue has been that the ‘message’ for the majority of robo-advisers has been a variant of low fees and money saved. This has restricted pricing power and ensured that for many propositions volume has become overly important. So, what’s next for 2019?
We can expect to see a broader range of propositions on the market, as players old and new seek to differentiate themselves. Expect, more differentiated offerings from existing players and niche new products from entrants.
The key themes in this choice will be ESG (Environmental, Social and Governance) and SRI (Socially Responsible Investing) as these themes have been growing in importance in institutional space over the last decade and are now filtering down to digital retail. Players to look at include Wealthify (established) and Plenitude.io (launching 2019)
The UK (and indeed the rest of the developed world) are suffering from a pensions crisis with chronic under-investment hampered by a lack of interest from both end users and legislators. Hopefully strong engaging digital propositions will change this. Many of the existing robos have a SIPP offering, expect take up to continue and new players to enter the market.
Of particular interest is MoneyBox which started as a loose change savings up and in 2019 will move up the value chain to the world of pensions potentially taking a 100,000 engaged users with it.
Expect horizontal expansion from fintech and legacy players. Robo advisors will look to add new offerings as they seek to monetise a captured user base, whether this is moving from purely digital to hybrid or linking with complementary products from insurers and other financial services.
Banks and existing megaliths will likely expand into robo-advice, and most of the High Street Banks now have an advice product. Expect this theme to continue with a digital savings app becoming a must-have for large financial services firms.
The market will continue to grow in both users and AUM, but not at the pace that was predicted a few years ago.