Have ‘robo advisers’ had the last laugh?
One of the original fintech booms for low-cost automated financial advice has had its winners and losers but the direction of travel has been fully digital.
One of the slowest burning fintech stories is that of the humble ‘robo adviser', later rebranded to ‘digital wealth manager’.
After the ‘neobank’ launch flurry of 2015-16, robo advisers came next with seemingly dozens of new digital wealth managers popping up. This prompted more than a little scepticism from the naturally conservative (with a small ‘c’) quarters of wealth management.
By 2018 there were about 20 standalone robo advisors or digital wealth managers mostly independent start-ups offering risk-targeted model portfolios. These were Nutmeg,Scalable Capital,Moneyfarm,Moneybox, Fiver a Day, Money on Toast, Munnypot, Moola, Wealthify, Wealth Horizon, Risksave, eVestor, Click&Invest, Netwealth,Wealth Wizards, UBS Smart Wealth, ETFMatic, Wealthsimple, Fountain, Tiller,Exo Investing and Rosecut.
Have the digital disruptors proven the naysayers wrong? In short, yes and no. Mostly no.
Of the above list, a vast majority - 85 per cent - have stopped trading as the model became increasingly hard to quickly monetise and the field became more crowded.
That being said, 'digital wealth' taken more broadly has transformed the financial landscape.
While many of the original robos have simply disappeared, several others have shown themselves to be highly successful and resilient businesses.
“In just a few years, our assets went from zero to ten billion euros. We’re delighted about this milestone, especially in view of the current challenging market environment. It shows that investors remain focused on their long-term wealth accumulation’, says Erik Podzuweit, co-founder and co-CEO of Scalable Capital.
Not only is this twenty-fold increase since 2017 impressive - half of its growth has come from a doubling of assets in the past twelve months, a period characterised by profound weakness in risk assets - it is hugely cash generative. Scalable's growth seems exponential.
Charging 0.9 per cent on a typical wealth account, and 1.7 per cent on its managed crypto portfolios is starting to translate into serious revenue of tens or even hundreds of millions of euros per year.
Nutmeg, the original digital wealth manager, has proven its worth also. Although, it has slightly lost the (soley) ‘robo’ moniker following the launch of an in-person financial planning function which charges c.£700 for a one-off consultation.
Despite mounting losses, JP Morgan struck a deal to buy the decades-old business last year for a cool £700m. Not bad for a company with c.£3bn of assets under management at the time of the deal.
Nutmeg is loss-making, according to its latest numbers. Its accounts up to last year recently showed a 28 per cent rise in costs at the time of the acquisition, suggesting its growth will still need to be subsided by JP Morgan’s own balance sheet.
Scalable meanwhile is still raising venture rounds, at least it did last year with $180m of funding from Tencent which pushed it to a valuation of $1.4bn.
Moneybox, which started out offering roundups, is now the largest provider of the Lifetime ISA in the UK and offers a suite of services including pensions and mortgages. It has about £3bn in assets and a community of more than 800,000 customers. It raised £35m in Series D funding in March 2022.
Robo advisers in the UK though have largely gone out of business or been acquired. This is true of small, scrappy startups as well as flanker brands launched in-house by large banks with very deep pockets. However, the trend prompted a change in how retail investors manage their money and at least a handful of companies have thrived.