Tough Nut to Crack
Highlighting the difficulties facing the new generation of digital investment managers, UK robo pioneer Nutmeg has announced losses of nearly £9m in 2015, almost double the £5.3m it lost in the previous year, due to increased marketing spend and new product lines.
Turnover was £1.7m, up from £635,000 the previous year, but costs nearly doubled from £6m to £10.8m.
The company said that assets under management (AUM) had increased by more than 100% for the year, but did not release a total figure; however, a recent diary article in London’s Evening Standard reported on a cake being enjoyed at its Durham Street offices in celebration of it surpassing the £500m milestone.
AUM per customer was reportedly ‘up 35%’ over the year, and customer numbers were ‘up 50%’; again Nutmeg delivered percentages rather than absolutes; Techworld reports that Nutmeg has 95,000 ‘registered users’, and elsewhere estimates vary greatly, anywhere from 50,000.
The accounts say: ‘Nutmeg has had a successful 2015, achieving strong growth and continuing to position the business as a new and distinct choice for investors in the UK market.’
‘Nutmeg continues to develop its marketing channels, brand and proposition, clarifying the company’s mission to ‘create a nation of empowered investors’. Marketing spend has increased compared to 2014 and has resulted in broader channel acquisition and heightened brand awareness.’
‘Turnover was £1.7m, up from £635,000 the previous year’
‘The company continues to enhance Nutmeg’s product experience using an iterative approach, testing and learning primarily from customer feedback, and there will continue to be a product development focus during 2016 and beyond.’
The company has grown rapidly since it received permission to offer advice earlier in the year, adding 21 staff to reach 58 full time members of staff, and says that it continues to review ‘the most appropriate advisory proposition’.
Nutmeg’s chief executive and co-founder Nick Hungerford stepped down in May, and was replaced by chief revenue officer Martin Stead who said: ‘Nutmeg is on track with our mission to democratise wealth management and empower generations of investors. As is natural for an early-stage company, we have been investing heavily to establish ourselves and our brand, in line with an ambitious business plan. We now have an unparalleled, scalable platform; a highly experienced team; and a proven marketing model to win customers efficiently.’
Nutmeg’s figures will come as a disappointment to an emerging fintech sector that is pinning much hope on the ability of digital investment managers to reach out beyond the traditional investor base and plug the advice gap left post-RDR.
However, its improving revenue figures will serve only to remind us of the old adage that ‘turnover is vanity whilst profit is sanity’; still unproven is the ability of robo-advisers to attract a sufficiently large number of customers at a cost per acquisition that allows them to deliver the profits that the eager VC and institutional investors – such as Schroders which backs Nutmeg – will demand.
Nutmeg’s commercial director Katie Prentke said that the company would not disclose its AUM figure – a reasonable measure of the success of a wealth management business – but according to Numis Securities’ David McCann, quoted in Wealth Manager, £500m AUM would rank Nutmeg as ‘sub-scale’.
‘The scale you need to make the business work when you have those fee margins is high. For it to be viable you need around £5b in assets, and £10b to be economic,’ says Mr McCann.
‘turnover is vanity whilst profit is sanity’
Having been first to market, in 2012, Nutmeg will be seen as a bellwether for this fledgling industry and its success or otherwise to attract private investors in sufficient numbers and with enough AUM, may affect the ways in which other automated advice platforms are targeted.
Already the robos seemingly low hanging fruit of tech savvy millennials appear to have been forsaken in favour of more sophisticated – wealthy – experienced investors; other providers may decide that advisers or B2B channels are more efficient, with the ability to leverage the reach of existing banks, brokers and investment platforms.
With a slew of platforms in development many will hope that Nutmeg manages to scale in a way that allows it to be profitable; however, the benefits of the digitalisation and automation of investing are not the sole preserve of the next gen wealth managers.
Existing players such as LV= with its Retirement Wizard, and Hargreaves Lansdown with HL Portfolio+ are having considerable success with the new technology, but as just one part of very broad based and much larger existing businesses.
Watch this space – it won’t be dull!