Nutmeg. A response to my recent article in Money Marketing
Some things have a slow burn and my money is on Nutmeg
By Nic Cicutti 1st August 2022 8:00 am
Whisper it loudly: I’ve been a huge admirer of Malcolm Kerr for many years. He has packed so much into his 50 years in financial services – at Albany Life, Canada Life, KPMG and EY – that no one in the industry comes remotely close to his level of insight into market trends. But I did find myself wondering about the rationale for his recent critique in the pages of Money Marketing on Nutmeg, the online investment management service owned by JP Morgan Chase.
The starting point for Malcolm’s critique was an advert for Nutmeg in the pages of The Spectator, which he correctly pointed out was a Tory magazine with a circulation of 100,000 or so and a readership with an average age of 50 (it’s 58, actually, but who’s counting). He argued, not unreasonably, that Nutmeg targeting this market with a financial proposition that is supposedly aimed at thirty somethings didn’t make sense. I’m generally with him on this – although I’d caveat this with the reflection that advertising is an incredibly complex art and an ad in The Speccy might still reach a significant number of young(er) Tory affluents whose money it wants to vacuum up. It also depends on the price being charged for the ad itself.
It took 7IM until June 2013 before it reached its first £5bn AUM. That’s more than 12 years from launch. The next £5bn took barely two years. In contrast Malcolm correctly said that Nutmeg has barely managed to attract £2bn, leading him to question the £700m for this company paid by Chase. He’s right: that’s an astronomical price for a robo-adviser with barely £4bn in funds under management. Wealthify, which was taken over by Aviva in 2018, cost a mere £17m by comparison. Moneyfarm, largely owned by Allianz and M&G and with £2.2bn under management, cost a fraction of the amount paid by JP Morgan Chase.
Where Malcolm leaves me behind is in his more generalised critique of Nutmeg and other online robo advisers. His argument is that robo advisers have taken forever to build volume in the UK, despite repeatedly being talked about as the next best thing for a decade or longer. Meanwhile, they leak money like a sieve: in the case of Nutmeg he points to its latest annual results, in which the company revealed annual losses in excess of £20m, up £5m on the previous year. Again, true. But I’m also reminded of 7IM, a company with a proposition deliberately designed to attract inflows of funds from lazy financial advisers by simplifying their fund management decisions. So not the toughest of sells. Hardly surprising, then, that the company, owned by Caledonia Investments since 2015, now has almost £20bn under management. Talk is of a £400m sale later this year. Yet, despite stellar marketing by one of the industry’s top gurus, Justin Urquhart Stewart, it took 7IM until June 2013 before it reached its first £5bn AUM. That’s more than 12 years from launch. The next £5bn took barely two years, in contrast.
Some things have a slow burn and my money is on Nutmeg and some of the other robo advice firms – and yes, I know how much they hate the ‘robo’ tag– making good in the next five years.
Finally, I accept Malcolm’s argument that, while straightforward fund management is relatively straightforward, the more complex areas he describes such as the lifetime allowance and fixed protection won’t be covered by most robo advisers. We may see advisers being used in a different way by robo customers. Instead of a long-term association with a ‘live’ adviser, robo consumers may expect a direct transactional relationship: I pay you purely to advise me on how to make a specific thing happen, or actually do it for me.
It’s not ideal for advisers, of course. But over the past 30 years many have cared little for their clients. It would be a supreme irony if it turns out th other way around in the next 30 years.
Nic Cicutti can be contacted at nic@inspiredmoney.co.uk