Malcolm Kerr Independent Consultant

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

My third book in the “Terrible People”series has just come back from the editor. The good news is that she commented: “What a fabulous follow-up to Terrible Brothers! Again, I thoroughly enjoyed working on this – your ideas and storyline are great and once again I was captured in the story, dying to know what was going to happen.” The bad news is that as usual there are countless tracked changes and “suggestions” as to areas that need amendment. I really enjoy writing fiction but working through 85,000 words once again is no fun at all.

The book, “Terrible Choices”, has several of the characters that were in the first two books and to a large extent it focusses on the so called “County Lines” of drug dealers – mainly vulnerable kids sent out to provincial towns and cities where the competition is less than London and the Lines meaning cell phones. It will be published in August or September.

If you like thrillers you may like this series. The first book is “Dirty Money Terrible People” and is available on-line from the usual places. I write under my friends and family name of Calum Kerr.

I was intrigued to read that Aviva will be buying Succession for £385 million and I wish both parties the best of luck. However, experience suggests that there will be some significant challenges ahead. In fact, there is little evidence that institutions acquiring financial advice firms achieve their goals. Sometimes the issue is weak due diligence such as the recent debacle where Quilter found £35 million of DB to DC  liabilities after the deal with Lighthouse Group was done. But most of the time I think it is down to culture.

The product of IFAs and other professional services firms is people. Clients buy people and perhaps a brand. Life insurance companies are manufacturers of products. It’s a completely different business. Most of the people in a professional service business spend most of their time with consumers. Very few of the thousands of people working for product providers ever meet their consumers, most of them don’t even speak to them, and even fewer ever meet the IFAs who recommend their products. Two completely different cultures.

The mind set of executives in insurance companies and asset managers tends to be quantitative and analytical. They pay attention to details and are ruled by logic. And that’s how it should be. On the other hand, financial advisers tend to be qualitative, intuitive and creative free thinkers. As a result, teamwork between these two groups of people can be very difficult to create.