The Hungerford games: Nutmeg chief searches for ‘killer app’

hungerford

Nick Hungerford is every inch the 21st Century technology entrepreneur: young, cool, disruptive. In many ways, he is the antithesis of the UK financial services sector.

But his journey to founding Nutmeg, the online investment platform attempting to tear strips out of the UK wealth management sector, has its roots firmly planted in the Square Mile. After graduating from Exeter University with a business degree, he joined Barclays on a “banking rotation” programme.

“I was with Barclays for about seven years, the latter of which were in wealth management working with clients,” he says. “The time I spent up in Glasgow working with the back-office teams was formative in helping me understand how this industry works.

“Just looking at traditional businesses, the front-office wields so much power. That is totally at odds with most modern businesses where the technology wields the power. That has been fundamental in the development of my thinking.”

Despite thriving in the City in the years after the dot.com bubble, Hungerford admits the culture of banking had begun to weigh on him.

“It was really in 2007 that I started to understand I wasn’t really the person I wanted to be,” he explains. “I was not tremendously proud of how I was acting at that point and I decided to take myself away from that environment.

“Certainly working in banking gives you a sense of self-importance and it changed my personality.”

Hungerford decided to shift course by taking a two-year MBA at the prestigious Stanford University in California, USA.

“I always had an entrepreneurial bug inside of me and I started thinking about how I could change my career and get the education to run a business. Fortunately, I got into Stanford and it was a transformational experience.

“When I went to Stanford my definition of risk was doing something but when I left it had become not doing something – in my case, not setting up a business. I knew if I looked back on it in 40 years I would always regret not doing it. That mindset shift was pivotal in making me want to start a business.”

Having decided to create Nutmeg, numerous battles lay ahead – not least securing a private equity backer.

“That was not a pleasant process,” he admits. “I got rejected multiple times, usually because people simply said “why you?” or thought the banks would just copy the model and kill it off.”

Did he ever think about giving up?

“Oh yeah, lots and lots of times. Not every idea is brilliant and as an entrepreneur you will fail nine times for every success. It was about 48 times I got rejected over six months and I remember thinking if I don’t get investment by Christmas I’ll switch to something else.”

Hungerford’s search for investment finally yielded results when he was backed by fellow Stanford graduate and venture capital investor Tim Draper. Draper was swiftly followed by private equity firm Pentech Ventures in backing the firm and, in 2011, Nutmeg was born.

Disruptive

The very existence of Nutmeg is a direct challenge to the wealth management status quo. Users can choose from 10 investment portfolios based on their risk preference. Portfolios are managed and rebalanced by Nutmeg’s investment team, and primarily invest in exchange-traded funds to keep costs down.

Fees range from 0.3 per cent for pots worth £500,000 or more to 1 per cent on investments between £1,000 and £25,000. Underlying fund costs average 0.19 per cent, compared to an average of 1.58 per cent for UK active funds, the firm says.

Investors can set up an Isa or personal pension with the firm at a similar charge, while a drawdown offering is also in the pipeline.

But despite various attempts to demonstrate the value of the Nutmeg service versus existing providers, Hungerford concedes encouraging investors to switch is no easy task.

“There is a very strong phenomenon, particularly in Britain, of loyalty in financial services and wealth management,” he says.

“We are speaking to clients more than we have before about the realities of staying with their existing firm. The message is you can stick with that person because you think they are nice or whatever but it is going to cost you £150,000 in fees over 20 years. Are people willing to suffer that kind of loss purely to avoid an awkward conversation?”

Killer app

Unsurprisingly, Hungerford is ambitious about the future of Nutmeg and aims to have 100,000 customers by the end of this year.

“But it is not the case that we are trying to wipe out our competitors,” he says. “We just have to take 5 or 10 per cent from each of them.”

This process could be greatly accelerated if Nutmeg can develop a “killer app” to revolutionise the market, Hungerford says.

“We do not yet have that killer app that is a tidal wave rather than just chipping away,” he says.

“Someone will develop that and hopefully it will be us. But there will be a time when people who have established relationships with wealth managers are sitting round a table talking about Nutmeg accounts, and the one person who doesn’t have one will feel incredibly left out.”

Hungerford cites Uber, the company whose low-cost, high-tech service successfully destabilised the near-monopoly held by black cabs in cities like London.

“Two or three years ago people were unsure about Uber and concerned about getting a dodgy driver and all the rest of it,” he says. “But now if you go to a party and you haven’t taken Uber you’re considered an outsider.

“It is not something that is far away and we have recruited expertise to try to develop that killer app. Once we find that and turn it on I think the product will speak for itself.”

CV

2011 – present: Chief executive and co-founder, Nutmeg
2014 – present: Non-executive director, Innovate Finance
2007 – 2008: Divisional director, Brewin Dolphin
2002 – 2006: manager, Barclays Wealth

Five questions

What’s the best bit of advice you’ve received in your career?

Remember the people that you meet on the way up are the same people that you meet on the way down.

What keeps you awake at night?

Not much. I start the day at 4.45am nowadays, so by bedtime I’m pretty tired.

What has had the most significant impact on financial advice in the past year?

Rise of passive investments and ETFs.

If I was in charge of the FCA for a day I would…

Do everything I could to make saving easier than spending.

Any advice for new advisers?

Be confident about who your target market are. Continue to specialise and you will become ever more valuable to your clients.