With Asia’s emerging middle class providing huge growth opportunities, firms based in countries part of the ‘global sandbox’ appear very attractive
The recent announcement that Goldman Sachs has become a strategic investor in Nutmeg and that the funds will be used to facilitate the digital wealth manager’s international expansion has fascinating connotations.
The £45m deal also suggests a significant premium is being paid when compared with leading US robo-advisers. Does this represent a regulatory premium as a consequence of the FCA’s role in establishing a global framework for personal finance regulation?
A recent report by Standard Chartered predicts that China will overtake the US in 2020 as the world’s number-one economy and that India will surpass the US by 2030. This means the big prizes in the future of advice may be as likely to be found in the East as the West.
The UK advice community could be ideally placed to export its expertise, as an increasing number of regulators around the world collaborate on practice and thinking.
Indeed, the FCA deserves significant credit for playing an active role in the formation of the Global Financial Innovation Network – or the “global sandbox” – bringing together 12 regulators and related organisations from around the world, including the Middle East and Asia, but not the US.
An investment on this scale is a huge endorsement of Nutmeg’s strategy and is evidence that, while it may currently be racking up some relatively hefty losses, these should be considered in a far wider context.
Contrary to what some people in the traditional advice market might like to think, the business is well-placed for the future.
It is also notable that, in addition to Goldman Sachs, Hong Kong-based advice firm Convoy, already an existing investor, has participated further in this capital raising round.
New Jersey-based Wealth Consulting Partners’ Gavin Spitzner, one of the best US advice tech analysts I know, quickly identified that the injection of £45m implies a valuation of £247m on assets of £1.5bn, producing revenue of around £7-8m.
Compared with Wealthfront’s $11bn assets under management and $23-35m revenue, which is generally seen as having a valuation estimate of $500-600m, and Betterment’s $15bn AUM, $40-50m revenue and an estimated $800-900m valuation, the numbers suggest Nutmeg has a value double that of the US players per pound/dollar AUM.
While it can be argued the above have done a great deal to deliver innovative automated solutions, they still only operate in the US.
America is a huge market and it is understandable that US companies would want to focus on domestic opportunities.
However, as a rapidly emerging middle class in Asia provides huge growth opportunities, firms based in countries that are part of the GFIN seem very attractive.
The benefits of such transparency cut both ways. In recent months, firms like Singapore-headquartered Bambu, Toronto-based Wealth Simple and South Africa’s CybiWealth have all set up UK operations.
If the GFIN now opens up the potential for global passport-style arrangements in advice, where firms regulated in one jurisdiction could easily and cost-effectively extend their operations into other member states, this might enable businesses to access vastly larger markets, and reuse skills and technology on a wider scale.
The extent of regulatory innovation and collaboration is far greater in GFIN countries than it is in America or, for that matter, Europe.
Indeed, there are serious questions over the ability of the European Union to bring forward financial regulation at the speed necessary to be a winner in the digital economy.
Even as an ardent remainer, I have to acknowledge the severe constraints that France, especially, puts on all things digital in the EU.
The recent €50m (£44m) fine imposed on Google by the French data protection watchdog for activities relating to the first day GDPR came into force sends a very negative message to anyone trying to innovate in the EU.
That advice firms can take new ideas to the regulator and work with it is a huge benefit of the UK fintech sector.
It is in stark contrast to the ways previous regulators approached innovation and, over the coming months, we can expect to see an increasing number of new services come to market that have been incubated in this way. That this approach is now beginning to be embraced internationally is a very positive step in uncertain times.
As for Nutmeg, while it must be congratulated on its success in raising funds, it would be wonderful if it could be as groundbreaking in its charging structure and investments as it appears to be in its expansion plans. Then it might really be on
Ian McKenna is director of the Finance & Technology Research Centre