View more on these topics

Nutmeg sustainability called into question by fee campaigners

SCM’s Gina Miller

SCM Direct, the wealth manager run by Brexit and fee transparency campaigners Gina and Alan Miller, has called Nutmeg’s business model into question after results yesterday showed the robo-adviser’s mounting losses.

Nutmeg reported losses of £9.4m for 2016, up from £8.9m in 2015.

In a blog on the SCM website, the Millers say the Treasury does not understand that many UK robo-advisers will go bust before achieving enough scale to be sustainable.

“One might expect in an innovative company for the losses to reduce as the business accelerates from start up into a profitable business,” the blog says. “Forget office costs, advertising costs, custody costs or any other costs, [Nutmeg’s] employment costs alone of £5.3m are more than twice its turnover.”

The blog also expresses concern that Nutmeg and other robo-advice models are too heavily reliant on small accounts. Nutmeg’s average balance was revealed to be £24,000 yesterday, as it claimed to have an 80 per cent share of its market.

SCM writes in the blog: “If Nutmeg has 80 per cent market share, what is the market? As digital wealth mangers ourselves with an average client account size of around £350,000, we are most interested in this answer.

“Surely the FCA and the Treasury should be looking at UK robo-adviser models to test whether or not their financial models make any sense. If the answer to such analysis is no, is it not irresponsible to allow mainly novice investors to have their money managed for the medium to long term, by companies who may well not exist in the years to come?”

Recommended

8

Nutmeg losses pass £9m

Robo-adviser Nutmeg has seen its losses increase again as it continues its search for profitability by building an advice service. While turnover increased from £1.7m to £2.6m for the year to December, expenses also increased by more than a million, resulting in an annual loss of more than £9.3m, up from £8.9m in 2015. The […]

Mark Dampier: Ignore UK equity funds at your peril

Politics has caused many investors to fall out of love with the UK stockmarket but it has plenty more to give I wonder how many of you, like me, hope future referendums will be banned. Scotland’s vote on independence set family against family but that pales in significance to the UK’s decision to remain in […]

6

Risk profilers rebuff calls for unified rating scale

Risk profile companies have defended using different rating scales to the key investor information document prescribed in regulation, after an adviser recently called for a unified approach. In a regulation session at Money Marketing Interactive in Harrogate this month, an adviser gained the support of other delegates when she asked FCA retail investments head Clive […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. So, if a robo adviser goes bust, who does the person being advised complain to and more importantly get compensation? Just wondered or am I being naïve again….

    • It should be a separate section of the levy. Humans shouldn’t loose their livelihoods to robots and also pay for their failure to accept human responsibility

  2. Agree with Gina on this. Nutmeg seemingly has a great marketing model for getting tech savy/young investors on board which is great. However if average portfolios are £24k then there cannot be much profit there. If Nutmeg go pop then there will be a lot of young investors who will be put off from investing ever again.

    Robo advice should have a 14 day waiting period where investors are provided with a document to read about the risks of investing, the risks of platform insolvency. After the waiting period and demonstrate that they understand the risks then they can make their investment.

  3. I wonder how sustainable SCM direct is.

  4. If Nutmeg goes bust, the assets will be assigned to the investors as no loss arises; isn’t that the nature of nominee structures?

    It would be bad for the image of the industry, but not a threat to investors as such. A different perspective…

Leave a comment