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?”