Digital wealth manager Moneyfarm is exploring opportunities to extend its advisory powers in an attempt to boost profitability.
Speaking to Money Marketing, Moneyfarm chief investment officer Richard Flax says the firm is discussing ways to deliver more “scalable advice” with a mix of face-to-face advice and technology by getting full advice permissions.
Flax says: “We are thinking more about clients’ liabilities and how that factors in their ability to save and how we could provide more advice to them in a scalable way. At some point [advice] has to be profitable for us, otherwise you can’t do it.”
He adds: “It’s about thinking more about moving from being purely a product provider, although we’ll always be a product provider, to taking a more holistic view of the customers’ goals and needs.”
In August, Moneyfarm, which has attracted over 10,000 customers in the UK since it launched in 2016, said it expects to be profitable in 2019 after posting an operational loss of £6.4m.
The firm claims the figure was in line with its agreed targets. It said a large part of expenditure came through developing its own technology and adding more staff to the marketing team.
Moneyfarm, which manages £260m in assets in Italy and the UK, currently offers restricted advice.
According to its website, the firm gives investment advice based on automated questionnaires on clients’ investment and risk appetites.
Once the user picks a portfolio Moneyfarm has selected, the firm then acts as a discretionary fund manager.
Flax says it is still up for discussion what an upgraded advice offering might look like at the firm. He says: “By definition we need to be compliant, so get new permissions and that would be scalable, so in a way you can sit down face-to-face with somebody which is not a business model that we [currently] have.
“That is a challenge which is to provide something useful to an individual and you need to find a way to use technology to do that.
“We recognise there are customers that have been less well served that they could have been in the market and some of those we try to serve but not exclusively those.”
Flax, who is a former Pimco senior vice-president and portfolio manager, joined Moneyfarm last December following Pimco’s sister firm Allianz Global Investors’ acquisition of a minority stake in the digital wealth manager.
Flax says while the firm currently invests primarily in ETFs, it is also looking at a range of other ways to access the market, including the option of adding mutual funds.
Currently, only UK employees at Allianz GI can invest in active Allianz and Pimco funds through Moneyfarm’s technology.
Flax says: “From an asset allocation perspective, we want to provide transparent products so when you move beyond that there is a bar to adding complexity which has been done a lot in finance with mixed results and the bar to add complexity is high.
“But, for example, when we look at the products for the Allianz employees, that’s implemented using Allianz mutual funds, so when you think about what we implement we are not saying ETFs are the only way we were implementing instruments for our clients; this is the case today but it’s not necessarily the case for the future.”
Moneyfarm is also looking at ways to include environmental, social and governance strategies as well as smart beta.
Flax says: “There is a big gap in the market today in terms of ESG corporate bond ETFs, which is hard to fill out and if you looked at the US businesses launching ESG products they’ve only done some parts of their equity allocation. It’s not super-straightforward.”
For smart beta, funds would need to align with the current Moneyfarm ETF strategy, which focuses on high liquidity and low cost.
Flax says: “Hopefully over time some smart beta ETFs will begin to stack up better on those metrics and once that is the case we’ll think about what kind of exposure we want to have. What you don’t want to do is buying for the sake of buying.”