Robo-advisers could take up to a decade to make a profit from their clients, a report into the sector has claimed.
Analysis from IRN Consultants highlighted recent research which showed that each new robo-advice customer signed up was losing the company £162.50 on average in the first year and only making £17.50 in subsequent years.
This would mean a client would have to be retained for the better part of a decade just for the company to break even from them - assuming the robo-adviser’s business model didn’t change.
One of the companies the report pointed to was Nutmeg, whose accounts for 2014 showed revenues of £635,000 compared with operating expenses of £5.9m.
The report also estimated that in the UK, robo-advice accounted for around £150m of assets under management (AuM). This represents a tiny proportion – just 0.0125 per cent – of the £1.2trn which the Financial Conduct Authority estimates is invested by retail and private clients.
The report stated: “Robo-finance agents represent a tiny share of the addressable market. Nutmeg, one of the longer-standing players in the market, has sales of less than £1m, for example.”
Wealth Horizon, which launched in 2014, made a loss of £347,000 last year.
Other robo-advisers such as Money on Toast, which was founded in 2012, does not list its AuM or turnover due to small company exemptions.
Martin Stead, chief executive of Nutmeg, did not respond when asked how many assets under management the company had.
But he said: “We’re here to transform an industry – and doing that means investing in order to grow.”
Money on Toast and Wealth Horizon were asked to comment but did not reply to our request.
