Robo-advice 

Robo sector not a quick profit fix

Robo sector not a quick profit fix

On May 16, Investec announced that its digital investment service, Click & Invest, was to close its doors, following UBS’s decision to close its SmartWealth digital service last year.

In an echo of the UBS announcement that it was shutting up shop “due to limited near-term potential”, Investec confirmed that “after careful consideration… on the short to medium-term potential for the business, we have reluctantly decided to close the Click & Invest service”.

Now that the dust has settled, let us take a considered view, and assess whether this is symptomatic of the whole digital wealth sector, or limited to one specific part of it, and, importantly, whether the sector is evolving at the pace it needs to.

The challenge for any new direct-to-consumer business, regardless of sector, is acquiring customers economically.

That is difficult. Damn difficult. Especially if you are a start-up with limited backing; the costs typically run to many hundreds of pounds per investor.

Yet ironically, it is the businesses that have the rich parent who appear to want a return on their investment in double-quick time, and who react quickest when the ‘hockey stick’ revenue does not materialise.

If the US and UK market has evidenced anything over the past half a dozen years, it was to tell us that this was never going to happen – a case of unrealistic expectations from day one? In UBS’s case, the hammer fell after just 18 months; in Investec’s, less than two years.

And here is the rub – the very factor that should be a strength (a rich, stable parent) actually turns into weakness when they become prematurely impatient with a new service that is still in development and still going through its growing pains, typically because they have to say something positive about ‘improving efficiencies’ and ‘cutting costs’ to keep the analysts happy at reporting time.

While the digital wealth sector is often trumpeted as disruptive, it has seen some lazy, product-centric marketing.

Despite this, the incumbents have been prodded into considering how they should digitally evolve their business. Some of the newcomers are even beginning to acquire levels of customers and assets that are making the rest of the industry sit up and take notice.

And while some industry veterans may comment that these upstarts have yet to make a profit, they are missing the point, just as the senior executives at UBS and Investec did. This sector is not a short-term profit play; it is all about customer acquisition, customer-centric propositions, and building something sustainable for the future.

Currently leading the pack in the digital (robo) wealth sector are: Nutmeg, Vanguard and Scalable Capital; each of them have a different approach and proposition.

 Provider

Customers

AuA

Nutmeg

70,000

£1.75bn

Vanguard

55,000

£1.50bn

Scalable Capital

40,000

£1.25bn

Source: Altus discussion with providers, May 2019

What many of the players in this sector are learning – fast – is that to be successful, continual development and diversification is key, and this is perhaps the key reason why SmartWealth and Click & Invest did not meet their parent company’s expectations.