Robo-advice firm Nutmeg is gearing up to be an outsourcer supplying its services to other firms as the company announced wider losses.
For the year to the end of December 2018, Nutmeg reported a loss of £18.5m on a turnover of £7.1m. This loss represented an increase on the £12.1m the business lost in 2017.
In March, the company raised £45m of new cash from investors.
The strategic report of the business accompanying the accounts described 2018 as a “successful year” for the company as it “transitions from start-up to scale-up”.
It stated: “Nutmeg continues to invest in product innovation, user experience, technology, customer acquisition and people in order to maintain its leadership position in digital wealth management in the UK.
"In 2018, in addition to a focus on its core direct-to-consumer business, Nutmeg laid the foundations for business-to-business expansion both in the UK and abroad.
"The company is on track with its business plan and continues to grow cost-effectively with strong unit economics, with a view to delivering long-term profitability for its shareholders.
"As the business grows, the investment and trading processes continue to be reviewed to ensure customers always get the best value achievable.”
Nutmeg’s intention is to become a white label supply of technology, trading services and regulatory functions to firms, both within financial services and outside, that wish to enter the advice market.
In April, the company signed an agreement to provide these services to a bank in Taiwan. The impact of this deal is not reflected in the accounts, as it was completed in 2019.
At the end of 2018 Nutmeg had over 60,000 customers and assets under administration of £1.5bn, an increase of 25 per cent over the year.
Nutmeg’s revenue was £7.2m, which implies an average margin of 0.48 per cent and revenue per average client of £120 a year.
Nutmeg segments clients into two groups, those who choose an “actively managed portfolio”, where the fee is 0.75 per cent for up to £100,000 of assets, and then drops to 0.35 per cent, and those on the fixed allocation portfolios where the fee is 0.45 per cent up to the first £100,000 and 0.25 per cent thereafter.
Mike Barrett, consultant at the Lang Cat, said: “Average client assets of £25,000 is way below the threshold for a more traditional wealth management firm.
"But traditional advisers work with clients that typically have more complex needs, whereas Nutmeg’s client is typically younger and the task is simpler, to invest the money intelligently, so the cost base is likely to be lower.
"I think Nutmeg have scaled back their marketing spend quite a bit recently, and maybe a figure like £25,000 is a wake up call.”
Sinon Bussy, consultant at Altus previously told FTAdviser that he believes the only future for robo-advice firms is as providers of technology for established financial services businesses, as the economics of robo-advice businesses do not add up.
david.thorpe@ft.com
