PlatformsDec 6 2021

Wealthsimple exit: One of ‘a number of casualties to come'

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Wealthsimple exit: One of ‘a number of casualties to come'
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The Canadian robo-adviser, which holds $15bn (£8.8bn) in assets and serves more than 2m customers across Canada and the US, today (December 6) announced its plan to sell the UK client book it has been growing since 2017 to Moneyfarm, one of its UK rivals.

This will see 16,000 customers transfer from Wealthsimple to Moneyfarm, along with £272m in assets, before the end of next month.

Its UK business accounted for around 3 per cent of its total assets under management, with its UK customer footprint making up an even lesser 0.8 per cent of its total client book.

The deal follows the company’s decision to focus on the Canadian market “for the time being”. It does not include any of Wealthsimple’s technology, operations or people, according to a statement published by the firm.

The robo-adviser told FTAdviser: “10 UK-based employees will be staying on for the migration of client accounts to Moneyfarm and then leaving the company.”

Wealthsimple’s UK proposition included an investment platform with fees from 0.7 to 0.9 per cent of the portfolio, covering Isas, Jisas, and pensions. Alongside it, the company employed a team of financial advisers who could provide advice no matter how big a customer’s funds were. 

Rob Peters, director at Altrincham-based Simple Fast Mortgage, said unless a robo-advice provider has got its “full focus” on the UK, “it's going to be hard to cut it”.

He continued: "The robo-advice market is currently saturated in the UK and competition for would-be investors' business is fierce, so it's no surprise to see Wealthsimple exiting the UK market. 

“I would expect Wealthsimple to be followed by others in the coming weeks and months, as the pecking order is more firmly established.”

Peters warned investors to do their research before committing funds, and to only invest with UK-backed providers with a strong UK footprint “to avoid getting caught in the inevitable fall-out”.

Simon Jones, head of financial comparison website InvestingReviews, agreed Wealthsimple will likely not be the last to exit the industry over the next year.

"The UK investment and money app market is at 'saturation point’,” said Jones. “We are predicting a number of casualties in 2022 in what is a massively overserved market. At best we are likely to see some M&A as apps join forces to acquire, or even maintain, market share.”

Jones believes “cutting through the noise in such a furiously competitive space” is far from a doddle, referencing latest direct-to-consumer entrant AJ Bell’s yet-to-launch platform ‘Dodl’.

"UK investment apps could be a Mastermind topic, such is their number and complexity,” Jones concluded.

Following a well-trodden path

As with a number of digital D2C services that have gone before it, not having a known brand, an existing customer base or very deep marketing pockets "is extremely tough", according to Simon Bussy, consulting director at Altus.

“You’ll have noticed that they’ve [Wealthsimple] not advertised for direct customers [in the UK] for a long time.”

For Bussy, the announcement of Wealthsimple’s exit “is not a surprise”, with the company having “been focussed on its business to business proposition for the past couple of years” now.

He continued: “[Wealthsimple] have followed the same path of others, turning their attention from D2C to B2B or B2B2C – Scalable Capital being another recent example, while businesses such as Wealthify, Moneyfarm and Nutmeg all offer a B2B type service in addition to D2C.”

Caroline Murphree, chief executive of Europe for Wealthsimple, joined the company a year after its UK launch. She took over from Toby Triebel as CEO last year.

Triebel now heads up digital investing at Swiss-rooted wealth management firm Vontobel.

Mike Barrett, consulting director at the Lang Cat, said the Wealthsimple team - like any new entrants to the UK's direct investing market - had their work cut out for them.

“The direct investing market remains a tough market to break into, and if anything things are getting tougher,” he explained.

“The ‘Big Four’ of Hargreaves Lansdown, AJ Bell, Interactive Investor and Vanguard have attracted over 400,000 new customers this year alone, and with client retention rates in excess of 90 per cent any new entrants are going to have their work cut out to disrupt the status quo.”

Sarah Kocianski, a fintech insights lead at FoundersFactory and soon-to-be former Wealthsimple customer, also highlighted the regulations in the UK which she thinks might have put Wealthsimple off continuing its operations.

“It makes sense that it would want to focus on the Canadian market where it has a much more holistic proposition that really enables it to live up to its mission of 'doing money right',” she explained.

“Operating in another country means having to deal with another set of rules and regulations, and typically another set of customer expectations as a result of cultural differences in approach to money.

“Wealthsimple seems to have decided that that's not worth it any more, probably partly due to changes in the UK market including the rise of trading.”

Kocianski said the firm’s exit was “a shame”, with any reduction in competition usually meaning less choice for customers and a reduced likelihood of finding a service that suits individual circumstances.

A new owner set on growth

Moneyfarm was co-founded and is led by Giovanni Daprà. The firm, which calls itself a "digital wealth manager" rather than a "robo-adviser", hit £2bn assets under management at the end of last month, prior to the Wealthsimple deal - the value of which has not been disclosed.

"This latest announcement re-affirms our position in, and commitment to, the UK market," Daprà told FTAdviser.

Asked how Moneyfarm will ensure its operations will continue to grow in what experts are calling an "overused" market, Daprà said: "This year has seen us reach more people than ever before."

He continued: "As we look towards 2022, we have a strong pipeline of activity and a business strategy underway that we’re confident will ensure the future and continued success of Moneyfarm.

“The size of the marketplace where we feel that there is demand for digital wealth management is huge and the sub industry is growing really fast."

Bussy said Wealthsimple's decision to move its UK customers across to Moneyfarm made sense – "they have a similar approach and quality leadership team, and importantly, greater scale," he said.

Moneyfarm surpassed £1bn in AUM back in June 2020. In 2021 so far, it's tracked a 57 per cent rise in new clients, and a 101 per cent increase year-on-year in net inflows - the end of year values have not been disclosed. 

In the UK, millennials (today aged 25-40) are its fastest growing age group, having increased by 43 per cent in 2021.

"We believe that we are simply at the beginning of our journey," said Daprà. "This should lead us to continuing our strong growth long into the future.”

ruby.hinchliffe@ft.com