Robo-advisers are ploughing ahead with planned capital expenditure, despite the uncertainty created by the UK’s impending divorce from the European Union.
A number of robo-advisers told FTAdviser their growth strategies will not be derailed by the UK’s Brexit vote, with MoneyFarm and True Potential going as far as to say Brexit has been good for business.
But less optimistic senior figures in the robo-advice industry questioned whether the UK’s departure from the European Union could stall momentum in the sector, particularly if the regulator spends too much time “navel-gazing” around the impact of the vote.
Giovanni Dapra, chief executive and co-founder of digital wealth manager MoneyFarm, said a 'hard Brexit' - which would see Britain lose key trade benefits with the EU - would have a huge impact on the market.
Any increase in regulation could increase costs, limit a company’s ability to grow and innovate at the same pace and restrict the availability of capital, he said.
“However, the gravest impact of a hard Brexit would be on the availability of talent,” Mr Dapra said, adding the “best engineers” come from all over Europe, not just the UK.
“If there is a restriction on talent working in the UK, innovation will inevitably be restricted.”
Yet Moneyfarm has not stalled any plans or held fire on any investments as a result of the Brexit vote, and Mr Dapra said the referendum has increased the need for individuals to have access to low-cost investments.
The Financial Conduct Authority has been promoting innovation in recent years, launching Project Innovate, a scheme to work with firms to introduce fresh technologies and financial products to the market.
However, the head of digital advice at a national firm, who did not want to be named, said their biggest worry is that "as Brexit comes, we have to spend so much time navel-gazing around the impact on regulations, [it] will slow the momentum of innovation both through the industry and the regulator as well”.
During a speech in September, Christopher Woolard, director of strategy and competition at the FCA, said it was "business as usual" after the EU referendum.
Stefan Mittnik, founder of online investment manager Scalable Capital, said the bigger problem is those investing in start-up firms will be hesitant to commit new money until the dust has settled, stalling the speed and depth of innovations which depend crucially on funding.
The long-term impact of Brexit on fintech and robo-advice firms could be restrictions imposed on their customer base, he added.
“Fintechs may need to do business outside the UK, because reaching a sufficient market share in the UK may be unrealistic.
“Not being able to passport FCA licences to other EU countries, for example, will make matters more complicated, more expensive and, therefore less attractive for venture capital investors.”
Funding for UK start-ups with a European focus is likely to slow down in the long-run, he said, affecting the advice industry in particular.
However Bruce Moss, strategy director at eValue, said he expected all existing EU legislation will be enacted into UK legislation, limiting the impact on the sector.
Many robo-advisers offer a “guidance only” service, with the consumer making self-directed investment decisions.
This means possible delays in regulation as a result of Brexit will have little impact on them, he added.
“The only reason Brexit might slow the development of robo-advice would be if investment markets were to tumble; this would have the double impact of hitting the profitability of financial services businesses and damaging investor confidence.”
Mr Moss said: “Successful firms will not be distracted by Brexit, which is irrelevant to the development of game-changing robo-advice.”
David Harrison, managing partner of True Potential, said missing from the public debate around Brexit is a “positive vision and a readiness” to make the best of where we are.
“I view this as a chance to be masters of our own destiny now and to improve regulation versus getting bogged down in it,” he said, adding: “The entrepreneurial firms and advisers who innovate are the ones who will do well out of this."
Mr Harrison also said Brexit has been good for his business: "It might be a stretch to say we’d like a Brexit every week, but we certainly have seen no bad effects, and we’re very optimistic about the future."
katherine.denham@ft.com
