If media coverage is anything to go by, you could be forgiven for thinking that the digital wealth, or ‘robo’, sector is facing an uncertain future, following the recent demise of Moola, which itself came hot on the heels of Fountain, Click & Invest, and SmartWealth.
It would be very easy just to write off the whole digital wealth sector based on these examples, which on face value confirm the accepted wisdom that brand, scale, and reach are critical success factors:
• Lack of consumer brand makes it more difficult to engender trust, especially in a crowded marketplace where well-known D2C brands are already established.
• Starting out with no existing customers or mature distribution capability makes customer acquisition high, with long payback periods.
• A limited start-up marketing budget will not be able to resolve the two previous points.
Sadly, despite all the blood, sweat and tears of very passionate people who literally put their lives on hold to deliver their dream, at some point, the money is gone and the fire flickers out.
- Several robo-adviser companies have closed recently
- Some are still successful, with billions under administration
- Using behavioural finance and offering something new is the answer
Put bluntly, if you do not have a compelling proposition, and it is all a bit bland and ‘me too’, well, quite frankly, nothing else matters, including your shiny new website or whizzy new app, because not enough people will find you.
This, though, is only part of the story.
Sometimes we can all get caught up in our own personal echo-chambers where we only hear the views of like-minded people who just reinforce our own, and after a while it becomes ‘fact’.
So in the interests of balance, I would like to share some of the other challenges in (parts of) robo-land, and also look at who is beginning to get it right.
Some propositions started life as a child of an incumbent brand, or — given the challenge of achieving scale before the money runs out — have sold a stake in their business to one. For example:
• Click & Invest was part of Investec.
• MoneyFarm has received sizeable investments from Allianz AM.
• Moola was acquired by JLT, which itself was acquired by Mercer last year.
• Scalable Capital has received investment from BlackRock.
• SmartWealth was owned by UBS.
• Wealthify sold a significant stake to Aviva.
• Wealthsimple is primarily owned by Power Financial Corporation.
• Wealth Wizards received significant investment from LV=, and is currently seeking further investment to fund its expansion.
Sometimes, where there is a real acceptance of each other’s strengths and frailties, these marriages are rock solid.
Other times, we see a marriage between an incumbent — with its very traditional (and often slow) ways of doing things — and an agile, flat structure, quick-thinking start-up fraught with difficulties after the honeymoon period.
Interestingly, the list above contains three of the recent casualties: Smartwealth, Click & Invest, and most recently, Moola. Here, the parents ran out of patience with their start-up child, wanting and expecting a return on their investment in double-quick time, and reacted by closing the business when the unrealistic ‘hockey stick’ revenue did not materialise.