InvestmentsJan 31 2022

Industry anticipates Monzo's entry into wealth market

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Industry anticipates Monzo's entry into wealth market
REUTERS/Dado Ruvic/Illustration/File Photo

The challenger bank, which has grown to around 5mn retail customers over more than 10 years, last week put a job advert out for a general manager of investments.

This said: “We are looking for a leader to build and run the most exciting new business at Monzo - investments and wealth.” The £3.3bn-valued digital bank intends to “redefine” the way people interact with investing and wealth. 

Monzo told FTAdviser it had nothing to add at present but industry commentators are speculating on what such a market entry might look like. 

At the end of last year, Monzo bagged a $100mn funding top-up from Chinese tech group Tencent, adding to a $500mn round led by the Abu Dhabi Growth Fund.

The bank was "going into next year with big ambitions", it said at the time. 

These new digital wealth propositions have a far more coherent and compelling message. Underestimate them at your peril.Simon Bussy, director at Behaviour Consulting

Heather Hopkins, managing director at NextWealth, first spotted the job advert, publishing a screenshot of it in a LinkedIn post last Monday (January 24).

She told FTAdviser “there is much” retail wealth management firms can learn from Monzo's “slick digital-first [client] journey. 

“[The] more innovative models that exist and a good dose of healthy competition will lead to [a] better experience for customers and better engagement in the long run with finances,” she explained.

“Financial advisers are held back by a lack of technological innovation from providers -  particularly legacy pension providers. 

“But many advisers can do more to introduce slick client onboarding journeys. We can't blame everything on providers.”

Hopkins concluded Monzo's entrance into investing, along with Revolut and others, was “good news”.

Integrate or build?

Revolut already offers investors a stock trading account, which also includes the ability to trade in gold and cryptocurrency, whilst Monzo’s other UK rival, Starling Bank, has taken a marketplace approach.

Starling’s ‘Personal Finance Marketplace’ includes links and app integrations to providers such as wealth management app Wealthify, and pension consolidation platform Pension Bee.

Mike Barrett, consulting director at the Lang Cat, said Monzo might opt for such an approach. 

“The latter is relatively simple to deploy, but I would expect it doesn’t do much for them commercially,” he said.

“The former would require more development, and could in theory create a new revenue stream for [the] platform and/or investment management fees.”

But Barrett added: “I would question how Monzo could differentiate this to attract customers away from the large established players such as Vanguard, AJ Bell, and Hargreaves Lansdown.”

According to a Sunday Times report back in April 2019, Monzo said it was in talks with fund giants such as BlackRock, Fidelity and Vanguard about offering cheap investment accounts in a plan dubbed “Hargreaves Lansdown for millennials”.

The report said the bank’s plans later that year were to allow customers to buy low-cost funds, rather than picking individual stocks. No such product ever materialised.

Seemingly put on hold, it was just months later that the pandemic hit. Monzo spent the next two years trying to maintain its market value after it dipped by 40 per cent in May 2020.

The appointment of a new CEO in 2019 saw the digital bank focus on the US market for a time, but it later withdrew its US digital banking licence in October 2021.

Now, with fresh investments under its belt, the bank seems to be re-focusing efforts on expanding its domestic market.

Starting with 5mn customers

Unlike other new entrants to the wealth management space, Monzo already has 5mn customers. This has prompted some to warn the industry not to underestimate what the digital bank could achieve with such an established base.

“With existing customer bases running into the millions, underpinned with a more recognised and trusted digital brand and deeper pockets, these new digital wealth propositions have a far more coherent and compelling message,” said Simon Bussy, director at Behaviour Consulting. “Under-estimate them at your peril.”

He continued: “While many traditional providers and commentators laughed off the threat of the original D2C [direct-to-consumer] ‘robos’, some will now recognise that the digital sector [is] evolving into something far more attractive and sustainable.”

The non-advised fintech platforms and advised worlds are getting closer.Alan Smith, CEO of Capital Asset Management

For Monzo to be successful, Bussy said it will need to capitalise on how it understands customer thinking, their trigger points to act and make decisions. “How many traditional organisations take this approach or even understand it?” he questioned.

“It will be fascinating to see how some of the more traditional wealth managers, advisers, banks and life companies react, and witness their strategies and propositions to engage the younger generations, those they’ve historically ignored,” Bussy continued.

“Will they continue to ignore? Will they simply try to copy the digital solution, but fail because they don’t truly understand their customers? Or will they succeed by injecting behavioural insight and take their business to the next level?”

A gap left open

Despite the first era of robo-advice which landed back in 2015, the financial advice gap continued to widen

Research published by OpenMoney late last year calculated 6mn people (up from 5.3mn in 2020) wanted advice but thought it cost too much.

Whilst the adviser industry has acknowledged the gap, stumbling blocks such as fear, misconception, concerns about charges, a lack of understanding of what advisers do and an unwillingness even to take free guidance still sit in the way.

Many have also blamed the current financial advice market’s fee structure, which makes it hard for advice firms to justify smaller asset clients due to the small returns they generate.

Though some in the industry are hopeful technology can change this. Alan Smith, CEO of boutique chartered financial planning firm Capital Asset Management, termed this the “Covid dividend”.

“Most advisers have moved to an online or Zoom-based advisory base, which means the cost of dealing with customers has gone down,” Smith explained.

“The threshold [of wealth] on which we can offer advice is lowering. So we’re starting to see digital advice supported by technology.”

In Smith’s opinion, this has shown advisers need to change the shape of the advice process. “No-one wants to schlep on into an adviser’s office and sip a bad cup of coffee anymore,” he said. “The non-advised fintech platforms and advised worlds are getting closer.”

ruby.hinchliffe@ft.com