Investec has decided to close its direct to consumer robo-adviser, Click & Invest, after operating losses reached a total of £26m over two years, but experts argue the bank should have stuck it out.
In its annual results today, the firm said Click & Invest lost £12.8m in the year to the end of March 2019, having lost £13.5m in the same period the previous year.
In addition to this, the company has taken a £6m write-off on the capitalised value of the software operated by Click & Invest.
But, Simon Bussy, director at Altus, told Portfolio Adviser the bank should have persevered. “Developing a new direct to consumer investment brand from a standing start is hugely challenging. Client acquisition is difficult – and the costs associated typically run to many hundreds of pounds per investor.
The news comes after fellow bank UBS also closed its robo-adviser in August last year, less than 18 months after it launched.
Bussy added: “Sadly we now see Click & Invest go the same way as UBS Smartwealth; senior execs in the parent company need to have a longer term, more expansive vision, and be prepared to stick it out – two years is too short a time frame to measure success.”
No surprise
However, other commentators were far from shocked at the news, stating the bank does not a natural fit for the robo space.
Clive Waller, managing director at CWC Research, said there are many robo-advisers in the industry, but only a tiny portion will succeed.
“I suspect most of these will come from non-traditional providers – tech rather than financial,” he said. “I think it fair to say that Investec are not a low-cost provider, and, for me, they do not sit naturally in the robo space. There will be many more withdrawals from the market, but eventually, there will be a few staggering successes.”
Likewise, Bussy said it’s no surprise a number of the small band of disruptor ‘robos’ have either been acquired, or invested in, by a larger player with a brand, with “deeper pockets and an existing customer base”. He added these disruptor firms have “pivoted their business model and now use their consumer-facing proposition as the shop window”.
“The real game in town now is to either white label their proposition or provide their software to partners with larger customer bases.”
Sceptical of the current robo model
Bussy said that to be successful, the proposition has to start with a “customer need, or pain-point, not simply copy what everyone else is doing”.
He explained that while he is a passionate believer in digital advice, he remains sceptical of the current robo 1.0 model which he described as a “narrow, linear journey into a pre-baked portfolio based on answering a few questions”.
“While that may appeal to some, the model does not reach – or engage – a sufficient number of people,” he said. “Any business operating a similar model needs to think carefully about how it will evolve its proposition if it wishes to achieve sustainable success.”
However, Heather Hopkins, managing director at Nextwealth, remained more optimistic. She said: “It is incredibly difficult to make money from digital investing and it’s not just the big brands that struggle to bring digital investing to the masses – start-ups have struggled as well.
“The models that have succeeded have the combined power of brand and scale. Investec was trying to bring in a different customer set to the business. Contrast that to Vanguard in the US, which introduced a hybrid advice model to serve existing customers.
“I hope our industry won’t stop innovating – and failing. We need to recognise that not all disruption will be a success the first time around.”
Investec’s update also revealed adjusted operating profit decreased by 16.2% to £82.6m, down from £98.6m in 2018. It said assets under management were also down 1.7% to £55.1bn, as at 31 March 2019, primarily impacted by currency and market movements.
