Nutmeg has secured a £45m investment in the latest funding round led by Goldman Sachs and Convoy, but industry specialists are concerned about the transparency of the digital wealth manager’s costs.
The funding round was launched in a bid to extend its UK market leadership and expand into international markets in 2019.
But Clive Waller, managing director at CWC Research, said Nutmeg has always been “secretive” regarding its numbers. “It has built the biggest brand of UK pure robos, but at what cost?”
He added: “Client acquisition by advertising typically costs around £250-300 per client. However, as money eventually starts to leave, this effectively increases to over £1,000, according to Morningstar research. This means you need an awful lot of business and an awful lot of money to keep cash flowing in.”
US robo-adviser Betterment faces the same challenge, he added.
Vote of confidence or concerns?
Martin Stead, chief executive officer at Nutmeg (pictured), said the investment is “a vote of confidence” in the team and marks Nutmeg’s transition from start-up to scale-up.
He said: “We look forward to Goldman Sachs’ support and to exploring commercial collaboration opportunities that further accelerate our growth plans. This funding also enables us to expand internationally, with our plug-and-play B2B expansion model, which leverages both our technology and investment capabilities, developed in this highly respected FCA-regulated market.
“We plan to launch with existing partners Convoy in Hong Kong this year.”
Miranda Seath, research director at NextWealth argued the partnership could reduce client acquisition costs if Nutmeg is successful.
She said: “I think it’s really interesting that Martin Stead cites ‘exploring commercial collaboration opportunities that further accelerate our growth plans.’ Goldman Sachs’ Marcus savings account would be a clear opportunity for collaboration. It’s 1.5% interest rate and simple, easy to use proposition has attracted in a lot of savers in a short period of time.
“There is a clear opportunity to convert these savers into longer-term investors through a tie-up with Nutmeg. One of Nutmeg’s highest costs is customer acquisition so a strategic partnerships would be one way of lowering these costs if Nutmeg can succeed in cross-selling to Marcus customers.”
Waller added that Vanguard and Charles Schwab have attracted serious money in the US due to brand and resource.
“The nearest to a successful robo in UK is Hargreaves,” he said. “In the shorter term, hybrids with advice plus digital propositions are probably the way forward. My own belief is more and more will become automated. One-way travel.”
