The co-founder and CEO of digital wealth manager Scalable Capital, Simon Miller, shares his vision on the future of wealth management with PBI editor Ronan McCaughey – forecasting a shift towards digitalisation and less face-to-face interaction.
Launched in Germany in February 2016 and in the UK in July 2016, Scalable Capital says its mission is to provide a wide group of investors with access to an investment service, which was previously reserved for the very wealthy.
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By GlobalDataDefining its services in 3 sentences, the digital wealth manager says it:
- Provides a personalised, globally-diversified portfolio designed to create long-term wealth
- Selects the best and most cost-efficient Exchange Traded Funds (ETFs).
- Monitors and manages investors’ portfolios continuously with its proprietary risk management technology
Until recently, Blackrock-backed Scalable Capital could help individuals with any questions about its service, whether via e-mail or over the phone, but it was unable to give financial advice. BlackRock made a strategic investment in Scalable Capital in 2017, which brought the company’s total funding to €41m.
However, this recently changed when Scalable Capital announced in January 2018 that it now provides advice from its financial advisers for a fixed fee of £200 ($276).
The enhanced service entails providing both existing and new clients a “comprehensive financial assessment of their situation,” conducted by one of its financial advisers.
Clients can arrange an initial meeting levied at no cost with the adviser. After the initial free consultation that determines whether or not the service is suited to the specific needs of the investor, clients can book a session with an adviser for a fixed sum of £200.
Financial advice offering
Explaining why Scalable Capital is now offering financial advice, Miller says: “There are two sides to this: first and foremost it is about softening our online investment management proposition.
“Especially in the UK, we know that many people use advisers and are accustomed to face-to-face advice. We place great value in using automation within as many parts of the investment process as possible, however, we have always had a support team offering phone and email assistance, and people can even come into the office and see us if they want to.”
By offering financial advice, this lowers the barriers by giving new clients comfort that if they want it, they can get advice, explains Miller.
He says the other reason to offer financial advice is the demand from existing clients.
“We do attract some HNW clients and often their questions are ‘I’ve got other investments elsewhere. Should I move to Scalable Capital?’ And for that you have to offer advice.”
Speaking to Private Banker International in Scalable Capital’s London office, Miller is asked how concerned private banks should be about online wealth management start-ups.
Above: Simon Miller, co-founder and CEO of digital wealth manager Scalable Capital
Lowering barriers
Miller says: “I do think there will be a move towards more digital services and less face-to-face interaction. This contradicts slightly what I said at the start about lowering barriers. But that’s all it is, lowering barriers.
“Once clients realise what a digital investment service really means, they realise they get more contact time. They receive a daily live update on all their transactions and all their portfolio analytics.
“You do not get that with your face-to-face adviser, who you may see once every three months.”
According to Miller, Scalable Capital has clients “who actively want to avoid speaking to people” because they want to be able to do it “on the move and on their own time”, and he believes that is a trend.
“When it comes to the onboarding of clients, some people still like the human touch, but more and more as people become comfortable, I think there will be a move towards pure digitalisation,” says Miller.
Target audience
Miller says Scalable Capital has been quite specific about its target audience. He says: “We are targeting smart professionals and people who are too busy to want to monitor their own DIY portfolio.
“Typically, they will have had some investment experience before. Our typical client has an average age of 45 and an average investment of £40,000.
“Many of our clients have used advisers before and don’t like the fees and don’t like the lack of a consistent and transparent service.”
In terms of the total fee for a typical investor with £40,000 at Scalable Capital, Miller says end-to end, the overall fee is 1%.
He says: “That’s 0.75%, for our fixed fee, which includes custody and trading commission, administration and account management.
“The other fee, which averages 0.25% is the ETF fees. This includes the transaction costs and implicit costs of trading the ETFs.”
Within each client portfolio, Miller explains that Scalable Capital uses broadly diversified exchange traded funds, giving every client access to around 8,000 underlying securities, through just 14 different ETFs.
Fees
He comments: “With a typical wealth manager, the comparable fee can vary greatly. I’ve seen fees range from 1.5%-3%, depending on custody, investment and advice.
“Anywhere between £10,000, which is our minimum investment and up to £1m, you will not be able to get a lower fee for the service we are offering.”
Through its successful partnership with Germany’s third-largest retail bank, ING-DiBa, Scalable Capital’s website says it attracts hundreds of new clients each week.
Scalable Capital also partnered with BlackRock in the UK and Siemens Private Finance in Germany to promote its wealth management service to the companies’ respective employees. The digital wealth manager currently employs a team of over 70.
With assets of over £600m, Scalable Capital has more than 20,000 clients and serves investors in the UK, Germany, Austria and most recently, Switzerland.
Scalable Capital Limited is regulated by the Financial Conduct Authority (FCA) in the United Kingdom, while Scalable Capital Vermögensverwaltung GmbH is regulated by the Bundesanstalt für Finanzdienstleistungsaufsicht (BaFin) in Germany.
