The European robo-advisory space continues to evolve, with several participants predicting the breadth of offering will grow from the relatively limited range of products on offer now. Paul Golden explains
Euro robo-advisers are undoubtedly gaining traction. This is despite the relative strength of various robo-advisers operating in Europe, their varying levels of maturity and willingness to disclose customer numbers and assets under management.
According to MyPrivateBanking Research, by the end of 2020 more than $4trn will be managed by robo-advisers and automated investment platforms worldwide.
More than 40% of the wealth managers surveyed for the Forbes report AI and the Modern Wealth Manager described robo-advisers as essential and the best way to manage a portfolio (almost twice the figure for 2016).
A further 47% said they were useful in conjunction with human involvement in the investment process.
At the end of 2017, Nutmeg had over 50,000 customers (double the figure for the same period in 2016) and had grown its AuM by 93% over the previous 12 months to more than £1bn observes CEO, Martin Stead.
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By GlobalData“Our customers span all life stages with varying degrees of investment experience and wealth,” he says. “We are serving high net worth clients as well as first time investors who make up around 40% of our customer base. The average customer age is 41 and just under two thirds are male.”
Richard Theo, co-founder and CEO of Wealthify, notes that it has gathered more than 30,000 registered users since May 2104, although he was unwilling to disclose its AuM. The typical user is around 40, male, has an ISA (individual savings account) and earns around £45,000.
Euro robo advisers
Earlier this year Moneyfarm announced that its AuM had reached £400m from more than 27,000 active investors, making it one of the few digital wealth managers in Europe to be successfully operating at scale in more than one country according to co-founder and CEO, Giovanni Dapra.
“There is a common misconception that digital investments are only being adopted by millennial investors, but we are noticing an increase in the age of our customers,” he adds.
Scalable Capital, which was highly rated by MyPrivateBanking Research for client coaching, retention and engagement, breached €1bn in AuM in May from its more than 30,000 customers, up from €500m in November 2017.
Two thirds of its customers are between 35 and 55 and the average investment is between £25,000 and £35,000, explains UK co-founder & CEO, Simon Miller.
“The age profile has risen only slightly over time. Clients who have been with us for two years have much larger pots due to mostly recurring payments and also ad hoc top-ups once they are comfortable with the service.”
In September 2017, BNP Paribas Asset Management announced that it had acquired a majority stake in robo-adviser Gambit Financial Solutions, which has been marketing its services to financial institutions since 2010.
“We have around 20 institutional clients that use our platform,” says Geoffroy de Schrevel, CEO Gambit Financial Solutions. “With several projects being in the implementation phase, we currently have several million customers served by our platform accounting for AuM of more than €100bn and for both our institutional client business and our own B2C robo we have been doubling our user base every six months.”
The customer base of the platform – and its clients – spans all age groups with a slight bias towards customers aged 25-35, adds de Schrevel. “The private banks we work with tend to focus on the lower segment of their clientele, but some are already considering offering a robo-advisory service to their leading clients for part of their holdings.”
ABN Amro – Prospery
ABN Amro moved into the robo-advisory space at the end of last year with its Prospery platform. CEO
Dirk-Jan Schuiten observes that the typical customer is aged 40-55 with investable assets of between €200,000 and €2m and some investing experience.
A European Commission report on distribution systems of retail investment products across the EU published earlier this year noted that the spectrum of products recommended by robo-advisers is usually limited to ETFs.
However, Theo expects the range of products offered via robo-advisory platforms to grow significantly over the next few years – and not just for investments.
“As brand loyalty grows, there is no reason why robo-services cannot apply their user experience to deliver a range of digital services, provided they continue to add tangible value to the design and delivery of the end product,” he says.
The online investment market is fiercely competitive, so there is a need for online investment platforms to be constantly innovating and bringing out new products according to Dapra.
“We recently increased our suite of investment products by launching a personal pension that helps put people in control of their retirement savings,” he says.
Investment advice
“We also launched an investment advice centre that helps streamline the process of getting advice for as long as someone invests with us. Customers are prompted to update key information that ensures our algorithm runs to best meet their financial objectives.”
Multiple products are already available (such as SIPP or self-invested personal pension, ISA and GIA or general investment account) but further product development will come in the form of junior accounts and couple accounts as well as in terms of financial planning, digital advice and account aggregation, suggests Miller. “We are still in the relative infancy of what robo-advisory is capable of,” he says.
Schuiten acknowledges that most robo-advisors currently only offer digital portfolio management.
“We have already taken the next step by introducing a wealth oversight tool as well as financial planning with the help of human experts,” he says.
“I believe the services offered in the future will broaden out significantly with some platforms evolving to become a market place for financial services from varying providers.”
de Schrevel says Gambit Financial Solutions plans to offer more products and services through its robo-advisory platform. “As soon as you accept that you have users rather than clients on your robo, the ecosystem that you can integrate is very large,” he adds.
In light of the number of banks and wealth managers partnering or acquiring robo-advisory firms, Schuiten expects this trend to continue rather than banks creating their own solutions.
“We expect consolidation to take place in the industry,” he says. “The main challenge for many fintechs is getting access to a distribution channel. On the other hand banks – which have access to large distribution channels – in many cases do not have adequate solutions in place.
“Creating their own solutions is generally not straightforward as many are dealing with legacy IT systems and/or policies that do not necessarily fit with serving customers in a fully digital manner.”
“As well as start-ups, we are also seeing some of the big, traditional players look at how they can adapt their existing model or bolt-on an online capability,” adds Stead. “Some will develop their own proposition, while others may look to acquire a smaller provider. We believe there is a role for independent online wealth managers.”
Theo suggests there are clear benefits for banks acquiring existing robo-advisory firms in terms of:
- Quicker route to market
- Potentially much cheaper than the R&D costs of developing their own service
- Developing the product and user experience independently of the bank’s traditional customer base
- Avoidance of issues with having to build the product around existing legacy systems, technology and processes
“Our own experience supports this view,” he adds. “Aviva’s strategy is to invest in businesses that can help deliver a range of digital services via its customer portal. It took less than 12 months from us initiating talks with Aviva to Wealthify appearing on the portal – by comparison, developing a robo proposition from scratch (including getting the required FCA approval) would take a minimum of two years.”
We can expect major financial institutions to continue going down both avenues as they look to benefit from the growing online investment market and see an opportunity to tap into a rich pool of retail investors that they may not previously have been able to reach, says Dapra.
“There have been a few banks that have set up their own digital investment advice propositions, but they are entering an agile marketplace that has been growing for almost a decade,” he continues.
“Partnering, acquiring or investing in platforms that have been constantly honing their advice offering and have an established customer base remains an attractive option.”
Banks and wealth managers that want to be fast and nimble, to integrate rapid innovation and to react with agility to customers’ changing expectations favour the partnership or acquisition path, concludes de Schrevel.
“One of their challenges is to partner with a robo-advisory firm that has proven agile technology, is genuinely client-centric and has the cultural eagerness to stay at the leading
