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Losses mount as robo advisor Nutmeg continues to develop and the cost of regulation bites

 

Digital wealth manager – robo advisor – Nutmeg reported losses up nearly one third to £12.4m in 2017 blaming rising regulatory costs and continued investment in the business.

 

This figure is a 31.9% increase on the £9.4m loss the company posted in 2016 and shows that despite having been around for five years now the start-ups have some way to go to achieve profitability.

From a ‘turnover’s vanity’ perspective the company may take some comfort from revenues that increased from £2.56m in 2016 to £4.56m, but the robo advisor saw operating expenses rise by 42% to £16.9 million, from £11.9 million, over the period.

Counter intuitively, for a company in the vanguard of automated investing the firm’s wage bill grew from £5.3 million to £6.6 million as its average staff headcount increased from 71 to 88; however, this is almost certainly due to the company’s determination to further develop its product suite.

Nutmeg grew its customer numbers in 2017 exceeding 50,000 users, double the number it had in 2016, with clients aged from 18 – 96; the company says it acquired thousands of new Lifetime ISA (LISA) customers due to being one of the only providers to offer the product when it was introduced in April 2017.

The robo advisor also launched a range of model portfolios, to complement its previously offered fully managed service; it hopes to attract more ‘Do it With me’ business from clients that wish to have some say into where their investments should be.

The online wealth manager passed the £1 billion assets under management (AUM) mark in November, up from £600 million at the end of 2017.

The online wealth manager passed the £1 billion assets under management (AUM) mark in November

However, despite growing its client base and AUM, the cost of regulation was a major factor for Nutmeg in 2017 as it readied itself for both Mifid II, which came into effect in January this year, and GPDR in May.

The company said: ‘Despite an increase in competition, Nutmeg remains, by a significant distance, the largest European pure online digital wealth manager and one of the fastest growing wealth managers in the UK. Nutmeg continues to invest in the business and this investment is reflected in the trading loss reported.

‘2017 also brought additional regulatory requirements and the business needed to devote significant resource and further enhance its control framework and prepare for Mifid II regulation. The developments required for this regulation drew on resources from almost every area of the business throughout the second half of 2017’.

It added: ‘The breadth and complexity of accommodating these new rules was particularly burdensome for smaller wealth managers such as Nutmeg. Even so, Nutmeg successfully met this regulatory deadline.’

the company said it remains on track with its business plan and highlighted opportunities around ‘leveraging its financial advice licence

In a strategic update the company said it would invest in its IT systems to ensure they are robust while always looking to enhance client experience. The company said it remains on track with its business plan and highlighted opportunities around ‘leveraging its financial advice licence’.

Nutmeg added an Android app to the Apple iOS app it launched in January 2017, broadening the service’s appeal.

The portfolios that underpin its service established five-year track records, outperforming their ARC benchmarks.

Chief Executive Martin Stead also reported £25.4 million of net cash in the bank, saying: ‘Nutmeg has now fully established itself as a credible and high-performing alternative to traditional wealth managers who manage wealth for high-net-worth individuals.’

Nutmeg also partnered with challenger bank Fidor to provide an investment platform for its clients in July 2017; it is also looking at opportunities in Asia, with Hong Kong-listed Convoy Global having taken a 17.9% stake in the business for a £24 million stake in a 2016 £30 million fundraising.

 

 

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