BlackRock, the world’s largest asset manager has announced a £26.5m (€30m) investment to acquire a ‘significant minority stake’ in automated digital wealth manager – robo advisor – Scalable Capital.
Since its full launch in August 2016, Scalable Capital has been going great guns; having passed the £100m under management milestone as recently as January this year, it doubled that figure by April and was reportedly adding £1m per day – more
Scalable Capital now manages up to 6,000 risk-based bespoke portfolios of ETFs worth an average of £35,000; its relatively sophisticated platform, based upon ‘capital at risk’ now manages more than £217m of client assets
In January 2017, the company, which originally launched in Germany and is also present in Austria as well as the UK, began a collaboration with Siemens Private Finance which selected Scalable Capital as its partner to offer a wealth management solution to employees of Siemens in Germany, Europe’s largest industrial conglomerate.
Scalable Capital will do well if it is able to leverage BlackRock’s enviable rolodex of contacts
BlackRock has agreed to invest in return for an undisclosed share in order to help Scalable Capital extend its business beyond retail investors by offering white label solutions to companies and other financial institutions, such as banks.
Adam French, co-founder and CEO of Scalable Capital said ‘BlackRock’s backing will help to accelerate our business with financial institutions and corporates,’ it will also use the capital injection to expand into Italy, Holland and Switzerland.
Slowly but surely robo advice is making its way into the public lexicon, and aided by a supportive regulatory regime, is starting to fulfil the function the FCA hoped it would. Low cost, automated advice platforms can be attractive to those that found themselves in the ‘advice gap’ following RDR, denied access to, or unwilling to pay for financial advice.
With the intention of breaking the old order in the financial services sector, robo advisors and the emerging micro savings and investment apps, set about ‘democratising investment’ and in addition to tech savvy millennials, found favour with more mature, sophisticated investors looking to keep costs down; US bank Citigroup, estimates that the robo advice market globally could reach $5tn over the next decade.
Initially unsure whether to see the start-ups as competition or developers of technology to target as a quick fix, virtually all of the UK’s main high street banks have announced their intention to add automated investment management to their armoury; this represents banks re-entering the mass market advice space following a series of mis-selling scandals.
However, algorithms are being used to reach way beyond investment management into what is being dubbed a wider wealthtech arena with automation being introduced in protection products and also loans and mortgages; a, possibly deliberately loaded, question posed to a large asset manager at the Robo-investing Europe 2017 conference received an unusually candid response –
Q: are you getting into robo, because you fear the robo advisers will eat your lunch? A: yes
Whilst a number of the new wealthtech propositions aim to engage millennials by addressing all of their financial affairs – effectively becoming automated IFAs – some of the old guard such as Brewin Dolphin and Killick have launched robo products of their own, lest they get left out.
As is often seen in fledgling and fast moving industries, there has already been some horse trading as companies seek to position themselves in double quick time; BlackRock acquired US robo advisor, FutureAdvisor, in 2015, and then rolled out partnership agreements with the wealth management arm of Royal Bank of Canada and BBVA’s US bank Compass.
UK fund house, Schroders acquired a stake robo pioneer Nutmeg in 2014 while Aberdeen Asset Management bought Parmenion Capital Partners in 2015.
Lyxor, a division of Societe Generale , and Deutsche Asset Management have each signed robo advice partnerships with distributors in France and Germany.
Patrick Olson, BlackRock’s chief operating officer in Europe, said consumers were increasingly using technology to engage with their financial investments.
‘This is driving a growing demand among European financial institutions — banks, insurers, wealth managers and financial advice firms — for high-quality technology-enabled investment services,’ he said.
The relationship between BlackRock and Scalable Capital is a good fit as it issues many of the ETFs that are the building blocks of Scalable’s portfolios; it also has a large number of institutional relationships that it could leverage to extend Scalable Capital’s reach and ensure that it sees additional business flows.
BlackRock and two venture capital providers, Holtzbrinck and Tengelmann, put together what is one of the biggest investments in European fintech to date and it is a ringing endorsement for what the next generation digital investment managers have been aiming to achieve; a key obstacle to overcome by the start-ups is the cost of customer acquisition, and Scalable Capital will do well if it is able to leverage BlackRock’s enviable rolodex of contacts.