UK's biggest robo-advisor Nutmeg sees losses widen

BI Intelligence

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Nutmeg, the UK's biggest automated investment fintech in terms of assets under management (AUM), released results for 2016 that showed a mixed picture for the company.

The good news is that Nutmeg saw turnover grow by an impressive 53% from £1.7 million ($2.3 million) in 2015 to £2.6 million ($3.5 million) in 2016. Additionally, the fintech hit some £600 million ($798 million) in AUM and 25,000 customers by the end of December 2016, meaning it is still the leader in the UK's automated investment market.

However, there were also some sobering developments. Nutmeg's pretax losses widened nearly 5% from £8.9 million ($11.8 million) last year to £9.3 million ($12.4 million) in 2016, as operating expenses increased 10% from £10.8 million ($14 million) to £11.9 million ($16 million), which Nutmeg put down to heavy and increasing investment in its UK business. Moreover, despite raising £24 million ($32 million) from Hong Kong-based Convoy and £12 million ($16 million) from Taipei Fubon Bank during 2016, Nutmeg expects it will need to raise more money to further grow its user numbers and AUM.

These results illustrate that scale is still an issue for European automated investment fintechs. In continental Europe and the UK, where amateur investment is far less widespread than in the US, automated investment fintechs have increasingly been tweaking their business models to amass enough AUM to become sustainable. Some smaller players have chosen to pivot to a business-to-business (B2B) model, while bigger players with more well-known brands have begun partnering with overseas fintechs to gain access to their user bases, as Nutmeg did via its partnership with German neobank Fidor. Raising additional funding may solve Nutmeg’s problems in the short term, but if it wants to achieve long-term sustainability, it will have build up scale. As such, it may want to consider putting its capital toward building more such partnerships.

Startups with robo-advisor products are failing to live up to their initial promise.

As solutions proliferate and consumer adoption remains slower than expected, many firms are re-examining and updating their strategies to survive. 

Sarah Kocianski, senior research analyst for BI Intelligence, Business Insider's premium research service, has put together a detailed report on the evolution of robo-advising that scopes the current market for robo-advisors, providing an updated forecast through 2022. In addition, it explains the different types of robo-advisors emerging, details how startups and incumbents are working to ensure the success of their products, and outlines what will happen to the market over the next 12 months.

Here are some of the key takeaways from the report:

• BI Intelligence forecasts that robo-advisors — investment products that include any element of automation — will manage around $1 trillion by 2020, and around $4.6 trillion by 2022. 
• Startups offering robo-advisors are struggling to acquire AUM due to overcrowding in the global robo-advisory market and lower than expected customer uptake. 
• Incumbents are rolling out their own robo-advisor products, a trend we expect to pick up in the period to 2022. 
• North America remains the leading robo-advisory market, but we expect Asia to catch up and outpace the region in terms of AUM managed by robo-advisors in the period to 2022. 
• There will be a winnowing of the startup robo-advisory market as only a few firms remain stand-alone, while incumbents looking to launch their own products will profit from purchasing the technology of startups that have fallen by the wayside, at low cost. 

 In full, the report:

• Provides a forecast for the volume of assets robo-advisors will manage by 2022.
• Outlines the current robo-advisory landscape.
• Explains how startups with robo-advisor products are evolving their business strategies. 
• Provides an outlook for the future of the robo-advising industry. 

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