From each according to his wallet, to each according to his need
14 February 2018
Disrupting the status quo of wealth management
The ASSET management sector has a reputation of getting by with legacy computer architecture which fails to respond to the changing nature of the modern investor.
FinTech is one of the UK's biggest success stories in recent years threatening to disrupt a whole host of financial sectors and drag them into the digital world and asset management is no exception.
According to PwC’s 2017 global fintech survey one of the sectors most likely to be affected by FinTech innovation over the next 5 years is Investment and Wealth Management.
Other findings in the survey showed that over 80% of financial institutions believe their business is at risk to innovators. This is forcing three-quarters of them to increase internal efforts to innovate.
They may also look externally as well with 82% expecting to increase FinTech partnerships in the next three to five years.
Nutmeg is one example of FinTech innovation in the asset management sector. It is an online investment management company – often referred to as a ‘robo-adviser’ – where investors can contact via telephone, email and live webchat. It prides itself with being low cost, quick to join, having little technical jargon on its site and allowing its customers to see an online view of their investments whenever they choose. They have previously described themselves as wanting to be the Amazon of finance.
Read more: Who controls the future of finance?
Shaun Port, chief investment officer at Nutmeg, says the group is leading the way in the digital wealth manager market. “We were the first provider to enter the market in 2012 and our customers range from those with £10,000 to invest to £10million,” he says. “Compared to traditional wealth managers, we have fully embraced technology and digitising our service as much as possible. We use exchange-traded funds as the main route to delivering returns for our 48,000 customers. The average age of a Nutmeg customer is 39, but we naturally have customers who are older as well as younger.”
“80% of financial institutions believe their business is at risk to innovators.”
Nutmeg says it has created a range of risk-profiled portfolios matched to a customer’s investment goals. “We have built our own proprietary systems to be able to hold any fund we want, but we made a very deliberate decision back to focus on ETFs,” Port comments. “This ensures we get the best possible deal for our customers and maximises the efficiency of our operations. Unlike the US, that is still quite rare in Europe even though the European ETF industry has grown assets by 115% since then.”
He sees Nutmeg as a major FinTech disruptor to the asset management sector. “The wealth management industry has effectively said if you haven’t got £500,000 to invest you can’t have anyone helping you manage your investment and financial goals. That is completely wrong – we’ve already proved that,” he states. “We believe that online wealth management is truly the future. Just as we have seen exciting and customer-focused technology revolutionise other sectors, financial services and investment is ready for this same transformation. The investment industry is unprepared for the big changes that will happen as artificial intelligence becomes embedded in every business process, enabling technology-led firms to serve customers better and at a lower cost.”
Port says he expected to see more competitors emerge in the online space after its arrival. That failure to materialise may again be an indicator of the struggles traditional firms are finding joining the digital age.
“More providers in the market means there is more choice for consumers, but no two online wealth managers are the same,” he states. “We’re seeing some banks and traditional wealth managers launching digital services, but as a digital-first business, we’re purpose built for the change we’re leading in the industry.”
Alex Barry, head of UK sales at Legg Mason adds: “Like any other industry technology is a disruptor in the asset management sector. We have to evolve in the ways that investors can engage with advice.”